Polonia Bancorp Inc - FORM 10-Q

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EX-31.2 - EXHIBIT 31.2 - Polonia Bancorp Inc	v423800_ex31-2.htm
EX-32.0 - EXHIBIT 32.0 - Polonia Bancorp Inc	v423800_ex32-0.htm
EX-31.1 - EXHIBIT 31.1 - Polonia Bancorp Inc	v423800_ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2015

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

For the transition period from __________ to __________

Commission file number: 0-54850

POLONIA BANCORP, INC.

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

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

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

(Address of principal executive offices) (Zip Code)

	215) 938-8800
	(Registrant’s telephone number, including area code)

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

Yes x No ¨

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

Yes x No ¨

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

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

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

Yes ¨ No x

As of November 16, 2015, there were 3,349,710 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 September 30, 2015 and December 31, 2014 (Unaudited)	3

	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2015 and 2014 (Unaudited)	4

	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2015 and 2014 (Unaudited)	5

	Consolidated Statement of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2015 (Unaudited)	6

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014 (Unaudited)	7

	Notes to The Unaudited Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	41

Item 4.	Controls and Procedures	42

Part II.	Other Information

Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	42

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42

Item 3.	Defaults Upon Senior Securities	42

Item 4.	Mine Safety Disclosures	42

Item 5.	Other Information	42

Item 6.	Exhibits	43

	Signatures	44

PART 1.

FINANCIAL INFORMATION

Item 1.

Financial Statements

POLONIA BANCORP, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	September 30,			December 31,
	2015			2014
ASSETS
Cash and due from banks	$	2,446,343		$	1,624,482
Interest-bearing deposits with other institutions		40,746,338			10,549,748
Cash and cash equivalents		43,192,681			12,174,230

Investment securities available for sale		45,591,268			11,711,533
Investment securities held to maturity (fair value of $46,193,447)		-			44,741,534
Loans held for sale		3,094,540			4,221,438
Loans receivable		166,458,638			199,094,306
Covered loans		13,313,334			14,457,364
Total loans		179,771,972			213,551,670
Less: allowance for loan losses		1,360,930			1,415,983
Net loans		178,411,042			212,135,687
Accrued interest receivable		672,362			788,684
Federal Home Loan Bank stock		3,668,000			3,843,500
Premises and equipment, net		4,055,998			4,257,726
Bank-owned life insurance		4,261,366			4,268,181
FDIC indemnification asset		698,538			1,417,355
Other assets		3,066,180			8,197,043
TOTAL ASSETS	$	286,711,975		$	307,756,911

LIABILITIES
Deposits	$	185,796,935		$	199,553,997
FHLB advances – long term		56,000,000			59,000,000
Advances by borrowers for taxes and insurance		544,038			1,208,824
Accrued interest payable		174,781			143,798
Other liabilities		4,244,381			9,027,309
TOTAL LIABILITIES		246,760,135			268,933,928

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; 3,335,837 and 3,334,130 shares issued)		33,358			33,341
Additional paid-in-capital		25,421,144			25,219,224
Retained earnings		15,203,064			14,870,920
Unallocated shares held by Employee Stock Ownership Plan “ESOP” (167,067 and 181,415 shares)		(1,395,782	)		(1,517,302	)
Accumulated other comprehensive income		690,056			216,800
TOTAL STOCKHOLDERS’ EQUITY		39,951,840			38,822,983
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	286,711,975		$	307,756,911

See accompanying notes to the unaudited consolidated financial statements.

POLONIA BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	Three Months					Nine Months
	Ended September 30,					Ended September 30,
	2015			2014		2015			2014
INTEREST AND DIVIDEND INCOME
Loans receivable	$	2,196,624		$	2,409,186	$	6,582,498		$	7,098,855
Investment securities		299,748			394,850		1,001,335			1,264,225
Other interest and dividend income		54,720			38,558		255,862			134,533
Total interest and dividend income		2,551,092			2,842,594		7,839,695			8,497,613

INTEREST EXPENSE
Deposits		421,284			428,338		1,276,493			1,272,699
FHLB advances – long term		362,574			376,067		1,098,045			1,115,938
Advances by borrowers for taxes and insurance		859			731		2,550			2,592
Total interest expense		784,717			805,136		2,377,088			2,391,229

NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES		1,766,375			2,037,458		5,462,607			6,106,384
Provision for loan losses		-			50,000		73,150			99,158

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		1,766,375			1,987,458		5,389,457			6,007,226

NONINTEREST INCOME
Service fees on deposit accounts		26,630			24,508		80,001			88,142
Earnings on bank-owned life insurance		(2,580	)		1,180		(6,815	)		4,988
Investment securities gains, net		560,367			-		560,367			-
Gain on sale of loans, net		998,281			1,457,966		2,687,925			3,067,882
Rental income		67,383			65,775		197,927			205,456
Other		62,320			8,608		473,537			55,445
Total noninterest income		1,712,401			1,558,037		3,992,942			3,421,913

NONINTEREST EXPENSE
Compensation and employee benefits		1,600,442			2,112,169		4,586,672			5,547,628
Occupancy and equipment		349,619			352,525		993,365			1,109,026
Federal deposit insurance premiums		132,842			80,322		412,402			251,038
Data processing expense		108,711			105,458		306,778			327,075
Professional fees		201,885			173,136		577,541			443,260
Other		573,043			538,841		1,937,768			1,634,946
Total noninterest expense		2,966,542			3,362,451		8,814,526			9,312,973

Income before income tax expense		512,234			183,044		567,873			116,166
Income tax expense		206,837			80,858		235,729			68,120

NET INCOME	$	305,397		$	102,186	$	332,144		$	48,046

EARNINGS PER SHARE - Basic	$	0.10		$	0.03	$	0.11		$	0.02
EARNINGS PER SHARE - Diluted	$	0.10		$	0.03	$	0.10		$	0.01

See accompanying notes to the unaudited consolidated financial statements.

POLONIA BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014

Net income	$	305,397		$	102,186		$	332,144		$	48,046

Changes in net unrealized gain (loss) on investment securities available for sale		1,318,264			(31,126	)		1,277,422			(27,980	)

Tax effect		(448,210	)		10,583			(434,324	)		9,513

Reclassification adjustment for gains on sale of investment securities included in net income		(560,367	)		-			(560,367	)		-

Tax effect		190,525			-			190,525			-

Total other comprehensive income (loss)		500,212			(20,543	)		473,256			(18,467	)

Total comprehensive income	$	805,609		$	81,643		$	805,400		$	29,579

See accompanying notes to the unaudited consolidated financial statements.

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

	Common Stock				Additional Paid-In-		Retained		Unallocated Shared Held			Accumulated Other Comprehensive
	Shares		Amount		Capital		Earnings		by ESOP			Income		Total
Balance, December 31, 2014		3,334,130	$	33,341	$	25,219,224	$	14,870,920	$	(1,517,302	)	$	216,800	$	38,822,983

Net income								332,144							332,144
Other comprehensive income, net													473,256		473,256
Stock options compensation expense						63,827									63,827
Allocation of unearned ESOP shares						53,178				121,520					174,698
Allocation of unearned RSP shares						67,435									67,435
Exercise of Option shares		1,707		17		17,480									17,497

Balance, September 30, 2015		3,335,837	$	33,358	$	25,421,144	$	15,203,064	$	(1,395,782	)	$	690,056	$	39,951,840

See accompanying notes to the unaudited consolidated financial statements.

POLONIA BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Nine Months Ended September 30,
	2015			2014
OPERATING ACTIVITIES
Net income	$	332,144		$	48,046
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		73,150			99,158
Depreciation, amortization, and accretion		818,944			904,746
Investment securities, gains		(560,367	)		-
Proceeds from sale of loans held for sale		51,880,887			61,311,455
Net gain on sale of loans held for sale		(2,445,559	)		(3,067,882	)
Origination of loans held for sale		(48,308,430	)		(57,156,870	)
Net gain on sale of loans held for investment		(242,366	)		-
Gain (loss) on the sale of other real estate owned		(72,469	)		96,626
Earnings on bank-owned life insurance		6,815			(4,988	)
Deferred federal income taxes		(929,980	)		(180,454	)
Increase (decrease) in accrued interest receivable		116,322			(11,964	)
Increase in accrued interest payable		30,983			37,680
Compensation expense for stock options, ESOP and restricted stock		305,960			275,759
Other, net		779,089			119,833
Net cash provided by operating activities		1,785,123			2,471,145

INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from principal repayments and maturities		3,609,768			3,318,091
Purchases		(4,700,000	)		-
Proceeds from sales		8,616,069			-
Investment securities held to maturity:
Proceeds from principal repayments and maturities		4,569,283			5,985,774
Purchases		-			(1,383,038	)
Proceeds from sale of loans		26,366,649			-
Decrease (increase) in loans receivable, net		6,396,095			(11,438,035	)
Decrease in covered loans		1,195,825			1,012,013
Purchases of Federal Home Loan Bank stock		(65,900	)		(471,700	)
Redemptions of Federal Home Loan Bank stock		241,400			27,900
Proceeds from the sale of other real estate owned		349,637			470,276
Payments received from FDIC under loss share agreement		122,270			169,171
Purchase of premises and equipment		(63,417	)		(100,229	)
Net cash provided by (used for) investing activities		46,637,679			(2,409,777	)

FINANCING ACTIVITIES
Decrease in deposits, net		(13,757,062	)		(5,640,424	)
Repayments on FHLB advances long-term		(3,000,000	)		-
Decrease in advances by borrowers for taxes and insurance, net		(664,786	)		(662,671	)
Exercised options		17,497			-
Repurchase of stock		-			(1,790,526	)
Net cash used for financing activities		(17,404,351	)		(8,093,621	)
Increase (decrease) in cash and cash equivalents		31,018,451			(8,032,253	)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		12,174,230			15,764,320
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	43,192,681		$	7,732,067

SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid:
Interest	$	2,346,105		$	2,353,549
Income taxes		455,000			500,000
Noncash items:
Loans transferred to other real estate owned		-			525,422
Transfer from premises and equipment to other real estate owned		-			213,805
Transfer of investment securities held to maturity to available for sale		40,103,961			-

See accompanying notes to the unaudited consolidated financial statements.

POLONIA BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies

Basis of Presentation

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

The Bank was incorporated under federal 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, 2014, 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.

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 nine month period ended September 30, 2015 are not necessarily indicative of the results that may be expected for the full year. The December 31, 2014 Consolidated 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, 2014.

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 GAAP and to general practice within the banking industry. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the Consolidated Balance Sheet date and reported amounts of revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant changes in the near term relate to the determination of the allowance for loan losses, the valuation of deferred tax assets, and the fair value of financial instruments.

Recent Accounting and Regulatory Pronouncements

In 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 February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810). The amendments in this Update affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments (1) Modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities; (2) Eliminate the presumption that a general partner should consolidate a limited partnership; (3) Affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; (4) Provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The amendments in this Update are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, and for interim periods within fiscal years beginning after December 15, 2017. This Update is not expected to have a significant impact on the Company’s financial statements.

In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30), as part of its initiative to reduce complexity in accounting standards. To simplify presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position and results of operations.

In May 2015, the FASB issued ASU 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). The Update applies to reporting entities that elect to measure the fair value of an investment using the net asset value per share (or its equivalent) practical expedient. Under the amendments in this Update, investments for which fair value is measured at net asset value per share (or its equivalent) using the practical expedient should not be categorized in the fair value hierarchy. Removing those investments from the fair value hierarchy not only eliminates the diversity in practice resulting from the way in which investments measured at net asset value per share (or its equivalent) with future redemption dates are classified, but also ensures that all investments categorized in the fair value hierarchy are classified using a consistent approach. Investments that calculate net asset value per share (or its equivalent), but for which the practical expedient is not applied will continue to be included in the fair value hierarchy. A reporting entity should continue to disclose information on investments for which fair value is measured at net asset value (or its equivalent) as a practical expedient to help users understand the nature and risks of the investments and whether the investments, if sold, are probable of being sold at amounts different from net asset value. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. A reporting entity should apply the amendments retrospectively to all periods presented. The retrospective approach requires that an investment for which fair value is measured using the net asset value per share practical expedient be removed from the fair value hierarchy in all periods presented in an entity's financial statements. Earlier application is permitted. This Update is not expected to have a significant impact on the Company’s financial statements.

In May 2015, the FASB issued ASU 2015-08, Business Combinations - Pushdown Accounting - Amendment to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115. This ASU was issued to amend various SEC paragraphs pursuant to the issuance of Staff Accounting Bulletin No. 115. This Update is not expected to have a significant impact on the Company’s financial statements.

In June 2015, the FASB issued ASU 2015-10, Technical Corrections and Improvements. The amendments in this Update represent changes to clarify the Codification, correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. Transition guidance varies based on the amendments in this Update. The amendments in this Update that require transition guidance are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. All other amendments will be effective upon the issuance of this Update. This Update is not expected to have a significant impact on the Company’s financial statements.

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606). The amendments in this Update defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company is evaluating the effect of adopting this new accounting Update.

In August 2015, the FASB issued ASU 2015-15, Interest – Imputation of Interest (Subtopic 835-30): Presentation And Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting. This Update adds SEC paragraphs pursuant to the SEC Staff Announcement at the June 18, 2015 Emerging Issues Task Force meeting about the presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805). The amendments in this Update require that an acquirer recognizes adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this Update require that the acquirer record, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this Update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

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.

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 (Loss) 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						Nine Months Ended
	September 30,						September 30,
	2015			2014			2015			2014
Net income:	$	305,397		$	102,186		$	332,144		$	48,046

Weighted average number of shares issued		3,335,012			3,375,116			3,334,427			3,432,261
Less weighted average number of unearned ESOP shares		(168,730	)		(187,858	)		(173,466	)		(192,594	)
Less weighted average number of nonvested restricted stock awards		(19,473	)		(52,293	)		(27,774	)		(55,335	)
Weighted average shares outstanding basic		3,146,809			3,134,965			3,133,187			3,184,332
Dilutive effect of nonvested stock		-			-			-			-
Dilutive effect of stock options		52,642			32,446			52,349			28,262
Weighted average shares outstanding diluted		3,199,451			3,167,411			3,185,536			3,212,594
Earnings per share:
Basic	$	0.10		$	0.03		$	0.11		$	0.02
Diluted		0.10			0.03			0.10			0.01

At September 30, 2015 there were 15,255 shares of restricted stock outstanding at a grant date fair value of $10.25 per share and options to purchase 134,880 shares of common stock ranging from a price of $10.25 per share to a price of $13.25 per share that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive. Options to purchase 145,124 shares of common stock at a price of $10.25 per share as of September 30, 2014, as well as 51,224 shares of restricted stock at a price of $10.25 per share as of September 30, 2014, were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive.

Investment Securities

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

	September 30, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale
Mortgage-backed securities:
Fannie Mae	$	23,437,486	$	822,498	$	(13,258	)	$	24,246,726
Freddie Mac		8,546,518		120,229		(55,715	)		8,611,032
Government National Mortgage Association		414,898		54,403		(7	)		469,294
Collateralized mortgage obligations-government sponsored entities		859,409		29,012		(13,863	)		874,558
Total mortgage-backed securities		33,258,311		1,026,142		(82,843	)		34,201,610
Corporate securities		10,787,962		108,202		(5,406	)		10,890,758
Municipal securities		499,455		-		(555	)		498,900

Total	$	44,545,728	$	1,134,344	$	(88,804	)	$	45,591,268

	December 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale
Mortgage-backed securities:
Fannie Mae	$	1,445,913	$	94,904	$	-		$	1,540,817
Freddie Mac		39,424		1,991		-			41,415
Government National Mortgage Association		469,373		58,936		-			528,309
Collateralized mortgage obligations-government sponsored entities		1,135,489		29,125		(13,241	)		1,151,373
Total mortgage-backed securities		3,090,199		184,956		(13,241	)		3,261,914
Corporate securities		8,292,849		159,204		(2,434	)		8,449,619

Total	$	11,383,048	$	344,160	$	(15,675	)	$	11,711,533

Held to Maturity
Mortgage-backed securities:
Fannie Mae	$	33,121,331	$	1,378,136	$	(61,305	)	$	34,438,162
Freddie Mac		11,620,203		247,896		(112,814	)		11,755,285
Total mortgage-backed securities	$	44,741,534	$	1,626,032	$	(174,119	)	$	46,193,447

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.

	September 30, 2015
	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	$	3,948,906	$	(13,258	)	$	-	$	-		$	3,948,906	$	(13,258	)
Freddie Mac		-		-			4,732,289		(55,715	)		4,732,289		(55,715	)
Government National Mortgage Association		1,356		(7	)		-		-			1,356		(7	)
Collateralized mortgage obligations-government sponsored entities		372,478		(13,458	)		5,446		(405	)		377,924		(13,863	)
Total mortgage-backed Securities		4,322,740		(26,723	)		4,737,735		(56,120	)		9,060,475		(82,843	)
Corporate securities		4,196,008		(5,231	)		499,825		(175	)		4,695,833		(5,406	)
Municipal securities		498,900		(555	)		-		-			498,900		(555	)

Total	$	9,017,648	$	(32,509	)	$	5,237,560	$	(56,295	)	$	14,255,208	$	(88,804	)

	December 31, 2014
	Less Than Twelve Months					Twelve Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Mortgage-backed securities:
Fannie Mae	$	-	$	-		$	7,153,455	$	(61,305	)	$	7,153,455	$	(61,305	)
Freddie Mac		1,946,251		(3,284	)		5,210,889		(109,530	)		7,157,140		(112,814	)
Collateralized mortgage obligations-government sponsored entities		220,486		(4,339	)		239,587		(8,902	)		460,073		(13,241	)
Total mortgage-backed Securities		2,166,737		(7,623	)		12,603,931		(179,737	)		14,770,668		(187,360	)
Corporate securities		1,752,260		(519	)		498,085		(1,915	)		2,250,345		(2,434	)

Total	$	3,918,997	$	(8,142	)	$	13,102,016	$	(181,652	)	$	17,021,013	$	(189,794	)

The Company reviews its position quarterly and has determined that at September 30, 2015, 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 22 positions that were temporarily impaired at September 30, 2015. 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 September 30, 2015, by contractual maturity, are shown below. Mortgage-backed securities provide for periodic, general monthly, payments of principal and interest and have contractual maturities ranging from 3 to 30 years. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available for Sale
	Amortized Cost		Fair Value

Due within one year	$	4,778,222	$	4,792,080
Due after one year through five years		7,697,247		7,813,849
Due after five years through ten years		4,846,976		4,998,298
Due after ten years		27,223,283		27,987,041

Total	$	44,545,728	$	45,591,268

On August 1, 2015 the Company transferred all of its held-to-maturity investment securities, which consisted of $40.1 million in MBS securities, to available-for sale. The purpose of this transfer was to provide additional liquidity and to provide the ability to reduce exposure to interest rate risk through the sale of longer term securities. Subsequently, the Company sold 3 securities which were longer term in maturity to provide additional liquidity and to reduce exposure to interest rate risk.

For the three and nine month periods ended September 30, 2015 the Company realized gross gains of $560,367 and proceeds from the sale of investment securities of $8,616,069. The Company had no sales of investment securities for the three and nine month periods ended September 30, 2014.

Loans Receivable

Loans receivable consist of the following:

	September 30,			December 31,
	2015			2014
Mortgage Loans:
One-to-four family	$	148,919,204		$	178,214,260
Multi-family and commercial real estate		10,797,136			14,840,883
		159,716,340			193,055,143

Commercial loans		8,398			-
Home equity loans		2,906,878			2,040,458
Home equity lines of credit (“HELOCs”)		1,915,807			1,521,341
Education loans		1,279,337			1,557,801
Other consumer loans		4,248			1,373
Non-covered consumer loans purchased		511,087			639,092
Covered loans		13,313,334			14,457,364
		179,655,429			213,272,572
Less:
Net deferred loan costs		(116,543	)		(279,098	)
Allowance for loan losses		1,360,930			1,415,983

Total	$	178,411,042		$	212,135,687

The components of covered loans by portfolio class as of September 30, 2015 and December 31, 2014 were as follows:

	September 30,		December 31,
	2015		2014
Mortgage loans:
One-to-four family	$	7,633,186	$	7,846,156
Multi-family and commercial real estate		5,648,355		6,438,651
		13,281,541		14,284,807
Commercial		31,793		172,557
Total Loans	$	13,313,334	$	14,457,364

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:

September 30, 2015

December 31, 2014

Acquired Loans

Without Specific

Acquired Loans

Without Specific

With Specific

Evidence of

With Specific

Evidence of

Deterioration in

Evidence of

Deterioration in

Credit Quality

Deterioration in

Credit Quality

(ASC 310-30

Credit Quality

(ASC 310-30

(ASC 310-30)

Analogized)

(ASC 310-30)

Analogized)

Outstanding balance

761,570

20,310,338

807,613

22,933,822

Carrying amount, net of allowance

476,210

13,348,211

481,271

14,615,185

During the nine months ended September 30, 2015 and 2014, respectively, 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.

Changes in the accretable yield for acquired loans were as follows for the three and nine months ended September 30, 2015 and 2014.

	Three Months Ended September 30, 2015			Three Months Ended September 30, 2014
	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	$	6,687,649		$	6,837,677
Reclassifications and other		(211,808	)		(30,388	)
Accretion		(231,980	)		(264,055	)
Balance at end of period	$	6,243,861		$	6,543,234

	Nine Months Ended September 30, 2015			Nine Months Ended September 30, 2014
	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	$	6,381,792		$	7,791,222
Reclassifications and other		581,414			(430,517	)
Accretion		(719,345	)		(817,471	)
Balance at end of period	$	6,243,861		$	6,543,234

The $231,980 and $264,055 recognized as accretion represents the interest income earned on acquired loans for the three months ended September 30, 2015 and 2014, respectively and $719,345 and $817,471 for the nine months ended September 30, 2015 and 2014, respectively. Included in reclassifications and other for loans acquired without specific evidence of deterioration in credit quality was $(41,949) and $111,912 of reclassifications from non-accretable discounts to accretable discounts for the three months ended September 30, 2015 and 2014, respectively and $1,092,535 and $334,120 for the nine months ended September 30, 2015 and 2014, respectively. The remaining $(169,859) and $(142,300) change in the accretable yield represents reductions in contractual interest due to contractual principal prepayments for the three months ended September 30, 2015 and 2014, respectively and $(511,121) and $(744,637) for the nine months ended September 30, 2015 and 2014, respectively.

Allowance for Loan Losses

Management has an established methodology to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio. For purposes of determining the allowance for loan losses, the Company has segmented certain loans in the portfolio by product type. Loans are segmented into the following pools: one-to-four family real estate, multi-family and commercial real estate, commercial loans, home equity loans, home equity lines of credit, and education and other consumer loans. Historical loss percentages for each risk category are calculated and used as the basis for calculating allowance allocations. These historical loss percentages are calculated over a three year period for all portfolio segments. Certain qualitative factors are then added to the historical allocation percentage to get the adjusted factor to be applied to non-classified 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 September 30, 2015.

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

	Allowance for Loan Losses For the Three and Nine Months Ended September 30, 2015 and 2014
	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 September 30, 2015
Allowance for Loan Losses:
Balance at beginning of period	$	889,405		$	382,781		$	14	$	10,881		$	13,926		$	5,830		$	58,093	$	1,360,930
Provision (credit) for loan losses		(58,883	)		(26,714	)		7		55			(643	)		1,014			85,164		-
Charge-offs		-			-			-		-			-			-			-		-
Recoveries		-			-			-		-			-			-			-		-
Net (charge-offs) recoveries		-			-			-		-			-			-			-		-
Balance at end of period	$	830,522		$	356,067		$	21	$	10,936		$	13,283		$	6,844		$	143,257	$	1,360,930

Three Months Ended September 30, 2014
Allowance for Loan Losses:
Balance at beginning of period	$	878,447		$	480,068		$	-	$	8,644		$	7,917		$	7,116		$	-	$	1,382,192
Provision (credit) for loan losses		1,655			33,902			-		(320	)		2,095			(145	)		12,813		50,000
Charge-offs		-			-			-		-			-			-			-		-
Recoveries		-			-			-		-			-			-			-		-
Net (charge-offs) recoveries		-			-			-		-			-			-			-		-
Balance at end of period	$	880,102		$	513,970		$	-	$	8,324		$	10,012		$	6,971		$	12,813	$	1,432,192

Nine Months Ended September 30, 2015
Allowance for Loan Losses:
Balance at beginning of period	$	962,753		$	427,636		$	-	$	7,590		$	10,599		$	6,771		$	634	$	1,415,983
Provision (credit) for loan losses		(4,028	)		(71,569	)		21		3,346			2,684			73			142,623		73,150
Charge-offs		(128,424	)		-			-		-			-			-			-		(128,424	)
Recoveries		221			-			-		-			-			-			-		221
Net (charge-offs) recoveries		(128,203	)		-			-		-			-			-			-		(128,203	)
Balance at end of period	$	830,522		$	356,067		$	21	$	10,936		$	13,283		$	6,844		$	143,257	$	1,360,930

Nine Months Ended September 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		16,490			69,061			-		3,594			7,090			(887	)		3,810		99,158
Charge-offs		(44,979	)		-			-		-			-			-			-		(44,979	)
Recoveries		-			-			-		-			-			-			-		-
Net (charge-offs) recoveries		(44,979	)		-			-		-			-			-			-		(44,979	)
Balance at end of period	$	880,102		$	513,970		$	-	$	8,324		$	10,012		$	6,971		$	12,813	$	1,432,192

The decrease in the allowance for loan losses related to the one-to-four family real estate and commercial real estate loan portfolio is related to the decrease in the balance of loans and the adjustment of qualitative factors.

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

	At September 30, 2015
	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	$	830,522	$	356,067	$	21	$	10,936	$	13,283	$	6,844	$	143,257	$	1,360,930

Ending balance: individually evaluated for impairment	$	3,104	$	-	$	-	$	-	$	-	$	-	$	-	$	3,104

Ending balance: collectively evaluated for impairment	$	827,418	$	356,067	$	21	$	10,936	$	13,283	$	6,844	$	143,257	$	1,357,826

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

Loans:
Ending balance	$	156,552,390	$	16,445,491	$	40,191	$	2,906,878	$	1,915,807	$	1,794,672	$	-	$	179,655,429

Ending balance: individually evaluated for impairment	$	2,574,817	$	611,410	$	-	$	54,104	$	-	$	-	$	-	$	3,240,331

Ending balance: collectively evaluated for impairment	$	146,344,387	$	10,185,726	$	8,398	$	2,852,774	$	1,915,807	$	1,283,585	$	-	$	162,590,677

Ending balance: loans acquired with deteriorated credit quality	$	7,633,186	$	5,648,355	$	31,793	$	-	$	-	$	511,087	$	-	$	13,824,421

	At December 31, 2014
	One-to- Four Family Real Estate		Multi-family and Commercial Real Estate		Commercial		Home Equity		HELOCs		Education and Other Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance	$	962,753	$	427,636	$	-	$	7,590	$	10,599	$	6,771	$	634	$	1,415,983

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

Ending balance: collectively evaluated for impairment	$	951,883	$	427,636	$	-	$	7,590	$	10,599	$	6,771	$	634	$	1,405,113

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

Loans:
Ending balance	$	186,060,416	$	21,279,534	$	172,557	$	2,040,458	$	1,521,341	$	2,198,266	$	-	$	213,272,572

Ending balance: individually evaluated for impairment	$	2,567,633	$	632,717	$	-	$	60,475	$	-	$	-	$	-	$	3,260,825

Ending balance: collectively evaluated for impairment	$	175,646,627	$	14,208,166	$	-	$	1,979,983	$	1,521,341	$	1,559,174	$	-	$	194,915,291

Ending balance: loans acquired with deteriorated credit quality	$	7,846,156	$	6,438,651	$	172,557	$	-	$	-	$	639,092	$	-	$	15,096,456

Credit Quality Information

The following tables represent credit exposures by internally assigned grades at September 30, 2015 and December 31, 2014. The grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Company’s internal credit risk grading system is based on experiences with similarly graded loans.

The Company’s internally assigned grades are as follows:

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

Special Mention – loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected. The Special Mention category includes assets that are fundamentally sound yet, exhibit unacceptable credit risk or deteriorating trends or characteristics which if left uncorrected, may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date.

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. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due are considered Substandard.

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. Loans in the Doubtful category have all the weaknesses inherent in one classified as Substandard with the added characteristic that the weakness make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss – loans classified as a Loss are considered uncollectible, or of such value that continuance as an asset is not warranted. Loans in the Loss category are considered uncollectable and of little value that their continuance as bankable assets 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 September 30, 2015 and December 31, 2014.

	September 30,				December 31,
	2015				2014
	Multi-Family				Multi-Family
	and				and
	Commercial				Commercial
	Real Estate		Commercial		Real Estate		Commercial

Pass	$	13,013,925	$	40,191	$	18,228,956	$	172,557
Special Mention		2,117,574		-		1,699,786		-
Substandard		1,313,992		-		1,350,792		-
Doubtful		-		-		-		-
Loss		-		-		-		-
Total	$	16,445,491	$	40,191	$	21,279,534	$	172,557

Multi-family and commercial real estate and commercial loans are categorized by risk classification as of September 30, 2015 and December 31, 2014. 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 September 30, 2015 and December 31, 2014:

	At September 30, 2015
	One-to- Four Family Real Estate		Home Equity		HELOCs		Education and Other Consumer		Non-covered Consumer Loans Purchased
Performing	$	154,010,388	$	2,852,774	$	1,915,807	$	1,115,666	$	444,964
Nonperforming		2,542,002		54,104		-		167,919		66,123
Total	$	156,552,390	$	2,906,878	$	1,915,807	$	1,283,585	$	511,087

	At December 31, 2014
	One-to- Four Family Real Estate		Home Equity		HELOCs		Education and Other Consumer		Non-covered Consumer Loans Purchased
Performing	$	183,988,450	$	1,979,983	$	1,521,341	$	1,465,276	$	639,092
Nonperforming		2,071,966		60,475		-		93,898		-
Total	$	186,060,416	$	2,040,458	$	1,521,341	$	1,559,174	$	639,092

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

	At September 30, 2015
													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	$	483,874	$	-	$	2,335,198	$	2,819,072	$	153,733,318	$	156,552,390	$	-
Multi-family and commercial real estate		97,165		-		148,032		245,197		16,200,294		16,445,491		-
Commercial		-		-		-		-		40,191		40,191		-
Home equity		-		-		-		-		2,906,878		2,906,878		-
HELOCs		-		-		-		-		1,915,807		1,915,807		-
Education and other consumer		20,014		1,204		167,919		189,137		1,094,448		1,283,585		-
Non-covered consumer loans purchased		-		-		66,123		66,123		444,964		511,087		-
Total	$	601,053	$	1,204	$	2,717,272	$	3,319,529	$	176,335,900	$	179,655,429	$	-

	At December 31, 2014
													Recorded
											Total		Investment >
	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Loans Receivable		90 Days and Accruing
One-to-four family real estate	$	58,481	$	1,034,424	$	1,798,213	$	2,891,118	$	183,169,298	$	186,060,416	$	-
Multi-family and commercial real estate		86,027		-		431,817		517,844		20,761,690		21,279,534		-
Commercial		-		-		-		-		172,557		172,557		-
Home equity		60,475		-		-		60,475		1,979,983		2,040,458		-
HELOCs		-		-		-		-		1,521,341		1,521,341		-
Education and other consumer		29,265		1,497		93,898		124,660		1,434,514		1,559,174		-
Non-covered consumer loans purchased		78,650		14,676		-		93,326		545,766		639,092		-
Total	$	312,898	$	1,050,597	$	2,323,928	$	3,687,423	$	209,585,149	$	213,272,572	$	-

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 September 30, 2015 and December 31, 2014. The balances are presented by class of loans.

	September 30, 2015		December 31, 2014
One-to-four family mortgage	$	2,542,002	$	2,071,966
Multi-family and commercial real estate		222,653		517,844
Home Equity		54,104		60,475
Education and other consumer		167,919		93,898
Non-covered consumer loans purchased		66,123		-
Total	$	3,052,801	$	2,744,183

Interest income on loans would have been increased by approximately $21,403 and $46,931 during the three months ended September 30, 2015 and 2014 and $76,575 and $103,981 during the nine months ended September 30, 2015 and 2014, respectively, if these loans had performed in accordance with their original terms. Management evaluates commercial real estate loans which are 90 days or more past due for impairment.

Impaired Loans

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

	September 30, 2015
	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
One-to-four family real estate	$	2,693,938	$	3,307,794	$	-
Multi-family and commercial real estate		932,649		1,087,332		-
Commercial		-		45,098		-
Home Equity		54,104		56,260		-
Consumer		66,123		66,123
With an allowance recorded:
One-to-four family real estate	$	151,281	$	155,010	$	3,104

Total:
One-to-four family real estate	$	2,845,219	$	3,462,804	$	3,104
Multi-family and commercial real estate		932,649		1,087,332		-
Commercial		-		45,098		-
Home Equity		54,104		56,260		-
Consumer		66,123		66,123		-

	December 31, 2014
	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
One-to-four family real estate	$	2,226,812	$	2,823,616	$	-
Multi-family and commercial real estate		1,239,500		1,544,656		-
Commercial		-		84,010		-
Home Equity		60,475		60,925		-
With an allowance recorded:
One-to-four family real estate	$	675,473	$	676,073	$	10,870

Total:
One-to-four family real estate	$	2,902,285	$	3,499,689	$	10,870
Multi-family and commercial real estate		1,239,500		1,544,656		-
Commercial		-		84,010		-
Home Equity		60,475		60,925		-

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
	September 30,
	2015		2014		2015		2014
	Average Recorded Investment		Average Recorded Investment		Interest Income Recognized		Interest Income Recognized
With no related allowance recorded:
One-to-four family real estate	$	2,699,877	$	2,393,476	$	3,580	$	3,851
Multi-family and commercial real estate		937,458		1,043,232		9,159		10,470
Commercial		-		-		535		1,043
Home Equity		54,755		-		-		-
Consumer		44,082		-		-		-
With an allowance recorded:
One-to-four family real estate	$	152,001	$	681,117	$	1,158	$	4,417
Multi-family and commercial real estate		-		-		-		-
Commercial		-		-		-		-
Home Equity		-		-		-		-
Consumer		-		-		-		-

Total:
One-to-four family real estate	$	2,851,878	$	3,074,593	$	4,738	$	8,268
Multi-family and commercial real estate		937,458		1,043,232		9,159		10,470
Commercial		-		-		535		1,043
Home Equity		54,755		-		-		-
Consumer		44,082		-		-		-

	Nine Months Ended
	September 30,
	2015		2014		2015		2014
	Average Recorded Investment		Average Recorded Investment		Interest Income Recognized		Interest Income Recognized
With no related allowance recorded:
One-to-four family real estate	$	2,817,493	$	2,206,541	$	10,804	$	16,136
Multi-family and commercial real estate		1,071,290		1,087,035		27,692		34,471
Commercial		-		-		1,964		3,459
Home Equity		56,886		-		-		-
Consumer		14,694		-		-		-
With an allowance recorded:
One-to-four family real estate	$	440,255	$	684,537	$	14,159	$	14,681
Multi-family and commercial real estate		-		-		-		-
Commercial		-		-		-		-
Home Equity		-		-		-		-
Consumer		-		-		-		-

Total:
One-to-four family real estate	$	3,257,748	$	2,891,078	$	24,963	$	30,817
Multi-family and commercial real estate		1,071,290		1,087,035		27,692		34,471
Commercial		-		-		1,964		3,459
Home Equity		56,886		-		-		-
Consumer		14,694		-		-		-

Foreclosed Assets Held For Sale

Foreclosed assets acquired in settlement of loans are carried at fair value, less estimated costs to sell, and are included in other assets on the Consolidated Balance Sheet. As of September 30, 2015 and December 31, 2014 included with other assets are $182,000 and $490,000, respectively, of foreclosed assets. As of September 30, 2015, there were no consumer residential mortgages that were foreclosed on or received via a deed in lieu transaction prior to the period end. As of September 30, 2015, the Company has initiated formal foreclosure proceedings on $54,000 of consumer residential mortgages, which have not yet been transferred into foreclosed assets.

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.

(In Thousands, Except Number of Contracts)	Nine Months Ended September 30,
	2015						2014
	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

There were no loan modifications that are considered troubled debt restructurings completed during the three months ended September 30, 2015 and 2014, respectively.

For the nine months ended September 30, 2015, there were no loans granted a term concession. For the nine months ended, September 30, 2014, one loan was granted a term concession.

There were no troubled debt restructurings modified within the past year that subsequently defaulted during the three and nine month periods ended September 30, 2015 and 2014.

Indemnification Asset

Changes in the FDIC indemnification asset during the three and nine months ended September 30, 2015 and 2014, respectively, were as follows:

	2015			2014
Balance at June 30	$	1,057,286		$	2,027,676
Cash payments received or receivable due from the FDIC		(122,270	)		(35,181	)
Increase in FDIC share of estimated losses		-			-
Net amortization		(236,478	)		(162,333	)

Balance at September 30	$	698,538		$	1,830,162

	2015			2014
Balance at December 31	$	1,417,355		$	2,515,287
Cash payments received or receivable due from the FDIC		(122,270	)		(169,171	)
Increase in FDIC share of estimated losses		-			-
Net amortization		(596,547	)		(515,954	)

Balance at September 30	$	698,538		$	1,830,162

Deposits

Deposit accounts are summarized as follows for the periods ending September 30, 2015 and December 31, 2014.

	September 30, 2015					December 31, 2014
	Amount		%			Amount		%

Non-interest bearing demand	$	4,836,669		2.60	%	$	6,482,695		3.25	%
NOW accounts		13,450,312		7.24			13,562,430		6.80
Money market deposit		34,950,686		18.81			37,259,728		18.67
Savings		28,680,869		15.44			28,589,859		14.33
Time deposits		103,878,399		55.91			113,659,285		56.95
Total	$	185,796,935		100.00	%	$	199,553,997		100.00	%

Life Insurance and Retirement Plan

The Company has a Supplemental Life Insurance Plan (“Plan”) for a former president and a former senior officer and a current senior officer 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 $4,261,366 and $4,268,181 at September 30, 2015 and December 31, 2014, respectively. The Plan provides that death benefits totaling $6.0 million at September 30, 2015, will be paid to their beneficiaries in the event the officers should die.

Additionally, the Company has a Supplemental Retirement Plan (“SRP”) for the two former presidents and one former senior officer as well as one current senior officer of the Bank. At September 30, 2015 and December 31, 2014, $2,010,416 and $2,142,579, respectively, has been accrued under these SRPs, and this liability and the related deferred tax asset of $683,541 and $728,477, respectively, are recognized in the financial statements.

The deferred compensation for the two 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 first 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 or 4 percent, whichever is higher. The second 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 a former and a current senior officer 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 $44,289 and $45,949 for the three months ended September 30, 2015 and 2014 and $126,673 and $134,962 for the nine months ended September 30, 2015 and 2014, respectively.

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2015		2014		2015		2014
Components of net periodic benefit cost:
Service cost	$	26,718	$	17,152	$	70,338	$	48,570
Interest cost		17,571		28,797		56,335		86,392
Net periodic benefit cost	$	44,289	$	45,949	$	126,673	$	134,962

Contingencies

On August 5, 2015, Lane Brennen, a former employee of the Bank, filed a complaint in state court naming the Bank, the Bank’s former chief executive officer, the Bank’s chief financial offer, the Bank’s former chief lending officer and an employee of the Bank as defendants (Lane Brennen v Polonia Bank et al., Philadelphia Court of Common Pleas, Case ID 150800526). The individual defendants may be entitled to indemnification from the Bank, for which there may be no insurance coverage. The complaint alleges claims for breach of his employment contract, violation of Pennsylvania’s Wage Payment and Collection Law, and for unlawful retaliation and demands an accounting. Mr. Brennan seeks compensation that he alleges is owed to him under the terms of his employment agreement, as well as other compensatory and punitive damages. Under the terms of Mr. Brennen’s employment agreement, he received a portion of the net income from the Bank’s FHA lending operations, which he managed. The Bank intends to vigorously defend against these claims. However, the defense may not be successful and insurance may not be available or adequate to fund any judgment, settlement or costs of defense of this action. The individual defendants may be entitled to indemnification from the Bank, for which there may be no insurance coverage.

10.

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 September 30, 2015 and December 31, 2014, 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 September 30, 2015 and December 31, 2014, are as follows:

	September 30, 2015
	Level I		Level II		Level III		Total
Assets:
Available for Sale
Mortgage-backed securities	$	-	$	34,201,610	$	-	$	34,201,610
Corporate Securities		-		10,890,758		-		10,890,758
Municipal Securities		-		498,900		-		498,900

Total	$	-	$	45,591,268	$	-	$	45,591,268

	December 31, 2014
	Level I		Level II		Level III		Total
Assets:
Available for Sale
Mortgage-backed securities	$	-	$	3,261,914	$	-	$	3,261,914
Corporate Securities		-		8,449,619		-		8,449,619

Total	$	-	$	11,711,533	$	-	$	11,711,533

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 2015 and December 31, 2014, are as follows:

	September 30, 2015
	Level I		Level II		Level III		Total

Assets:
Impaired loans	$	-	$	-	$	3,894,991	$	3,894,991
Other real estate owned		-		-		182,360		182,360

	December 31, 2014
	Level I		Level II		Level III		Total

Assets:
Impaired loans	$	-	$	-	$	4,191,390	$	4,191,390
Other real estate owned		-		-		489,837		489,837

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.

September 30, 2015
Quantitative Information About Level III Fair Value Measurements

Fair Value
Estimate

Valuation
Techniques

Unobservable
Input

Range

Weighted
Average

Impaired loans

1,921,016

Appraisal of

Appraisal

collateral (1)

adjustments (2)

0% to 20%

Liquidation

expenses (2)

0% to 6%

1,973,975

Discounted

Discount Rates

5% to 8%

cash flows

Other real estate owned

182,360

Appraisal of

Liquidation

collateral (1), (3)

expenses (2)

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

Fair Value
Estimate

Valuation
Techniques

Unobservable
Input

Range

Weighted
Average

Impaired loans

1,624,037

Appraisal of

Appraisal

collateral (1)

adjustments (2)

0% to 20%

Liquidation

expenses (2)

0% to 6%

2,567,353

Discounted

Discount rates

5% to 8%

cash flows

Other real estate owned

489,837

Appraisal of

Liquidation

collateral (1), (3)

expenses (2)

(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 September 30, 2015, and December 31, 2014 impaired loans with a carrying value of $3,898,095 and $4,202,260 were reduced by specific valuation allowances totaling $3,104 and $10,870 resulting in a net fair value of $3,894,991 and $4,191,390 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 September 30, 2015 and December 31, 2014, all of the financial assets measured at fair value, on a recurring basis, utilized the market approach.

11.

Fair Value Disclosure

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

	Fair Value Measurements at September 30, 2015
	Carrying Value		Fair Value		Level I		Level II		Level III

Financial assets:
Cash and cash equivalents	$	43,192,681	$	43,192,681	$	43,192,681	$	-	$	-
Investment securities
Available for sale		45,591,268		45,591,268		-		45,591,268		-
Loans held for sale		3,094,540		3,094,540		3,094,540		-		-
Net loans receivable		178,411,042		179,621,245		-		-		179,621,245
Accrued interest receivable		672,362		672,362		672,362		-		-
Federal Home Loan Bank stock		3,668,000		3,668,000		3,668,000		-		-
Bank-owned life insurance		4,261,366		4,261,366		4,261,366		-		-
FDIC indemnification asset		698,538		698,538		-		-		698,538

Financial liabilities:
Deposits		185,796,935		187,666,746		81,918,536		-		105,748,210
FHLB advance – long-term		56,000,000		58,290,400		-		-		58,290,400
Advances by borrowers for taxes and insurance		544,038		544,038		544,038		-		-
Accrued interest payable		174,781		174,781		174,781		-		-

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

Financial assets:
Cash and cash equivalents	$	12,174,230	$	12,174,230	$	12,174,230	$	-	$	-
Investment securities
Available for sale		11,711,533		11,711,533		-		11,711,533		-
Held to maturity		44,741,534		46,193,447		-		46,193,447		-
Loans held for sale		4,221,438		4,221,438		4,221,438		-		-
Net loans receivable		212,135,687		213,022,071		-		-		213,022,071
Accrued interest receivable		788,684		788,684		788,684		-		-
Federal Home Loan Bank stock		3,843,500		3,843,500		3,843,500		-		-
Bank-owned life insurance		4,268,181		4,268,181		4,268,181		-		-
FDIC indemnification asset		1,417,355		1,417,355		-		-		1,417,355

Financial liabilities:
Deposits		199,553,997		201,952,208		85,894,712		-		116,057,496
FHLB advance – long-term		59,000,000		60,711,000		-		-		60,711,000
Advances by borrowers for taxes and insurance		1,208,824		1,208,824		1,208,824		-		-
Accrued interest payable		143,798		143,798		143,798		-		-

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 1 quoted secondary-market prices. If no such quoted price exists, the fair value of a loan is determined based on sales of similar assets.

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

Investment Securities Available for Sale and Held to Maturity

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

Net Loans Receivable

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

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

FDIC Indemnification Asset

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

Under the agreement, the FDIC agreed to reimburse the Bank for 80% of realized losses. The indemnification asset was originally recorded at fair value on the acquisition date (December 10, 2010) and at September 30, 2015 and December 31, 2014, the carrying value of the FDIC indemnification asset was $699,000 and $1.4 million, respectively.

From the date of acquisition, the agreements extend ten years for one-to-four 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.

12.

Accumulated Other Comprehensive Income

The activity in accumulated other comprehensive income for the three and nine months ended September 30, 2015 and 2014 are as follows:

	Accumulated Other Comprehensive Income (1)
	Unrealized Gains (Losses) on Securities Available-for-Sale
Balance at June 30, 2014	$	266,436

Other comprehensive loss before reclassifications		(20,543	)

Amounts reclassified from accumulated other comprehensive income		-
Period change		(20,543	)

Balance at September 30, 2014	$	245,893

Balance at June 30, 2015	$	189,844

Other comprehensive income before reclassifications		870,054

Amounts reclassified from accumulated other comprehensive income		(369,842	)

Period change		500,212

Balance at September 30, 2015	$	690,056

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

Other comprehensive loss before reclassifications		(18,467	)

Amounts reclassified from accumulated other comprehensive income		-

Period change		(18,467	)

Balance at September 30, 2014	$	245,893

Balance at December 31, 2014	$	216,800

Other comprehensive income before reclassifications		843,098

Amounts reclassified from accumulated other comprehensive income		(369,842	)

Period change		473,256

Balance at September 30, 2015	$	690,056

(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 nine month periods ended September 30, 2014.

	Amount Reclassified from Accumulated Other Comprehensive Income (2)
Details about Accumulated Other Comprehensive Income Components	For the Three Months September 30, 2015			For the Nine Months September 30, 2015			Affected Line Item in the Consolidated Statement of Income
Investment Securities Available for Sale (1):
Net Investment Securities Gains Reclassified into Securities	$	560,367			560,367		Gain on Sale of Investment Securities, net
Related Income Tax Expense		(190,525	)		(190,525	)	Income Taxes
Total Reclassifications for the Period	$	369,842			369,842		Net of Tax

(1) For Additional Details Related to Unrealized Gains on Investment Securities and Related Amounts Reclassified from Accumulated Other Comprehensive Income see Note 3, “Investment Securities.”

(2) Amounts in Parenthesis Indicate Debits.

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

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

Forward-Looking Statements

This report contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of Polonia Bancorp and Polonia Bank. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. Polonia Bancorp’s and Polonia Bank’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiary include, but are not limited to the following: changes in interest rates; national and regional economic conditions; legislative and regulatory changes; monetary and fiscal policies of the U.S. government; including policies of the U.S. Treasury and the Federal Reserve Board; the quality and composition of the loan or investment portfolios; demand for loan products; deposit flows; competition; demand for financial services in the Company’s market area; changes in real estate market values in the Company’s market area; the potential for additional regulatory restrictions on our operations; 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, 2014 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 four branch offices in the city of Philadelphia.

Regulatory Matters

Effective October 21, 2014, Polonia Bank and the OCC entered into a formal written agreement (the “Agreement”). The Agreement relates to the findings of the OCC following its regularly scheduled examination of the Bank that began in the second quarter of 2014.

The Agreement provides, among other things, that within specified time frames, the Bank will:

•

establish a Compliance Committee of its Board of Directors to monitor and coordinate the Bank’s adherence to the Agreement and to prepare periodic reports describing the Bank’s progress in complying with the Agreement;

•

ensure that it has competent management in place, undertake periodic reviews of the Bank’s management, implement a program to enhance and improve the skills the Bank’s management team, where necessary, act to fill any vacancies among the Bank’s senior executive officers within prescribed timeframes and in accordance with regulations of the OCC;

•

revise its written strategic plan and submit such revised plan to the OCC for review, with such strategic plan establishing objectives for the Bank’s overall risk profile, earnings performance, growth, balance sheet mix, off-balance sheet activities, liability structure, capital and liquidity adequacy, product line development, outsourcing and market segments, together with strategies to achieve the Bank’s objectives;

•

implement a revised asset liability management program to address the Bank’s interest rate risk tolerance;

•

implement a mortgage banking operations risk management program;

•

confirm the terms of the Bank’s current outstanding obligation to fund third party obligations and implement a program for oversight of the Bank’s mortgage origination funding activities;

•

implement a revised internal audit program;

•

implement a program relating to the compensation payable to the Bank’s executive officers, employees and directors to ensure that such compensation is reasonable and not excessive; and

•

implement a revised third party risk management program that is consistent with OCC guidance.

The Agreement and each of its provisions will remain in effect unless and until the provisions are amended, suspended, waived, or terminated in writing by the OCC. As a result of the foregoing, the Bank is deemed to be in “troubled condition” and is not considered an “eligible institution” under applicable regulations. As a result, the Bank remains ineligible for expedited processing of any applications that it might file and must obtain the approval of the OCC prior to effecting any change in its directors or senior executive officers. In addition, the Bank is restricted from paying any capital distributions without prior approval of the OCC.

Polonia’s board of directors has created a Compliance Committee to ensure that all of the requirements noted in the Formal Agreement are being addressed in a timely and effective manner.

In addition, the OCC imposed individual minimum capital requirements (“IMCRs”) on the Bank effective January 20, 2015. The IMCRs require the Bank to maintain a leverage ratio (equal to Tier 1 capital to average total consolidated assets) of at least 10.00% and a total capital ratio (equal to total capital to total risk-weighted assets) of at least 15.00%. Absent the IMCRs, the Bank must maintain a leverage ratio of at least 5.00% and a total capital ratio of at least 10.00% to be considered well-capitalized. At September 30, 2015, the Bank had a Tier 1 leverage ratio of 11.90% and a total risk-based capital ratio of 27.04%.

On February 17, 2015, the Company entered into a Memorandum of Understanding (“MOU”) with the Federal Reserve Bank of Philadelphia. Among other things, the MOU prohibits the Company from paying dividends, repurchasing its stock or making other capital distributions without prior written approval of the Federal Reserve Bank of Philadelphia.

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

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

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

Comparison of Financial Condition at September 30, 2015 and December 31, 2014

Total assets at September 30, 2015 were $286.7 million, a decrease of $21.1 million from total assets of $307.8 million at December 31, 2014. The sale of 30-year, fixed-rate jumbo mortgage loans and the maturity and pay-down of securities resulted in a shift in our asset mix, as loans and investments decreased, cash and cash equivalents increased pending reinvestment into higher yielding assets. Deposits declined due to competitive conditions, as we allowed some deposit run-off to manage our liquidity needs. The decrease in liabilities was primarily due to a $13.8 million decrease in deposits. Total stockholders’ equity at September 30, 2015 increased to $40.0 million as compared to $38.8 million at December 31, 2014.

Cash and cash equivalents increased to $43.2 million from $12.2 million during the nine months ended September 30, 2015, primarily as the result of the sale of $26.4 million in loans held for investment and the sale of $8.1 million of investment securities available-for-sale.

Investment securities available-for-sale increased to $45.6 million from $11.7 million during the nine months ended September 30, 2015, an increase of $33.9 million, or 289.7%. The increase in investment securities available-for-sale was attributable to a transfer of $40.1 million of investment securities held-to-maturity and the purchase of $4.7 million in securities, partially offset by the sale of $8.1 million in securities, $1.8 million in maturities of corporate securities and $1.9 million in principal payments.

Investment securities held-to-maturity decreased to $0 from $44.7 million during the nine months ended September 30, 2015. The decrease in investment securities held-to-maturity was attributable to the transfer of $40.1 million of investment securities to available-for sale and $4.6 million in principal payments. The transfer of securities was undertaken as part of our strategy to mitigate interest rate risk.

Loans held for sale decreased to $3.1 million from $4.2 million during the nine months ended September 30, 2015, a decrease of $1.1 million, or 26.2%. The decrease in loans held for sale was the result of the normal fluctuation in loan activity associated with this type of business.

Total loans decreased $33.8 million, or 15.8%, to $179.8 million at June 30, 2015, compared to $213.6 million at December 31, 2014. The decrease in total loans was primarily the result of the sale of $26.4 million in 30-year, fixed-rate jumbo loans. The loan sale was undertaken as part of our strategy to mitigate interest rate risk.

Total deposits decreased to $185.8 million from $199.6 million during the nine months ended September 30, 2015, a decrease of $13.8 million, or 6.9%. The decrease of $13.8 million was primarily the result of a decrease in time deposits of $9.8 million and money market deposit accounts of $2.3 million. The decrease in time deposits was based on our loan demand and liquidity needs, as we opted not to match competitors’ rates.

Total FHLB advances decreased to $56.0 million from $59.0 million during the nine months ended September 30, 2015, a decrease of $3.0 million, or 5.1%. The decrease of $3.0 million was due to the maturity of an FHLB advance.

Comparison of Operating Results For the Three and Nine Months Ended September 30, 2015 and 2014

General. We recorded net income of $305,000 during the three months ended September 30, 2015 compared to net income of $102,000 during the three months ended September 30, 2014. The increase in net income for the three month period ended September 30, 2015 was primarily related to a decrease in noninterest expense, an increase in noninterest income and a decrease in provision for loan losses, partially offset by a decrease in net interest income and an increase in income tax expense.

We recorded net income of $332,000 during the nine months ended September 30, 2015 compared to net income of $48,000 during the nine months ended September 30, 2014. The increase in net income for the nine month period ended September 30, 2015 was primarily related to a decrease in noninterest expense, an increase in noninterest income and a decrease in provision for loan losses, partially offset by a decrease in net interest 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 nine months ended September 30, 2015 and 2014.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
	(Dollars in thousands)				(Dollars in thousands)
Interest and dividend income:
Loans receivable	$	2,196	$	2,409	$	6,583	$	7,099
Investment securities		300		395		1,001		1,264
Other interest and dividend income		55		38		256		134
Total interest and dividend income		2,551		2,842		7,840		8,497
Interest Expense:
Deposits		421		428		1,276		1,273
FHLB advances – long-term		363		376		1,098		1,116
Advances by borrowers for taxes and insurance		1		1		3		2
Total interest expense		785		805		2,377		2,391
Net interest income	$	1,766	$	2,037	$	5,463	$	6,106

The following table summarizes average balances and average yields and costs for the three and nine months ended September 30, 2015 and 2014.

	Three Months Ended												Nine Months Ended
	September 30,												September 30,
	2015						2014						2015						2014
	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	$	194,412			4.42	%	$	214,707			4.39	%	$	197,875			4.39	%	$	208,384			4.49	%
Investment securities		47,787			2.46			60,416			2.56			51,598			2.56			63,528			2.62
Other interest-earning assets		34,919			0.62			9,387			1.61			32,206			1.06			13,806			1.30
Total interest-earning assets		377,118			3.65	%		284,510			3.96	%		281,679			3.72	%		285,718			3.98	%
Noninterest-earning assets:		15,269						15,905						16,544						16,470
Allowance for Loan Losses		(1,361	)					(1,416	)					(1,371	)					(1,389	)
Total assets	$	291,026					$	298,999					$	296,852					$	300,799

Liabilities and equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	13,752			0.14	%	$	15,679			0.18	%	$	13,532			0.16	%	$	15,558			0.17	%
Money Market Deposits		35,249			0.37			34,485			0.37			35,821			0.37			34,810			0.36
Savings accounts		28,541			0.15			31,031			0.24			28,373			0.15			30,920			0.25
Time deposits		106,699			1.38			110,431			1.33			109,905			1.37			111,209			1.32
Total interest-bearing deposits		184,241			0.91	%		191,626			0.89	%		187,631			0.91	%		192,497			0.88	%
FHLB advances – long-term		56,000			2.57			59,000			2.53			57,659			2.55			59,000			2.53
Advances by borrowers for taxes and insurance		1,193			0.33			929			0.43			1,176			0.34			1,130			0.24
Total interest-bearing liabilities		241,434			1.29	%		251,555			1.27	%		246,466			1.29	%		252,627			1.27	%
Noninterest-bearing liabilities:		10,089						8,030						11,120						8,393
Total liabilities		251,523						259,585						257,586						261,020
Retained earnings		39,503						39,414						39,266						39,779
Total liabilities and retained earnings	$	291,026					$	298,999					$	296,852					$	300,799

Interest rate spread					2.36	%					2.69	%					2.43	%					2.71	%
Net yield on interest-earning assets					2.53	%					2.84	%					2.59	%					2.86	%
Ratio of average interest-earning assets to average interest-bearing liabilities					114.78	%					113.10	%					114.29	%					113.10	%

Net Interest Income. Net interest income for the three months ended September 30, 2015 decreased $271,000 from the same period last year. Our net interest rate spread decreased to 2.36% for the three months ended September 30, 2015 from 2.69% for the same period last year. The primary reason for the decrease in net interest income for the three month period was due to lower interest income, which was partially offset by lower interest expense. Interest income declined due to a lower average balance of loans and investment securities, a lower yield earned on other interest-earning assets, a lower average yield earned on investment securities, partially offset by a higher average balance of other interest-earning assets and a higher average yield earned on loans. Interest expense declined due to a lower average balance of deposits, partially offset by a higher average rate paid on deposits. The decrease in the average balance of loans was primarily a result of the sale of $26.4 million in loans.

Net interest income for the nine months ended September 30, 2015 decreased $643,000 from the same period last year. Our net interest rate spread decreased to 2.43% for the nine months ended September 30, 2015 from 2.71% for the same period last year. The primary reason for the decrease in net interest income for the three month period was due to lower interest income, which was partially offset by lower interest expense. Interest income declined due to a lower average balance of loans and investment securities, a lower yield earned on loans and other interest-earning assets, a lower average yield earned on investment securities, partially offset by a higher average balance of other interest-earning assets. Interest expense declined due to a lower average balance of deposits, partially offset by a higher average rate paid on deposits. The decrease in the average balance of loans was primarily a result of the sale of $26.4 million in loans.

Provision for Loan Losses. There was no provision for loan losses recorded during the three months ended September 30, 2015 as compared to $50,000 for the three months ended September 30, 2014. The provisions reflect management’s assessment of lending activities, changes in the loan portfolio, increased nonperforming loans, levels of current delinquencies and current economic conditions. There were no loan charge-offs during the three months ended September 30, 2015 and 2014, respectively.

For the nine months ended September 30, 2015 we recorded a provision for loan losses of $73,000 as compared to $99,000 for the nine months ended September 30, 2015. The provisions reflect management’s assessment of lending activities, changes in the loan portfolio, increased nonperforming loans, levels of current delinquencies and current economic conditions. There were loan charge-offs of $128,000 during the nine months ended September 30, 2015 as compared to loan charge-offs of $45,000 during the nine months ended September 30, 2014.

Noninterest Income. The following table shows the components of noninterest income for the three and nine months ended September 30, 2015 and 2014.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2015			2014		2015			2014
	(Dollars in thousands)					(Dollars in thousands)
Service fees on deposit accounts	$	27		$	24	$	80		$	88
Earnings on bank-owned life insurance		(2	)		1		(7	)		5
Investment securities losses, net		560			-		560			-
Gain on sale of loans, net		998			1,458		2,688			3,068
Rental Income		67			66		198			206
Other		62			9		474			55
Total	$	1,712		$	1,558	$	3,993		$	3,422

The $154,000 increase in noninterest income during the three months ended September 30, 2015 as compared to the three months ended September 30, 2014 was primarily due to a $560,000 increase in the gain on the sale of investment securities and a $53,000 increase in other noninterest income, partially offset by a $460,000 decrease in the gain of the sale of loans. The decrease in the gain on the sale of loans was due primarily to lower sales volume during the quarter.

The $571,000 increase in noninterest income during the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014 was due primarily to a $560,000 increase in the gain on the sale of investment securities and a $419,000 increase in other noninterest income. The increase in other noninterest income is primarily related to a $278,000 increase in value of the deferred compensation plan assets and an increase of $169,000 in the gain on the sale of other real estate owned. Partially offsetting the increase in noninterest income was a $380,000 decrease in the gain on the sale of loans, a $12,000 decrease in the earnings on bank-owned life insurance, an $8,000 decrease in service fees on deposit accounts and a $8,000 decrease in rental income. The decrease in the gain on the sale of loans was due primarily to lower sales volume during the period.

Noninterest Expense. The following table shows the components of noninterest expense for the three and nine months ended September 30, 2015 and 2014.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
	(Dollars in thousands)				(Dollars in thousands)
Compensation and employee benefits	$	1,600	$	2,112	$	4,587	$	5,548
Occupancy and equipment		350		353		993		1,109
Federal deposit insurance premiums		133		80		412		251
Data processing expense		109		105		307		327
Professional fees		202		173		578		443
Other		573		539		1,938		1,635
Total	$	2,967	$	3,362	$	8,815	$	9,313

The $395,000 decrease in noninterest expense during the three months ended September 30, 2015 as compared to the three months ended September 30, 2014 was primarily due to a $512,000 decrease in compensation and employee benefits, a $3,000 decrease in occupancy and equipment, partially offset by a $53,000 increase in federal deposit insurance premiums, a $34,000 increase in other expense, a $29,000 increase in professional fees and a $4,000 increase in data processing expense. The decrease in compensation and employee benefits was the result of changes in staffing and employee benefits and lower compensation for our retail mortgage banking group as a result of a lower volume of loan sales. The increase of $53,000 in federal deposit insurance premiums was the result of higher premiums related to the Formal Agreement between the Bank and the OCC. The increase in other expense was primarily related to an increase of $70,000 in the expense related to the amortization of the FDIC indemnification asset. The increase of $29,000 in professional fees was the result of costs of complying with the Formal Agreement with the OCC and costs related to ongoing litigation.

The $498,000 decrease in noninterest expense during the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014 was primarily due to a $961,000 decrease in compensation and employee benefits, a $116,000 decrease in occupancy and equipment and a $20,000 decrease in data processing expense, partially offset by a $303,000 increase in other noninterest expense, a $161,000 increase in federal deposit insurance premiums and a $135,000 increase in professional fees. The decrease in compensation and employee benefits was the result of changes in staffing and employee benefits and lower compensation for our retail mortgage banking group as a result of a lower volume of loan sales. The $116,000 decrease in occupancy and equipment was the result of the closing of an underperforming branch in the second quarter of 2014 and the continued efforts to control and eliminate operating expenses. The increase in other expense was primarily related to a $278,000 increase in the liability associated with the deferred compensation plan. The increase of $161,000 in federal deposit insurance premiums was the result of higher premiums related to the Formal Agreement between the Bank and the OCC. The increase of $135,000 in professional fees was the result of costs of complying with the Formal Agreement with the OCC and costs related to ongoing litigation.

Income Taxes. We recorded tax expense of $207,000 for the three months ended September 30, 2015 as compared to tax expense of $81,000 during the three months ended September 30, 2014. The increase in the tax expense resulted from the increase in our taxable operating profits.

We recorded tax expense of $236,000 for the nine months ended September 30, 2015 as compared to tax expense of $68,000 during the nine months ended September 30, 2014. The increase in the 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 September 30, 2015, cash and cash equivalents totaled $43.2 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $45.6 million at September 30, 2015. In addition, at September 30, 2015 we had the ability to borrow a total of approximately $127.7 million from the FHLB of Pittsburgh. On September 30, 2015, we had $56.0 million of borrowings outstanding. Any growth of our loan portfolio may require us to borrow additional funds.

At September 30, 2015, we had $591,000 in mortgage loan commitments outstanding and $4.4 million in unused lines of credit. Time deposits due within one year of September 30, 2015 totaled $38.8 million, or 37.3% 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 September 30, 2016. We believe, however, based on past experience that a significant portion of our time deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

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

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

Capital Management. We are subject to various regulatory capital requirements administered by the Office of the Comptroller of Currency, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At September 30, 2015, we exceeded all of our regulatory capital requirements.

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 nine months ended September 30, 2015 and the year ended December 31, 2014 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 principal executive officer and principal financial officer, has 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 his evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

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

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be party to various legal proceedings incident to our business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on our results of operations.

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, 2014, which could materially affect our business, financial condition or future results. At September 30, 2015 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

Not applicable.

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 Principal Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of principal 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 September 30, 2015, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income (Loss), (iii) the Consolidated Statement of Comprehensive Income (Loss), (iv) the Consolidated Statement of Changes in Stockholder’s Equity, (v) the Consolidated Statements of Cash Flows and (vi) related notes.

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

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

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

Signatures

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

	POLONIA BANCORP, INC.

Date: November 16, 2015	By:	/s/ Joseph T. Svetik
		Joseph T. Svetik
		President and Chief Executive Officer
		(principal executive officer)

Date: November 16, 2015	By:	/s/ Paul D. Rutkowski
		Paul D. Rutkowski
		Chief Financial Officer and Treasurer
		(principal financial and accounting officer)

Polonia Bancorp Inc - FORM 10-Q - November 16, 2015

Attached files

Polonia Bancorp Inc Reports