UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 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 endedSeptember 30, ~~2013~~2014

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

For the transition period from ______________ to _____________

Commission file number:0-51852

Northeast Community Bancorp, Inc.

(Exact name of registrant as specified in its charter)


	United States of America			06-1786701
	(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)


	325 Hamilton Avenue, White Plains, New York			10601
	(Address of principal executive offices)			(Zip Code)

(914) 684-2500

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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. Yesx 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). Yesx No¨

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

Large Accelerated Filer ¨	Accelerated Filer ¨
Non-accelerated Filer ¨	Smaller Reporting Company x
(Do not check if a smaller reporting company)

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

As of November ~~8, 2013,~~7, 2014, there were ~~12,644,752~~12,376,202 shares of the registrant’s common stock outstanding.

NORTHEAST COMMUNITY BANCORP, INC.

Table of Contents


		Page No.
Part I—Financial Information

Item 1.	Consolidated Financial Statements (Unaudited)

	Consolidated Statements of Financial Condition at September 30, ~~2013~~2014 and December 31, ~~2012~~2013	1

	Consolidated Statements of Income ~~(Loss)~~ for the Three and Nine Months Ended September 30, ~~2013~~2014 and ~~2012~~2013	2

	Consolidated Statements of Comprehensive Income ~~(Loss)~~ for the Three and Nine Months Ended September 30, ~~2013~~2014 and ~~2012~~2013	3

	Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, ~~2013~~2014 and ~~2012~~2013	4

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2013~~2014 and ~~2012~~2013	5

	Notes to Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2322

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36

Item 4.	Controls and Procedures	37

Part II—Other Information

Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 3.	Defaults Upon Senior Securities	38

Item 4.	Mine Safety Disclosures	38

Item 5.	Other Information	38

Item 6.	Exhibits	38

	Signatures	3940

Table of Contents

~~PART I.~~

~~FINANCIAL INFORMATION~~

PART I. FINANCIAL INFORMATION

~~Item 1.~~

~~Financial Statements~~

Item 1. Financial Statements

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)

	September 30,			December 31,			September 30,			December 31,
	2013			2012			2014			2013
	(In thousands,						(In thousands,
	except share and per share data)						except share and per share data)
ASSETS
Cash and amounts due from depository institutions	$	2,530		$	2,821		$	2,732		$	3,794
Interest-bearing deposits		28,071			46,421			30,528			27,737
Cash and cash equivalents		30,601			49,242			33,260			31,531

Certificates of deposit		1,146			399			1,146			2,142
Securities available-for-sale		116			129			42			113
Securities held-to-maturity (fair value of $9,374 and $12,561, respectively)		9,040			11,987
Loans receivable, net of allowance for loan losses of $4,014		345,499			333,787
and $4,646, respectively
Securities held-to-maturity (fair value of $7,251 and $8,739, respectively)								7,004			8,444
Loans receivable, net of allowance for loan losses of $3,851								414,503			367,825
and $4,015, respectively
Premises and equipment, net		12,381			12,898			11,816			12,234
Federal Home Loan Bank of New York stock, at cost		874			1,355
Investments in restricted stocks, at cost								1,804			1,594
Bank owned life insurance		20,332			19,852			20,955			20,490
Accrued interest receivable		1,092			976			1,349			1,267
Goodwill		749			1,083			749			749
Intangible assets		360			406			299			345
Other real estate owned		3,821			4,271			4,047			3,985
Other assets		7,108			7,839			5,088			7,506
Total assets	$	433,119		$	444,224		$	502,062		$	458,225
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits:
Non-interest bearing	$	21,798		$	22,932		$	30,730		$	28,310
Interest bearing		294,158			295,188			333,386			296,899
Total deposits		315,956			318,120			364,116			325,209

Advance payments by borrowers for taxes and insurance		3,881			3,516			3,397			3,987
Federal Home Loan Bank advances		5,000			15,000			27,123			21,000
Accounts payable and accrued expenses		3,650			3,739			3,859			3,861
Total liabilities		328,487			340,375			398,495			354,057
Stockholders’ equity:

Preferred stock, $0.01 par value; 1,000,000 shares authorized, none issued		—			—			—			—
Common stock, $0.01 par value;
19,000,000 shares authorized; 13,225,000 shares issued;
12,644,752 shares outstanding at September 30, 2013 and December 31, 2012		132			132
outstanding: 12,376,202 and 12,566,952 shares, respectively								132			132
Additional paid-in capital		57,101			57,178			57,027			57,083
Unearned Employee Stock Ownership Plan (“ESOP”) shares		(3,175	)		(3,370	)		(2,916	)		(3,111	)
Retained earnings		54,409			53,893			55,044			54,428
Treasury stock – at cost, 580,248 shares		(3,712	)		(3,712	)
Treasury stock – at cost, 848,798 and 658,048 shares, respectively								(5,681	)		(4,291	)
Accumulated other comprehensive loss		(123	)		(272	)		(39	)		(73	)
Total stockholders’ equity		104,632			103,849			103,567			104,168
Total liabilities and stockholders’ equity	$	433,119		$	444,224		$	502,062		$	458,225

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

CONSOLIDATEDSTATEMENTS OF INCOME ~~(LOSS)~~ (UNAUDITED)

	Three Months Ended						Nine Months Ended						Three Months Ended					Nine Months Ended
	September 30,						September 30,						September 30,					September 30,
	2013			2012			2013			2012			2014		2013			2014			2013
	(In thousands, except per share data)												(In thousands, except share and per share data)
INTEREST INCOME:
Loans	$	4,304		$	4,817		$	13,627		$	14,678		$	4,770	$	4,304		$	14,250		$	13,627
Interest-earning deposits		3			7			9			29			7		3			16			9
Securities – taxable		72			116			255			379			68		72			215			255

Total Interest Income		4,379			4,940			13,891			15,086			4,845		4,379			14,481			13,891
INTEREST EXPENSE:
Deposits		749			634			2,207			2,451			831		749			2,397			2,207
Borrowings		46			139			192			419			27		46			125			192
Total Interest Expense		795			773			2,399			2,870			858		795			2,522			2,399
Net Interest Income		3,584			4,167			11,492			12,216			3,987		3,584			11,959			11,492
PROVISION (CREDIT) FOR LOAN LOSSES		(191	)		1,912			(554	)		2,029			8		(191	)		(208	)		(554	)
Net Interest Income after Provision
(Credit) for Loan Losses		3,775			2,255			12,046			10,187			3,979		3,775			12,167			12,046
NON-INTEREST INCOME:
Other loan fees and service charges		122			293			462			716			96		122			332			462
Gain (loss) on disposition of equipment		—			—			—			(9	)
Earnings on bank owned life insurance		162			163			481			448			157		162			465			481
Investment advisory fees		183			242			537			681			191		183			590			537
Other		5			4			15			10			6		5			17			15
Total Non-Interest Income		472			702			1,495			1,846			450		472			1,404			1,495
NON-INTEREST EXPENSES:
Salaries and employee benefits		1,862			2,554			6,197			6,928			2,093		1,862			6,446			6,197
Occupancy expense		352			375			1,092			983			322		352			1,098			1,092
Equipment		138			219			469			577			110		138			405			469
Outside data processing		229			265			789			780			280		229			820			789
Advertising		13			81			43			194			16		13			37			43
Impairment loss on goodwill		—			—			334			—			—		—			—			334
Other real estate owned expense		59			—			318			—			162		59			274			318
FDIC insurance premiums		155			91			268			283			115		155			363			268
Other		914			1,219			2,760			3,485			787		914			2,646			2,760
Total Non-Interest Expenses		3,722			4,804			12,270			13,230			3,885		3,722			12,089			12,270
Income (Loss) before Provision for
Income Taxes		525			(1,847	)		1,271			(1,197	)
PROVISION (BENEFIT) FOR INCOME TAXES		144			(847	)		302			(714	)
Net Income (Loss)	$	381		$	(1,000	)	$	969		$	(483	)
Net Income (Loss) per Common Share
– Basic	$	0.03		$	(0.08	)	$	0.08		$	(0.04	)
Income before Provision for Income Taxes														544		525			1,482			1,271
PROVISION FOR INCOME TAXES														166		144			433			302
Net Income													$	378	$	381		$	1,049		$	969
Net Income per Common Share - Basic													$	0.03	$	0.03		$	0.09		$	0.08
Weighted Average Number of Common
Shares Outstanding – Basic		12,324			12,298			12,318			12,292			12,081		12,324			12,124			12,318
Dividends Declared per Common Share	$	0.03		$	—		$	0.09		$	0.06		$	0.03	$	0.03		$	0.09		$	0.09

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

CONSOLIDATEDSTATEMENTS OFCOMPREHENSIVE INCOME ~~(LOSS)~~(UNAUDITED)

	Three Months						Nine Months Ended						Three Months						Nine Months
	Ended September 30,						September 30,						Ended September 30,						Ended September 30,
	(In thousands)												(In thousands)

	2013			2012			2013			2012			2014			2013			2014			2013
Net income (loss)	$	381		$	(1,000	)	$	969		$	(483	)
Other comprehensive income (loss):
Net income													$	378		$	381		$	1,049		$	969
Other comprehensive income:
Unrealized loss on securities available-for-sale arising during the period														1			—			(1	)		—
Defined benefit pension:
Reclassification adjustments out of accumulated
other comprehensive loss:
Amortization of prior service cost (1)		5			5			15			16			5			5			16			15
Amortization of actuarial loss (1)		9			—			27			—
Actuarial gains (losses) arising during period		69			(111	)		207			(228	)
Amortization of actuarial (gain) loss (1)														1			9			(1	)		27
Actuarial gains arising during period														14			69			44			207
Total		83			(106	)		249			(212	)		21			83			58			249
Income tax effect (2)		(33	)		43			(100	)		86			(9	)		(33	)		(24	)		(100	)
Total other comprehensive income (loss)		50			(63	)		149			(126	)
Total other comprehensive income														12			50			34			149

Total comprehensive income (loss)	$	431		$	(1,063	)	$	1,118		$	(609	)
Total comprehensive income													$	390		$	431		$	1,083		$	1,118

(1)

Amounts are included in salaries and employees benefits in the unaudited consolidated statements of income ~~(loss)~~ as part of net periodic pension cost. See ~~note 4~~Note 10 for further information.

(2)

Amounts are included in provision ~~(benefit)~~ for income taxes in the unaudited consolidated statements of ~~income (loss).~~income.

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

Nine Months Ended September 30, 2014 and 2013 (in thousands, except share and ~~2012 (in thousands)~~per share data)

	Common Stock		Additional Paid- in Capital			Unearned ESOP Shares			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Total Equity
Balance at December 31, 2011	$	132	$	57,292		$	(3,629	)	$	57,076		$	(3,712	)	$	(94	)	$	107,065
Net loss		—		—			—			(483	)		—			—			(483	)
Other comprehensive loss		—		—			—			—			—			(126	)		(126	)
Cash dividend declared ($.06 per share)		—		—			—			(518	)		—			—			(518	)
ESOP shares earned		—		(83	)		194			—			—			—			111
Balance – September 30, 2012	$	132	$	57,209		$	(3,435	)	$	56,075		$	(3,712	)	$	(220	)	$	106,049
																					Common Stock		Additional Paid- in Capital			Unearned ESOP Shares			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Total Equity
Balance at December 31, 2012	$	132	$	57,178		$	(3,370	)	$	53,893		$	(3,712	)	$	(272	)	$	103,849		$	132	$	57,178		$	(3,370	)	$	53,893		$	(3,712	)	$	(272	)	$	103,849
Net income		—		—			—			969			—			—			969			—		—			—			969			—			—			969
Other comprehensive income		—		—			—			—			—			149			149			—		—			—			—			—			149			149
Cash dividend declared ($.09 per share)		—		—			—			(453	)		—			—			(453	)
Cash dividends declared ($0.09 per share)																						—		—			—			(453	)		—			—			(453	)
ESOP shares earned		—		(77	)		195			—			—			—			118			—		(77	)		195			—			—			—			118
Balance – September 30, 2013	$	132	$	57,101		$	(3,175	)	$	54,409		$	(3,712	)	$	(123	)	$	104,632		$	132	$	57,101		$	(3,175	)	$	54,409		$	(3,712	)	$	(123	)	$	104,632

Balance at December 31, 2013																					$	132	$	57,083		$	(3,111	)	$	54,428		$	(4,291	)	$	(73	)	$	104,168
Net income																						—		—			—			1,049			—			—			1,049
Other comprehensive income																						—		—			—			—			—			34			34
Purchase of 190,750 shares of treasury stock																						—		—			—			—			(1,390	)		—			(1,390	)
Cash dividends declared ($0.09 per share)																						—		—			—			(433	)		—			—			(433	)
ESOP shares earned																						—		(56	)		195			—			—			—			139
Balance – September 30, 2014																					$	132	$	57,027		$	(2,916	)	$	55,044		$	(5,681	)	$	(39	)	$	103,567

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Nine Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2014			2013
	(In thousands)						(In thousands)
Cash Flows from Operating Activities:
Net income (loss)	$	969		$	(483	)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Net amortization of securities premiums and discounts, net		55			33
Net income							$	1,049		$	969
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization (accretion) of securities premiums and discounts, net								(28	)		55
Provision (credit) for loan losses		(554	)		2,029			(208	)		(554	)
Depreciation		572			497			532			572
Net amortization of deferred loan fees and costs		114			147			112			114
Amortization of intangible assets		46			20			46			46
Deferred income tax expense		78			529
Deferred income tax (benefit) expense								(30	)		78
Impairment loss on goodwill		334			—			—			334
Loss on sale of other real estate owned		51			—			—			51
Loss on disposal of equipment		—			9
Earnings on bank owned life insurance		(481	)		(448	)		(465	)		(481	)
ESOP compensation expense		118			111			139			118
(Increase) decrease in accrued interest receivable		(116	)		537
Increase (decrease) in other assets		553			(1,006	)
(Decrease) increase in accounts payable and accrued expenses		161			(1,833	)
Increase in accrued interest receivable								(82	)		(116	)
Decrease in other assets								2,424			553
Increase in accounts payable and accrued expenses								61			161
Net Cash Provided by Operating Activities		1,900			142			3,550			1,900
Cash Flows from Investing Activities:
Net (increase) decrease in loans		(11,272	)		7,211
Proceeds from sale of other real estate owned		399			—
Net increase in loans								(48,682	)		(11,272	)
Proceeds from sale of real estate owned								2,100			399
Principal repayments on securities available-for-sale		13			17			70			13
Principal repayments on securities held-to-maturity		2,892			3,007			1,468			2,892
Proceeds from maturities of certificates of deposit		249			1,992			996			249
Purchases of certificates of deposit		(996	)		—
Redemption of Federal Home Loan Bank of New York stock		481			278
Purchases of bank owned life insurance		—			(2,500	)
Purchase of certificates of deposit								—			(996	)
Net purchase of FHLB of NY stock								(210	)		481
Capitalized cost of real estate owned								(62	)		—
Purchases of premises and equipment		(55	)		(3,935	)		(114	)		(55	)
Net Cash (Used In) Provided by Investing Activities		(8,289	)		6,070
Net Cash Used In Investing Activities								(44,434	)		(8,289	)
Cash Flows from Financing Activities:
Net decrease in deposits		(2,164	)		(34,637	)
Net increase (decrease) in deposits								38,907			(2,164	)
Proceeds from FHLB of NY advances								19,123			—
Repayment of FHLB of NY advances		(10,000	)		(5,000	)		(13,000	)		(10,000	)
Increase in advance payments by borrowers for taxes and insurance		365			661
Purchase of treasury stock								(1,390	)		—
(Decrease) increase in advance payments by borrowers for taxes and insurance								(590	)		365
Cash dividends paid		(453	)		(518	)		(437	)		(453	)
Net Cash Used in Financing Activities		(12,252	)		(39,494	)
Net Decrease in Cash and Cash Equivalents		(18,641	)		(33,282	)
Net Cash Provided by (Used in) Financing Activities								42,613			(12,252	)
Net Increase (Decrease) in Cash and Cash Equivalents								1,729			(18,641	)
Cash and Cash Equivalents - Beginning		49,242			82,583			31,531			49,242
Cash and Cash Equivalents - Ending	$	30,601		$	49,301		$	33,260		$	30,601
SUPPLEMENTARY CASH FLOWS INFORMATION
Income taxes paid	$	104		$	2,375
Income taxes paid (refunded)							$	(1,706	)	$	104
Interest paid	$	2,399		$	2,870		$	2,520		$	2,399
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES
Real estate owned transferred to premises and equipment	$	—		$	620
Dividends declared and not paid							$	144		$	—
Loans receivable transferred to real estate owned							$	2,100		$	—

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

NORTHEAST COMMUNITY BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION

Northeast Community Bancorp, Inc. (the “Company”) is a federally-chartered corporation organized as a mid-tier holding company for Northeast Community Bank (the “Bank”), in conjunction with the Bank’s reorganization from a mutual savings bank to the mutual holding company structure on July 5, 2006. The Bank is a New York State-chartered savings bank and completed its conversion from a federally-chartered savings bank effective as of the close of business on June 29, 2012. The accompanying unaudited consolidated financial statements include the accounts of the Company, the Bank and the Bank’s wholly owned subsidiaries, New England Commercial Properties, LLC (“NECP”) and NECB Financial Services Group, LLC. NECB Financial Services Group was formed by the Bank in the second quarter of 2012 as a complement to the Bank’s existing investment advisory and financial planning services division, Hayden Wealth Management. As of the filing of this Form 10-Q, NECB Financial Services Group has not conducted any business. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements were prepared in accordance with generally accepted accounting principles for interim financial information as well as instructions for Form ~~10-Q and Rule 10-01 of Regulation S-X.~~10-Q. Accordingly, they do not include all of the information or footnotes necessary for the presentation of financial position, results of operations, changes in stockholders’ equity and cash flows in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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, ~~2013~~2014 are not necessarily indicative of the results that may be expected for the full year or any other interim period. The December 31, ~~2012~~2013 consolidated statement of financial condition data was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP. That data, along with the interim financial information presented in the unaudited consolidated statements of financial condition, income, comprehensive income, stockholders’ equity, and cash flows should be read in conjunction with the consolidated financial statements and notes thereto, included in the Company’s annual report on Form 10-K for the year ended December 31, ~~2012.~~2013.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect certain recorded amounts and disclosures. Accordingly, actual results could differ from those estimates. The most significant estimate pertains to the allowance for loan losses. In preparing these consolidated financial statements, the Company evaluated the events that occurred after September 30, ~~2013~~2014 and through the date these consolidated financial statements were issued.

Loans

Loans are stated at unpaid principal balances plus net deferred loan origination costs less an allowance for loan losses. Interest on loans receivable is recorded on the accrual basis. An allowance for uncollected interest is established on loans where management has determined that the borrowers may be unable to meet contractual principal and/or interest obligations or where interest or principal is 90 days or more past due, unless the loans are well secured and in the process of collection. When a loan is placed on nonaccrual, an allowance for uncollected interest is established and charged against current income. Thereafter, interest income is not recognized unless the financial condition and payment record of the borrower warrant the recognition of interest income. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally six consecutive months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt. Interest on loans that have been restructured is accrued according to the renegotiated terms, unless on non-accrual. Net loan origination fees and costs are deferred and amortized into income over the contractual lives of the related loans by use of the level yield method. Past due status of loans is based upon the contractual due date.

Allowance for Loan Losses

The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the statement of financial condition date and is recorded as a reduction to loans. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and other relevant factors.

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NOTE 1 – BASIS OF PRESENTATION (Continued)

Allowance for Loan Losses (Continued)

This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

Risk characteristics associated with the types of loans the Company underwrites are as follows:

Multi-family, Mixed-use and Non-residential Real Estate Loans. Loans secured by multi-family, mixed-use, and non-residential real estate generally have larger balances and involve a greater degree of risk than one- to four-family residential mortgage loans. Of primary concern in multi-family, mixed-use and non-residential real estate lending is the current and potential cash flow of the property and the borrower’s demonstrated ability to operate that type of property. Payments on loans secured by income properties often depend on successful operation and management of the properties. As a result, repayment of such loans may be subject to a greater extent than residential real estate loans to adverse conditions in the real estate market or the economy. To monitor cash flows on income producing properties, we require borrowers to provide annual financial statements for all multi-family, mixed-use and non-residential real estate loans. In reaching a decision on whether to make a multi-family, mixed-use or non-residential real estate loan, we consider the net operating income of the property, the borrower’s expertise, credit history and profitability and the value of the underlying property. In addition, with respect to non-residential real estate properties, we also consider the term of the lease and the quality of the tenants. An appraisal of the real estate used as collateral for the real estate loan is also obtained as part of the underwriting process. We have generally required that the properties securing these real estate loans have debt service coverage ratios (the ratio of earnings after subtracting all operating expenses to debt service payments) of at least 1.25x. In underwriting these loans, we take into account projected increases in interest rates in determining whether a loan meets our debt service coverage ratios at the higher interest rate under the adjustable rate mortgage. Environmental surveys and property inspections are utilized for all loans.

Commercial and Industrial Loans. Unlike ~~multi-family, mixed-use, and non-residential~~residential mortgage loans, which are generally made on the basis of a borrower’s ability to make repayment from the operation and cash flow from the real property whose value tends to be more ascertainable, commercial and industrial loans are of higher risk and tend to be made on the basis of a borrower’s ability to make repayment from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial and industrial loans may depend substantially on the success of the business itself. Further, any collateral securing such loans may depreciate over time, may be difficult to appraise and may fluctuate in value.

Construction Loans. Construction financing ~~affords us the opportunity to achieve higher interest rates and fees with shorter terms to maturity than does residential mortgage loans. However, construction financing~~ is generally considered to involve a higher degree of risk of loss than long-term ~~financing on~~loans secured by improved, occupied real estate due toto: (1) the increased difficulty at the time the loan is made of estimating the building costs and the selling price of the property to be built; (2) the increased difficulty and costs of monitoring the loan; (3) the higher degree of sensitivity to increases in market rates of interest; and (4) the increased difficulty of working out loan problems. ~~We have~~The Company sought to minimize ~~this risk~~these risks by limiting the amount of construction loans outstanding at any time, by limiting our construction loans to borrowers who have in effect pre-sold their construction project, and by ~~spreading the loans among multi-family, mixed-use and non-residential projects. In connection with~~limiting our construction loans ~~that convert~~ to ~~permanent loans with us, we underwrite these loans using the same underwriting standards as our~~ multi-family ~~mixed-use~~ and ~~non-residential real estate loans. If we do not offer permanent financing to the borrower, we minimize risks by requiring the borrower to obtain permanent financing from another financial institution.~~

~~Residential One-to-Four Family Loans.~~~~Residential one-to-four~~single family mortgage loans are secured by the borrower’s personal residence. These loans have varying loan rates, depending on the financial condition of the borrower and the loan to value ratio, and have amortizations up to 30 years. Such loans are considered to have a lower degree of risk when compared to our other loan types.projects.

Consumer Loans. We offer personal loans, loans secured by passbook savings accounts, certificates of deposit accounts or statement savings accounts, and overdraft protection for checking accounts. We do not believe these loans represent a significant risk of loss to the Company.

The allowance for loan losses consists of specific and general ~~components.~~reserves. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, a specific allowance is established or a partial charge-off is taken when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.

~~Table of Contents~~

~~NOTE 1 – BASIS OF PRESENTATION (Continued)~~

~~Allowance for Loan Losses (Continued)~~

~~Beginning in the fourth quarter of 2012, the Company discontinued the use of specific allowances. If an impairment is identified, the Company now charges off the impaired portion immediately.~~ A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment records, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis.

The Company does not evaluate ~~consumer or~~individual one-to-four family residential ~~one- to four-family~~real estate and consumer loans for impairment, unless such loans are part of a larger relationship that is impaired, or are classified as a troubled debt ~~restructuring.~~restructuring (“TDR”).

The estimated fair values of substantially all of the Company’s impaired loans are measured based on the estimated fair value of the loan’s collateral or discounted cash flows.

For loans secured by real estate, estimated fair values are determined primarily through in-house or third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values might be discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.

For loans secured by non-real estate collateral, such as accounts receivable, inventory and equipment, estimated fair values are determined based on the borrower’s financial statements, inventory reports, accounts receivable aging or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.

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NOTE 1 – BASIS OF PRESENTATION (Continued)

Allowance for Loan Losses (Continued)

The general component covers pools of loans by loan class including loans not considered impaired, as well as smaller balance homogeneous loans, such as residential real estate and consumer loans. These pools of loans are evaluated for loss exposure based upon historical loss rates, adjusted for qualitative factors. These qualitative risk factors include:

Changes in policies and procedures in underwriting standards and collections.

Changes in economic conditions.

Changes in nature and volume of lending.

Experience of origination team.

Changes in past due loan volume and severity of classified assets.

Quality of loan review system.

Collateral values in general throughout lending territory.

Concentrations of credit.

Competition, legal and regulatory issues.

Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for loan loss calculation.

~~Table of Contents~~

~~Allowance for Loan Losses (Continued)~~

The allowance for loan losses calculation methodology includes further segregation of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated annually for commercial loans or when credit deficiencies arise, such as delinquent loan payments, for commercial, residential and consumer loans. Credit quality risk ratings include regulatory classifications of pass, special mention, substandard, doubtful and loss. Loans criticized as special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any.

Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated pass.

The allowance calculation for each pool of loans is also based on the loss factors that reflect the Company’s historical charge-off experience adjusted for current economic conditions applied to loan groups with similar characteristics or classifications in the current portfolio. During the quarter ended September 30, 2014, the Company revised the methodology used to calculate the historical loss factor from three to two years. The Company believes this change in methodology was warranted due to the Company’s determination that the Company’s historical loss charge-offs from 2009 to 2012 was a result of the recent economic recession, that the bulk of the loss charge-offs from 2009 to 2012 occurred in 2012, that there has not been a significant amount of loss charge-offs during the past two years, and that the Company’s loan portfolio has weathered the recession with no further anticipated significant loss charge-offs.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan rating process which allows for a periodic review of its loan portfolio and the early identification of potential impaired loans. Such system takes into consideration, among other things, delinquency status, size of loans, type of collateral and financial condition of the borrowers. The Company’s Chief Executive Officer is ultimately responsible for the timely and accurate risk rating of the loan portfolio.

Loans whose terms are modified are classified as ~~troubled debt restructurings~~TDRs if the Company grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a ~~troubled debt restructuring~~TDR generally involve a temporary reduction in interest rate or an extension of a loan’s stated maturity date. Adversely classified, non-accrual ~~troubled debt restructurings~~TDRs may be ~~reclassified~~returned to accrued status if principal and interest payments, under the modified terms, are current for six consecutive months after modification. All TDR loans are classified as impaired.

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NOTE 1 – BASIS OF PRESENTATION (Continued)

Allowance for Loan Losses (Continued)

In addition, banking regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses and may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management’s comprehensive analysis of the loan portfolio, management believes the allowance for loan losses is adequate as of September 30, ~~2013.~~2014.

Goodwill

Goodwill totaled $749,000 at September 30, 2014 and December 31, 2013 and consists of goodwill acquired in the business combination completed by the Company in November 2007. The Company ~~recognized~~tests goodwill ~~in connection with the acquisition of its wealth management division in 2007. In~~during the fourth quarter of ~~2012,~~each year for impairment, or more frequently if certain indicators are present or changes in circumstances suggest that impairment may exist. The Company utilizes a two-step approach. The first step requires a comparison of the ~~Company performed an impairment test and determined that~~carrying value of the reporting unit to the fair value of ~~this division was less than~~the unit. The Company estimates the fair value of the reporting unit through internal analyses and external valuation, which utilizes an income approach based on the present value of future cash flows. If the carrying value of the reporting unit exceeds its fair value, impairment exists and the Company will perform the second step of the goodwill impairment test to measure the amount of impairment loss, if any. The second step of the goodwill impairment test, if necessary, compares the implied fair value of a reporting unit’s goodwill with its carrying value.

The implied fair value of goodwill is determined in the same manner that the amount of goodwill recognized in a business combination is determined. The Company allocates the fair value of the reporting unit to all of the assets and ~~accordingly,~~liabilities of that unit, including identifiable intangible assets, as if the reporting unit had been acquired in a business combination. Any excess of the value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. No impairment charges were recorded ~~an impairment charge of $227,000 in 2012.~~for the three- and nine-month periods ended September 30, 2014. During the second quarter of 2013, the Company determined that an adjustment to the goodwill impairment previously recorded in 2012 was necessary. As a result, an additional impairment charge of $334,000 was recognized during the second quarter of 2013.

The impairment charges were the result of a reduction in expected cash flow from this division resulting from the departure of two employees, one of which had generated significant other commission income from sales of insurance and annuity products. We expect future commission income to decline 50% from prior levels. This decline resulted in a decrease in the value of this division.

NOTE 2 – EARNINGS PER SHARE

Basic earnings per common share is calculated by dividing the net income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per common share is computed in a manner similar to basic earnings per common share except that the weighted average number of common shares outstanding is increased to include the incremental common shares (as computed using the treasury stock method) that would have been outstanding if all potentially dilutive common stock equivalents were issued during the period. Common stock equivalents may include restricted stock awards and stock options. Anti-dilutive shares are common stock equivalents with weighted-average exercise prices in excess of the weighted-average market value for the periods presented. The Company has not granted any restricted stock awards or stock options and had no potentially dilutive common stock equivalents during the nine-month periods ended September 30, ~~2013~~2014 and ~~2012, had no potentially dilutive common stock equivalents.~~2013. Unallocated common shares held by the Employee Stock Ownership Plan (“ESOP”) are not included in the weighted-average number of common shares outstanding for purposes of calculating both basic and diluted earnings per common share until they are committed to be released.

~~Table of Contents~~

NOTE 3 – EMPLOYEE STOCK OWNERSHIP PLAN

As of December 31, ~~2012~~2013 and September 30, ~~2013,~~2014, the ESOP trust held 518,420 shares of the Company’s common stock, which represents all allocated and unallocated shares held by the ~~plan.~~ESOP. As of December 31, ~~2012,~~2013, the Company had allocated ~~155,526~~181,447 shares to participants, and an additional 25,921 shares had been committed to be released. As of September 30, ~~2013,~~2014, the Company had allocated ~~181,447~~207,368 shares to participants, and an additional 19,441 shares had been committed to be released.

The Company recognized compensation expense of ~~$43,000~~$45,000 and ~~$35,000~~$43,000 during the three-month periods ended September 30, ~~2013~~2014 and ~~2012,~~2013, respectively, and ~~$118,000~~$139,000 and ~~$111,000~~$118,000 during the nine-month periods ended September 30, ~~2013~~2014 and ~~2012,~~2013, respectively, which equals the fair value of the ESOP shares when they became committed to be released.

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~~NOTE~~Note 4 –Outside ~~Director Retirement Plan~~director retirement plan (“~~DRP”~~drp”)

~~Periodic expenses~~Net periodic pension cost for the Company’s DRP ~~were~~is as follows:

	Three Months				Nine Months Ended				Three Months				Nine Months
	Ended September 30,				September 30,				Ended September 30,				Ended September 30,
	(In thousands)								(In thousands)

	2013		2012		2013		2012		2014		2013		2014			2013
Service cost	$	18	$	12	$	55	$	38	$	18	$	18	$	54		$	55
Interest cost		11		13		31		38		10		11		30			31
Amortization of prior service cost		5		5		15		15		5		5		16			15
Amortization of actuarial loss		9		—		27		—
Amortization of actuarial (gain) loss										1		9		(1	)		27
Total	$	43	$	30	$	128	$	91	$	34	$	43	$	99		$	128

This plan is an unfunded, non-contributory defined benefit pension plan covering all non-employee directors meeting eligibility requirements as specified in the plan document. The amortization of prior service cost and actuarial loss in the three-month periods ended September 30, 2013 and 2012 and the nine-month periods ended September 30, 2013 and 2012 is also reflected in other comprehensive income (loss) during those periods.

NOTE 5 – INVESTMENTS

The following table sets forth the amortized cost and fair values of our securities portfolio at the dates indicated:

Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In thousands)
September 30, 2013
Securities available for sale:
  Mortgage-backed securities – residential:
     Federal Home Loan Mortgage Corporation $ 65 $ 2 $ — $ 67
     Federal National Mortgage Association 47 2 — 49
        Total $ 112 $ 4 $ — $ 116

Securities held to maturity:
   Mortgage-backed securities – residential:
       Government National Mortgage Association $ 6,901 $ 241 $ — $ 7,142
       Federal Home Loan Mortgage Corporation 244 7 — 251
       Federal National Mortgage Association 172 7 — 179
       Collateralized mortgage obligations-GSE 1,722 79 — 1,801
       Other 1 — — 1
         Total $ 9,040 $ 334 $ — $ 9,374

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In thousands)
September 30, 2014
Securities available-for-sale:
Mortgage-backed securities – residential:
Federal Home Loan Mortgage Corporation	$	35	$	2	$	—	$	37
Federal National Mortgage Association		5		—		—		5
Total	$	40	$	2	$	—	$	42

Securities held-to-maturity:
Mortgage-backed securities – residential:
Government National Mortgage Association	$	5,366	$	194	$	—	$	5,560
Federal Home Loan Mortgage Corporation		193		5		—		198
Federal National Mortgage Association		136		2		—		138
Collateralized mortgage obligations-GSE		1,309		46		—		1,355
Total	$	7,004	$	247	$	—	$	7,251

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NOTE 5 –INVESTMENTS (Continued)

			Gross		Gross						Gross		Gross
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
	(In thousands)								(In thousands)
December 31, 2012
Securities available for sale:
December 31, 2013
Securities available-for-sale:
Mortgage-backed securities – residential:
Federal Home Loan Mortgage Corporation	$	76	$	2	$	—	$	78	$	63	$	2	$	—	$	65
Federal National Mortgage Association		49		2		—		51		47		1		—		48
Total	$	125	$	4	$	—	$	129	$	110	$	3	$	—	$	113

Securities held to maturity:
Securities held-to-maturity:
Mortgage-backed securities – residential:
Government National Mortgage Association	$	9,044	$	442	$	—	$	9,486	$	6,426	$	215	$	—	$	6,641
Federal Home Loan Mortgage Corporation		267		9		—		276		238		7		—		245
Federal National Mortgage Association		215		8		—		223		155		6		—		161
Collateralized mortgage obligations-GSE		2,460		115		—		2,575		1,624		67		—		1,691
Other		1		—		—		1		1		—		—		1
Total	$	11,987	$	574	$	—	$	12,561	$	8,444	$	295	$	—	$	8,739

Contractual final maturities of mortgage-backed securities ~~available for sale~~available-for-sale were as follows:

	September 30, 2013				September 30, 2014
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In Thousands)				(In thousands)
Due after five but within ten years	$25		$25		$	6	$	6
Due after ten years		87		91		34		36

Total	$	112	$	116	$	40	$	42

Contractual final maturities of mortgage-backed securities ~~held to maturity~~held-to-maturity were as follows:

	September 30, 2013				September 30, 2014
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In Thousands)				(In thousands)
Due after one but within five years	$	70	$	72	$	75	$	77
Due after five but within ten years		126		131		125		127
Due after ten years		8,844		9,171		6,804		7,047

Total	$	9,040	$	9,374	$	7,004	$	7,251

The maturities shown above are based upon contractual final maturity. Actual maturities will differ from contractual maturities due to scheduled monthly repayments and due to the underlying borrowers having the right to prepay their obligations.

NOTE 6 – FAIR VALUE DISCLOSURES

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The Company’s securities ~~available for sale~~available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other assets and liabilities on a non-recurring basis, such as impaired loans and other real estate owned. U.S. GAAP has established a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

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NOTE 6 –~~Fair Value~~ FAIR VALUE DISCLOSURES(Continued)

	Level 1:	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

	Level 2:	Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

	Level 3:	Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

An asset’s or liability’s level within the fair value hierarchy is 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 and nonrecurring basis, the fair value measurements by level within the fair value hierarchy used are as follows:

(Level 1) (Level 2)
Quoted Prices Significant
in Active Other (Level 3)
Markets for Observable Significant
Description Total Identical Assets Inputs Unobservable Inputs
September 30, 2013: (In Thousands)
Recurring:
  Mortgage-backed securities - residential:
     Federal Home Loan Mortgage Corporation $ 67 $ — $ 67 $ —
     Federal National Mortgage Association 49 — 49 —
                Total $ 116 $ — 116 $ —
Nonrecurring:
     Impaired loans $ 16,353 $ — $ — $ 16,353

December 31, 2012:
Recurring:
Mortgage-backed securities - residential:
     Federal Home Loan Mortgage Corporation $ 78 $ — 78 $ —
     Federal National Mortgage Association 51 — 51 —
                Total $ 129 $ — 129 $ —
Nonrecurring:
     Impaired loans $ 10,515 $ — $ — $ 10,515
     Real estate owned $ 4,271 $ — $ — $ 4,271

~~Table of Contents~~

~~NOTE 6 –Fair Value DISCLOSURES(Continued)~~

			(Level 1)		(Level 2)
			Quoted Prices		Significant
			in Active		Other		(Level 3)
			Markets for		Observable		Significant
Description	Total		Identical Assets		Inputs		Unobservable Inputs
September 30, 2014:	(In thousands)
Recurring:
Mortgage-backed securities - residential:
Federal Home Loan Mortgage Corporation	$	37	$	—	$	37	$	—
Federal National Mortgage Association		5		—		5		—
Total	$	42	$	—	$	42	$	—
Nonrecurring:
Impaired loans	$	4,110	$	—	$	—	$	4,110

December 31, 2013:
Recurring:
Mortgage-backed securities - residential:
Federal Home Loan Mortgage Corporation	$	65	$	—	$	65	$	—
Federal National Mortgage Association		48		—		48		—
Total	$	113	$	—	$	113	$	—
Nonrecurring:
Impaired loans	$	789	$	—	$	—	$	789

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

Quantitative Information about Level 3 Fair Value Measurements

Unobservable

Fair Value
Estimate

Valuation

Unobservable

Range

(in thousands)

Fair Value
Estimate

Valuation
Techniques

Input

Weighted
Average Rate

Estimate

Techniques

Input

(Weighted Average Rate)

September 30, 2013:

September 30, 2014:

Impaired loans

16,353

Appraisal of collateral (1)

Appraisal adjustments (2)

7.73%

4,110

Appraisal of collateral (1)

Appraisal adjustments (2)

0.00%

Liquidation expenses (2)

0.51%-10.51% (3.23%)

December 31, 2013:

Impaired loans

789

Appraisal of collateral (1)

Appraisal adjustments (2)

0.00%

Liquidation expenses (2)

3.00% (3.00%)

(1)

Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

(2)

Appraisals may be adjusted by management for qualitative factors such as economic conditions and ~~estimated liquidation expenses.~~aged appraisals. The range of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

Quantitative Information about Level 3 Fair Value Measurements
Unobservable
(in thousands) Fair Value
Estimate Valuation
Techniques Input Weighted
Average Rate
December 31, 2012:
Impaired loans $ 10,515 Appraisal of collateral (1) Appraisal adjustments (2) 7.80%

Real estate owned $ 4,271 Appraisal of collateral (1) Appraisal adjustments (2) 8.50%

~~(1)~~

~~Fair value is generally determined through independent appraisals~~Table of ~~the underlying collateral, which generally include various level 3 inputs which are not identifiable.~~Contents

~~(2)~~

Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

NOTE 6 – FAIR VALUE DISCLOSURES (Continued)

~~Management uses its best judgment in estimating the~~The carrying amounts and fair ~~value~~values of the Company’s financial ~~instruments; however, there~~instruments are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sale transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year-ends and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end.summarized below:

					Fair Value at
					September 30, 2014
					Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(In thousands)	Carrying Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial Assets
Cash and cash equivalents	$	33,260	$	33,260	$	33,260	$	—	$	—
Certificates of deposit		1,146		1,146		—		1,146		—
Securities available-for-sale		42		42		—		42		—
Securities held-to-maturity		7,004		7,251		—		7,251		—
Loans receivable		414,503		424,245		—		—		424,245
Investments in restricted stock		1,804		1,804		—		1,804		—
Accrued interest receivable		1,349		1,349		—		1,349		—

Financial Liabilities
Deposits		364,116		367,724		—		367,724		—
FHLB of New York advances		27,123		27,089		—		27,089		—
Accrued interest payable		4		4		—		4		—

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.

					Fair Value at
					December 31, 2013
					Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(In thousands)	Carrying Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial Assets
Cash and cash equivalents	$	31,531	$	31,531	$	31,531	$	—	$	—
Certificates of deposit		2,142		2,142		—		2,142		—
Securities available-for-sale		113		113		—		113		—
Securities held-to-maturity		8,444		8,739		—		8,739		—
Loans receivable		367,825		374,820		—		—		374,820
Investments in restricted stock		1,594		1,594		—		1,594		—
Accrued interest receivable		1,267		1,267		—		1,267		—

Financial Liabilities
Deposits		325,209		328,654		—		328,654		—
FHLB of New York advances		21,000		21,016		—		21,016		—
Accrued interest payable		2		2		—		2		—

Table of Contents

NOTE 6 – FAIR VALUE DISCLOSURES (Continued)

The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at September 30, ~~2013~~2014 and December 31, ~~2012:~~2013:

Cash and Cash Equivalents, Certificates of Deposit and Accrued Interest Receivable and Payable

For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

~~Table of Contents~~

~~NOTE 6 –Fair Value DISCLOSURES(Continued)~~

Securities

Fair values for securities ~~available for sale~~available-for-sale and ~~held to maturity~~held-to-maturity are determined utilizing Level 2 inputs. For these securities, the Companyobtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayments speeds, credit information and the security’s terms and conditions, among other things.

Loans ~~Receivable~~

Fair values are estimated for portfolios of loans with similar financial characteristics. The total loan portfolio is first divided into performing and non-performing categories. Performing loans are then segregated into adjustable and fixed rate interest terms. Fixed rate loans are segmented by type, such as construction, ~~and land development,~~ other loans secured by real estate, commercial and industrial loans, and ~~loans to individuals.~~consumer. Certain types, such as commercial loans and consumer loans, ~~to individuals,~~ are further segmented by maturity and type of collateral.

For performing loans, fair value is calculated by discounting scheduled future cash flows through estimated maturity using a ~~current~~ market ~~rate.~~rate that reflects the credit and interest-rate risks inherent in the loans. The discounted value of the cash flows is reduced by a credit risk adjustment ~~basedon~~based on internal loan ~~classifications~~.

classifications. For ~~certain impaired~~non-performing loans, fair value is calculated by ~~first reducing the carrying value by a credit risk adjustment based on internal loan classifications, and then~~ discounting the estimated future cash flows from the remaining carrying value at a market rate.

For ~~the remaining~~ impaired loans which the Company has measured and recorded impairment generally based on the fair value of the loan’s collateral, fair value is generally determined based upon independent third-party ~~appraisals~~appraisal of the ~~properties.~~properties, or discounted cash flows based upon the expected proceeds. These assets are typically included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

~~FHLB of New York Stock~~Restricted Stocks

The carrying amount of the ~~FHLB~~restricted stocks, consisting of Federal Home Loan Bank of New York (“FHLB”) stock and Atlantic Community Bankers Bank (“ACBB”) stock, approximates its fair value, and considers the limited marketability of ~~this security.~~these securities.

Deposit Liabilities

The fairvalue of deposits with no stated maturity, such as non-interest-bearing demand deposits, money market accounts, interest checking accounts, and savings accounts is equal to the amount payable on demand. Time deposits are segregated by type, size, and remaining maturity. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is based on rates currently offered in the market.

FHLB of New York Advances

The fair value of the FHLB advances is estimated based on the discounted value of future contractual payments. The discount rate is equivalent to the estimated rate at which the Company could currently obtain similar financing.

Off-Balance- Sheet Financial Instruments

The fair value of commitments to extend credit is estimated based on an analysis of the interest rates and fees currently charged to enter into similar transactions, considering the remaining terms of the commitments and the credit-worthiness of the potential borrowers. At September 30, ~~2013~~2014 and December 31, ~~2012,~~2013, the estimated fair values of these off-balance-sheet financial instruments were immaterial.

Table of Contents

NOTE 6 –~~Fair Value~~ FAIR VALUE DISCLOSURES(Continued)

~~The carrying amounts and~~Off-Balance- Sheet Financial Instruments (Continued)

Management uses its best judgment in estimating the fair ~~values~~value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are ~~summarized below:~~not necessarily indicative of the amounts the Company could have realized in a sale transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year-ends and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end.

Fair Value at
September 30, 2013
Quoted
Prices in
Active
Markets for
Identical
Assets Significant
Other
Observable
Inputs Significant
Unobservable
Inputs
(In thousands) Carrying
Amount Fair Value (Level 1) (Level 2) (Level 3)
Financial Assets
Cash and cash equivalents $ 30,601 $ 30,601 $ 30,601 $ — $ —
Certificates of deposit 1,146 1,146 — 1,146 —
Securities available for sale 116 116 — 116 —
Securities held to maturity 9,040 9,374 — 9,374 —
Loans receivable 345,499 354,739 — — 354,739
FHLB of New York stock 874 874 — 874 —
Accrued interest receivable 1,092 1,092 — 1,092 —

Financial Liabilities
Deposits 315,956 318,628 — 318,628 —
FHLB of New York advances 5,000 5,088 — 5,088 —
Accrued interest payable 3,650 3,650 — 3,650 —

The above information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.

Fair Value at
December 31, 2012
Quoted
Prices in
Active
Markets for
Identical
Assets Significant
Other
Observable
Inputs Significant
Unobservable
Inputs
(In thousands) Carrying
Amount Fair Value (Level 1) (Level 2) (Level 3)
Financial Assets
Cash and cash equivalents $ 49,242 $ 49,242 $ 49,242 $ — $ —
Certificates of deposit 399 399 — 399 —
Securities available for sale 129 129 — 129 —
Securities held to maturity 11,987 12,561 — 12,561 —
Loans receivable 333,787 350,420 — — 350,420
FHLB of New York stock 1,355 1,355 — 1,355 —
Accrued interest receivable 976 976 — 976 —

Financial Liabilities
Deposits 318,120 321,236 — 321,236 —
FHLB of New York advances 15,000 15,256 — 15,256 —
Accrued interest payable 3,739 3,739 — 3,739 —

~~Table of Contents~~

NOTE 7 – LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES

September 30, December 31,
2013 2012
(In Thousands)
Residential real estate:
One-to-four family $ 9,047 $ 7,761
Multi-family 180,305 178,644
Mixed use 46,583 41,895
Total residential real estate 235,935 228,300
Non-residential real estate 82,875 82,312
Construction 4,635 841
Commercial and Industrial 25,294 26,274
Consumer 159 77

Total Loans 348,898 337,804

Allowance for loan losses (4,014 ) (4,646 )
Deferred loan costs, net 615 629

Net Loans $ 345,499 $ 333,787

The following is an analysis of the allowance for loan ~~losses:~~losses and related information concerning loan balances:

	September 30,			December 31,
	2014			2013
	(In thousands)
Residential real estate:
One-to-four family	$	12,552		$	11,752
Multi-family		191,568			188,923
Mixed-use		59,261			50,467
Total residential real estate		263,381			251,142
Non-residential real estate		84,453			81,985
Construction		37,250			6,568
Commercial and industrial		32,463			31,345
Consumer		148			161

Total Loans		417,695			371,201

Allowance for loan losses		(3,851	)		(4,015	)
Deferred loan costs, net		659			639

Net Loans	$	414,503		$	367,825

~~At and for the Nine Months Ended September 30, 2013 (in thousands)~~

Residential
Real Estate Non-
residential
Real
Estate Construction Commercial
and
Industrial Consumer Total
Allowance for loan losses:
Beginning balance 3,216 996 — 434 — 4,646
Charge-offs — (105 ) — — — (105 )
Recoveries 23 4 — — — 27
Provision (credit) (672 ) 66 118 (66 ) — (554 )
Ending balance $ 2,567 $ 961 $ 118 $ 368 $ — $ 4,014
Ending balance:  individually evaluated for impairment $ — $ — $ — $ — $ — $ —

Ending balance:  collectively evaluated for impairment $ 2,567 $ 961 $ 118 $ 368 $ — $ 4,014

Loans receivable:
Ending balance $ 235,935 $ 82,875 $ 4,635 $ 25,294 $ 159 $ 348,898

Ending balance:  individually evaluated for impairment $ 6,726 $ 11,409 $ — $ — $ — $ 18,135

Ending balance:  collectively evaluated for impairment $ 229,209 $ 71,466 $ 4,635 $ 25,294 $ 159 $ 330,763

1615

Table of Contents

~~NOTE 7 – LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES (Continued)~~

~~For the Three Months Ended September 30, 2013 (in thousands)~~

Residential
Real Estate Non-
residential
Real
Estate Construction Commercial
and
Industrial Consumer Total
Allowance for loan losses:
Beginning balance $ 2,804 $ 869 $ 75 $ 457 $ — $ 4,205
Charge-offs — — — — — —
Recoveries — — — — — —
Provision (credit) (237 ) 92 43 (89 ) — (191 )
Ending balance $ 2,567 $ 961 $ 118 $ 368 $ — $ 4,014

~~For the Nine Months Ended September 30, 2012 (in thousands)~~

Residential
Real Estate Non-
residential
Real
Estate Construction Commercial
and
Industrial Consumer Total
Allowance for loan losses:
Beginning balance $ 3,781 $ 1,596 $ 1,724 $ 296 $ — $ 7,397
Charge-offs (1,258 ) (764 ) (1,715 ) — — (3,737 )
Recoveries 16 — — — — 16
Provision 1,573 466 (9 ) (1 ) — 2,029
Ending balance $ 4,112 $ 1,298 $ — $ 295 $ — $ 5,705

~~For the Three Months Ended September 30, 2012 (in thousands)~~

Residential
Real Estate Non-
residential
Real
Estate Construction Commercial
and
Industrial Consumer Total
Allowance for loan losses:
Beginning balance $ 2,681 $ 897 $ — $ 289 $ — $ 3,867
Charge-offs (85 ) — — — — (85 )
Recoveries 11 — — — — 11
Provision 1,505 401 — 6 — 1,912
Ending balance $ 4,112 $ 1,298 $ — $ 295 $ — $ 5,705

~~Table of Contents~~

NOTE 7 – LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES (Continued)

At and for the ~~Year~~Nine Months Ended ~~December 31, 2012~~September 30, 2014 (in thousands)

	Residential Real Estate		Non- residential Real Estate		Construction		Commercial and Industrial		Consumer		Total		Residential Real Estate			Non- residential Real Estate			Construction		Commercial and Industrial			Consumer		Unallocated			Total
Allowance for loan losses:
Ending balance - Total	$	3,216	$	996	$	—	$	434	$	—	$	4,646

Beginning balance													$	2,556		$	896		$	97	$	456		$	—	$	10		$	4,015
Charge-offs														(580	)		(41	)		—		—			—		—			(621	)
Recoveries														100			565			—		—			—		—			665
Provision (credit)														198			(452	)		122		(66	)		—		(10	)		(208	)
Ending balance													$	2,274		$	968		$	219	$	390		$	—	$	—		$	3,851
Ending balance: individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—		$	160		$	—	$	—		$	—	$	—		$	160

Ending balance: collectively evaluated for impairment	$	3,216	$	996	$	—	$	434	$	—	$	4,646	$	2,274		$	808		$	219	$	390		$	—	$	—		$	3,691

Loans receivable:
Ending balance - Total	$	228,300	$	82,312	$	841	$	26,274	$	77	$	337,804
Ending balance													$	263,381		$	84,453		$	37,250	$	32,463		$	148	$	—		$	417,695

Ending balance: individually evaluated for impairment	$	10,272	$	8,272	$	—	$	2,152	$	—	$	20,696
Ending balance: individually
evaluated for impairment													$	7,328		$	11,061		$	—	$	2,538		$	—	$	—		$	20,927

Ending balance: collectively evaluated for impairment	$	218,028	$	74,040	$	841	$	24,122	$	77	$	317,108	$	256,053		$	73,392		$	37,250	$	29,925		$	148	$	—		$	396,768

~~The following is a summary of impaired loans at~~For the Three Months Ended September 30, ~~2013 and December 31, 2012:~~2014 (in thousands)

September 30, 2013 December 31, 2012
Unpaid Unpaid
Recorded Principal Related Recorded Principal Related
Investment Balance Allowance Investment Balance Allowance

(In thousands)
Impaired loans without a valuation allowance:
Residential real estate-Multi-family $ 6,725 $ 7,355 $ — $ 10,272 $ 11,742 $ —
Non-residential real estate 11,410 14,587 — 8,272 11,345 —
Construction — — — — — —
Commercial and industrial — — — 2,152 2,179 —
          Subtotal $ 18,135 $ 21,942 $ — $ 20,696 $ 25,266 $ —

Impaired loans with a valuation allowance:
Residential real estate-Multi-family — — — — — —
Non-residential real estate — — — — — —
Construction — — — — — —
Commercial and industrial — — — — — —
          Subtotal $ — $ — $ — $ — $ — $ —

          Total impaired loans $ 18,135 $ 21,942 $ — $ 20,696 $ 25,266 $ —

	Residential Real Estate			Non- residential Real Estate		Construction		Commercial and Industrial		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	2,623		$	788	$	161	$	358	$	—	$	—	$	3,930
Charge-offs		(188	)		—		—		—		—		—		(188	)
Recoveries		101			—		—		—		—		—		101
Provision (credit)		(262	)		180		58		32		—		—		8
Ending balance	$	2,274		$	968	$	219	$	390	$	—	$	—	$	3,851

1816

Table of Contents

NOTE 7 – LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES (Continued)

~~Further information pertaining to~~For the Nine Months Ended September 30, 2013 (in thousands)

	Residential Real Estate			Non- residential Real Estate			Construction		Commercial and Industrial			Consumer		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	3,216		$	996		$	—	$	434		$	—	$	—	$	4,646
Charge-offs		—			(105	)		—		—			—		—		(105	)
Recoveries		23			4			—		—			—		—		27
Provision		(672	)		66			118		(66	)		—		—		(554	)
Ending balance	$	2,567		$	961		$	118	$	368		$	—	$	—	$	4,014

For the Three Months Ended September 30, 2013 (in thousands)

	Residential Real Estate			Non- residential Real Estate		Construction		Commercial and Industrial			Consumer		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	2,804		$	869	$	75	$	457		$	—	$	—	$	4,205
Charge-offs		—			—		—		—			—		—		—
Recoveries		—			—		—		—			—		—		—
Provision		(237	)		92		43		(89	)		—		—		(191	)
Ending balance	$	2,567		$	961	$	118	$	368		$	—	$	—	$	4,014

At December 31, 2013 (in thousands)

	Residential Real Estate		Non- residential Real Estate		Construction		Commercial and Industrial		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance - Total	$	2,556	$	896	$	97	$	456	$	—	$	10	$	4,015

Ending balance: individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Ending balance: collectively evaluated for impairment	$	2,556	$	896	$	97	$	456	$	—	$	10	$	4,015

Loans receivable:
Ending balance - Total	$	251,142	$	81,985	$	6,568	$	31,345	$	161	$	—	$	371,201
Ending balance: individually
evaluated for impairment	$	8,629	$	11,488	$	—	$	—	$	—	$	—	$	20,117

Ending balance: collectively evaluated for impairment	$	242,513	$	70,497	$	6,568	$	31,345	$	161	$	—	$	351,084

Table of Contents

NOTE 7 – LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES (Continued)

The following is a summary of impaired loans ~~follows:~~at September 30, 2014 and December 31, 2013:

	Three Months Ended September 30, 2013						Nine Months Ended September 30, 2013						September 30, 2014						December 31, 2013
					Interest						Interest				Unpaid						Unpaid
	Average		Interest		Income		Average		Interest		Income		Recorded		Principal		Related		Recorded		Principal		Related
	Recorded		Income		Recognized		Recorded		Income		Recognized		Investment		Balance		Allowance		Investment		Balance		Allowance
	Investment		Recognized		on Cash Basis		Investment		Recognized		on Cash Basis
													(In thousands)
	(In thousands)

With no related allowance recorded:
Residential real estate-Multi-family	$	8,570	$	62	$	62	$	9,726	$	322	$	322	$	7,328	$	8,055	$	—	$	8,629	$	9,259	$	—
Non-residential real estate		11,226		21		21		10,564		66		66		8,964		11,981		—		11,488		14,739		—
Commercial and industrial		916		—		—		1,459		49		49		2,538		2,538		—		—		—		—
Subtotal													$	18,830	$	22,574	$	—	$	20,117	$	23,998	$	—

With an allowance recorded:
Non-residential real estate													$	2,097	$	2,097	$	160	$	—	$	—	$	—
Subtotal													$	2,097	$	2,097	$	160	$	—	$	—	$	—

Total:
Residential real estate-Multi-family													$	7,328	$	8,055	$	—	$	8,629	$	9,259	$	—
Non-residential real estate														11,061		14,078		160		11,488		14,739		—
Commercial and industrial														2,538		2,538		—		—		—		—
Total	$	20,712	$	83	$	83	$	21,749	$	437	$	437	$	20,927	$	24,671	$	160	$	20,117	$	23,998	$	—

Three Months Ended September 30, 2012 Nine Months Ended September 30, 2012
Average Interest Average Interest
Recorded Income Recorded Income
Investment Recognized Investment Recognized

(In thousands)

Residential real estate-Multi-family $ 9,804 $ 164 $ 9,756 $ 295
Non-residential real estate 13,479 15 13,476 1,370
Commercial and industrial 1,750 26 1,713 79
Total $ 25,033 $ 205 $ 24,945 $ 1,744

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

	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized

	(In thousands)
With no related allowance recorded:
Residential real estate-Multi-family	$	8,292	$	42	$	8,465	$	155
Non-residential real estate		8,951		303		9,225		379
Commercial and industrial		2,525		—		1,262		—
Subtotal	$	19,768	$	345	$	18,952	$	534

With an allowance recorded:
Non-residential real estate	$	2,078	$	—	$	2,059	$	22
Subtotal	$	2,078	$	—	$	2,059	$	22

Total:
Residential real estate-Multi-family	$	8,292	$	42	$	8,465	$	155
Non-residential real estate		11,029		303		11,284		401
Commercial and industrial		2,525		—		1,262		—
Total	$	21,846	$	345	$	21,011	$	556

Table of Contents

NOTE 7 –LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES (Continued)

	Three Months				Nine Months
	Ended September 30, 2013				Ended September 30, 2013

	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized

	(In thousands)
With no related allowance recorded (1):
Residential real estate-Multi-family	$	8,570	$	62	$	9,726	$	322
Non-residential real estate		11,226		21		10,564		66
Commercial and industrial		916		—		1,459		49
Total	$	20,712	$	83	$	21,749	$	437

(1)

There were no impaired loans with related allowance recorded outstanding during the three and nine months ended September 30, 2013.

The following table provides information about delinquencies in our loan portfolio at the dates indicated.

Age Analysis of Past Due Loans as of September 30, ~~2013~~2014 (in ~~Thousands)~~thousands)

	30-59 Days Past Due		60 – 89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 Days and Accruing		30-59 Days Past Due		60 – 89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 Days and Accruing

Residential real estate:
One- to four-family	$	—	$	—	$	—	$	—	$	9,047	$	9,047	$	—	$	—	$	—	$	—	$	—	$	12,552	$	12,552	$	—
Multi-family		—		—		—		—		180,305		180,305		—		—		—		897		897		190,671		191,568		—
Mixed-use		—		—		—		—		46,583		46,583		—		—		—		2,199		2,199		57,062		59,261		—
Non-residential real estate		—		—		2,310		2,310		80,565		82,875		—		—		—		3,097		3,097		81,356		84,453		—
Construction loans		—		—		—		—		4,635		4,635		—		—		—		—		—		37,250		37,250		—
Commercial and industrial loans		—		—		—		—		25,294		25,294		—		—		—		2,538		2,538		29,925		32,463		—
Consumer		—		—		—		—		159		159		—		—		—		—		—		148		148		—
Total loans	$	—	$	—	$	2,310	$	2,310	$	346,588	$	348,898	$	—	$	—	$	—	$	8,731	$	8,731	$	408,964	$	417,695	$	—

Table of Contents

NOTE 7 – LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES (Continued)

Age Analysis of Past Due Loans as of December 31, ~~2012~~2013 (in ~~Thousands)~~thousands)

	30-59 Days Past Due		60 – 89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 Days and Accruing		30-59 Days Past Due		60 – 89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 Days and Accruing

Residential real estate:
One- to four-family	$	—	$	—	$	—	$	—	$	7,761	$	7,761	$	—	$	—	$	—	$	—	$	—	$	11,752	$	11,752	$	—
Multi-family		—		89		1,266		1,355		177,289		178,644		—		—		—		—		—		188,923		188,923		—
Mixed-use		—		—		—		—		41,895		41,895		—		—		2,210		—		2,210		48,257		50,467		—
Non-residential real estate		1,259		—		1,221		2,480		79,832		82,312		—		—		—		2,372		2,372		79,613		81,985		—
Construction loans		—		—		—		—		841		841		—		—		—		—		—		6,568		6,568		—
Commercial and industrial loans		—		—		—		—		26,274		26,274		—		—		—		—		—		31,345		31,345		—
Consumer		—		—		—		—		77		77		—		—		—		—		—		161		161		—
Total loans	$	1,259	$	89	$	2,487	$	3,835	$	333,969	$	337,804	$	—	$	—	$	2,210	$	2,372	$	4,582	$	366,619	$	371,201	$	—

The following tables provide certain information related to the credit quality of the loan portfolio.

Credit ~~Quality Indicators as of~~Risk Profile by Internally Assigned Grade at September 30, ~~2013~~2014 (in thousands)

	Residential Real Estate		Non-residential Real Estate		Construction		Commercial and Industrial		Consumer		Total
Grade:
Pass	$	260,285	$	74,527	$	37,250	$	29,425	$	148	$	401,635
Special Mention		230		829		—		500		—		1,559
Substandard		2,866		9,097		—		2,538		—		14,501
Total	$	263,381	$	84,453	$	37,250	$	32,463	$	148	$	417,695

Credit Risk Profile by Internally Assigned Grade

Residential
Real Estate Non-residential
Real Estate Construction Commercial
and Industrial Consumer Total
Grade:
   Pass $ 235,935 $ 74,662 $ 4,635 $ 19,710 $ 159 $ 335,101
   Special Mention — — — 5,584 — 5,584
   Substandard — 8,213 — — — 8,213
Total $ 235,935 $ 82,875 $ 4,635 $ 25,294 $ 159 $ 348,898

~~Credit Quality Indicators as of~~ at December 31, ~~2012~~2013 (in thousands)

~~Credit Risk Profile by Internally Assigned Grade~~

	Residential Real Estate		Non-residential Real Estate		Construction		Commercial and Industrial		Consumer		Total		Residential Real Estate		Non-residential Real Estate		Construction		Commercial and Industrial		Consumer		Total
Grade:
Pass	$	221,794	$	74,040	$	841	$	24,122	$	77	$	320,874	$	248,932	$	71,659	$	6,568	$	25,733	$	161	$	353,053
Special Mention		2,553		505		—		—		—		3,058		—		—		—		5,612		—		5,612
Substandard		3,953		7,767		—		2,152		—		13,872		2,210		10,326		—		—		—		12,536
Total	$	228,300	$	82,312	$	841	$	26,274	$	77	$	337,804	$	251,142	$	81,985	$	6,568	$	31,345	$	161	$	371,201

The following table sets forth the composition of our nonaccrual loans at the dates indicated.

Loans Receivable on Nonaccrual Status as of September 30, 2014 and December 31, 2013 (in thousands)

	2014		2013

Residential real estate	$	3,096	$	2,210
Non-residential real estate		3,097		2,372
Commercial and industrial loans		2,538		84
Total	$	8,731	$	4,666

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NOTE 7 – LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES (Continued)

~~Loans Receivable on Nonaccrual Status as of~~There were no loans modified that were deemed TDRs during the three and nine months ended September 30, ~~2013 and December 31, 2012 (in thousands)~~

2013 2012

Residential real estate-Multi-family $ — $ 1,477
Non-residential real estate 2,310 2,480
Total $ 2,310 $ 3,957

2014. The following table shows the breakdown of loans modified in TDRs for the periods indicated:

	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended September 30,						Nine Months Ended September 30,
	2013					2013					2013						2013
		Recorded		Recorded			Recorded		Recorded				Recorded		Recorded				Recorded		Recorded
		Investment		Investment			Investment		Investment				Investment		Investment				Investment		Investment
	Number of	Prior to		After		Number of	Prior to		After		Number of		Prior to		After		Number of		Prior to		After
(dollars in thousands)	Modifications	Modification		Modification		Modifications	Modification		Modification		Modifications		Modification		Modification		Modifications		Modification		Modification
Real estate loans:
Real estate:
Multi-family	0	$	—	$	—	1	$	307	$	307		0	$	—	$	—		1	$	307	$	307
Non-residential	0		—		—	3		3,253		3,253		0		—		—		3		3,253		3,253
Total	0	$	—	$	—	4	$	3,560	$	3,560		0	$	—	$	—		4	$	3,560	$	3,560

The multi-family mortgage loan had an original interest rate of 6.75% with an amortization of 25 years. ~~The Company~~We reduced the interest rate and converted the monthly payments to interest only for twenty months and then amortizing for 30 years, with a balloon payment after approximately five and one-half years from the modification date.

Two non-residential mortgage loans had an original interest rate of ~~4.00%~~6.75% with an amortization of 25 years. ~~The Company~~We reduced the interest rate and converted the monthly payments to interest only for twenty months and then amortizing for 30 years, with a balloon payment after approximately five and one-half years from the modification date.

One non-residential mortgage loan had an original interest rate of ~~4.00%~~6.75% with an amortization of 30 years. ~~The Company~~We reduced the interest rate and converted the monthly payments to interest only for nineteen months and then amortizing for 30 years, with a balloon payment after two years from the modification date.

Three Months Ended September 30, Nine Months Ended September 30,
2012 2012
Recorded Recorded Recorded Recorded
Investment Investment Investment Investment
Number of Prior to After Number of Prior to After
(dollars in thousands) Modifications Modification Modification Modifications Modification Modification
Real estate:
Multi-family 0 $ — $ — 2 $ 1,900 $ 1,900
Non-residential 0 — — 4 10,500 10,500
Total 0 $ — $ — 6 $ 12,400 $ 12,400

~~The two multi-family mortgage loans had an interest rate~~As of ~~5% with an amortization of~~September 30, ~~years that was modified to an interest only rate of 2.5% for the first six months of 2012.~~

~~One~~2014, none of the ~~non-residential~~ loans that were modified during the previous twelve months had ~~an interest rate of 7% that was modified to 2%, plus monthly modified net income of~~defaulted in the ~~property. The other~~ three non-residential loans had an interest rate of 6.125% that was modified to 5%, with interest paid in advance for two years from the date of modification. These three loans have been performing according to the terms of the modification.

and nine month periods ended September 30, 2014. As of September 30, 2013, none of the loans that were modified during the previous twelve months had defaulted in the three and nine month periods ended September 30, 2013.

~~Table of Contents~~

NOTE 8 – EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS

In July ~~2012,~~2013, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued Accounting ~~Standards~~Standard Update (“ASU”) ~~2012-02,~~2013-11,~~Testing Indefinite-Lived Intangible Assets for Impairment.~~Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,which provides guidance on financial statement presentation of an unrecognized tax benefit when a net operating loss (NOL) carryforward, a similar tax loss, or a tax credit carryforward exists. The FASB’s objective in issuing this ASU is to ~~ASU 2011-08, Intangibles - Goodwill and Other (Topic 250) - Testing Goodwill for Impairment.~~ ~~ASU 2012-02 addresses the growing cost and complexity~~eliminate diversity in practice resulting from a lack of ~~performing an analysis to evaluate indefinite-lived intangible assets (other than goodwill) for impairment.~~guidance on this topic in current U.S. GAAP. This ASU introduces qualitative factors which would simplify the analysis if facts and circumstances make it more-likely-than-not that impairment would not exist. Rather than requiring a purely quantitative impairment test, the ASU providesapplies to all entities with unrecognized tax benefits that also have tax loss or tax credit carryforwards in the ~~option to first examine qualitative factors to make this determination. Factors to be considered would include, but are not limited to:~~

~~Increases in interest rates, salaries, or other operating expenses, which would have a negative impact on future earnings or cash flows;~~

~~Recent financial performance and cash flow trends;~~

~~Aspects of the legal and regulatory environment which are expected to impact future cash flows, such as the Dodd-Frank Act;~~

~~Management turnover;~~

~~Economic and industry conditions.~~

~~Entities are required by~~same tax jurisdiction as of the reporting date. For public entities, the guidance to consider both positive and negative impacts of such factors before determining whether it is more-likely-than-not (i.e. greater than 50% probability) that the indefinite-lived intangible asset is impaired. It should be noted that the qualitative portion of the analysis is optional for all issuers.

~~This ASU~~ is effective for ~~impairment tests performed during~~ fiscal years beginning after ~~September~~December 15, ~~2012,~~2013 and ~~may be early adopted if the entity’s financial statements for the most recent fiscal or~~ interim ~~period have not yet been issued.~~periods within those years. The ~~Company adopted~~adoption of this guidance ~~effective January 1, 2013. The adoption had no~~did not have a material ~~effect~~impact on the Company’s consolidated financial statements.

In January 2014, the FASB issued ASU ~~2013-02:~~2014-04,~~Comprehensive Income (Topic 220)~~Receivables – ~~Reporting~~Troubled Debt Restructurings by Creditors, which clarifies that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of ~~Amounts Reclassified Out~~residential real estate property collateralizing a consumer mortgage loans, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of ~~Accumulated Other Comprehensive Income.The objective of this ASU is to improve~~a foreclosure or (2) the reporting of reclassifications out of accumulated other comprehensive income. This ASU requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income, by component, on the respective line itemsborrower conveying all interest in the ~~income statement if~~residential real estate property to the ~~amount being reclassified is required under U.S. generally accepted accounting principles (GAAP)~~creditor to ~~be reclassified~~satisfy that loan through completion of a deed in ~~its entirety to net income. Reclassifications that are not required under U.S. GAAP to be reclassified in their entirety to net income in~~lieu of foreclosure or through a similar legal agreement. Additionally, the ~~same reporting period are required to be cross-referenced to other U.S. GAAP disclosures that provide additional detail about those amounts. This is the case when a portion~~amendments require interim and annual disclosure of the amount reclassified out of accumulated other comprehensive income is reclassified to a balance sheet account rather than directly to income or expense in the same reporting period. For example, some portion of net periodic pension cost is immediately reported in net income, but other portions may be capitalized to an asset balance such as fixed assets or inventory. An entity with significant defined benefit pension costs reclassified out of accumulated other comprehensive income but not to net income in its entirety in the same reporting period should identifyboth (1) the amount of ~~each pension cost component reclassified out~~foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of ~~accumulated other comprehensive income and make reference~~foreclosure according to ~~the relevant pension cost disclosure that provides greater detail about these reclassifications.~~

~~The amendments do not change the current~~local requirements for reporting net income or other comprehensive income in financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the ~~statement where net income~~applicable jurisdiction. For public entities, the guidance is ~~presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income.~~

~~The provisions of this ASU are~~ effective for ~~public entities prospectively for reporting~~annual periods, and interim periods within those annual periods, beginning after December 15, ~~2012.~~2014. The Company ~~adopted~~does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial statements.

In May 2014, the FASB and International Accounting Standards Board (“IASB”) issued ASU 2014-09,Revenue from Contracts with Customers. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The ASU is effective ~~January 1, 2013.~~for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. The adoption ~~had no~~of this standard effective April 1, 2017 is not expected to have a material ~~effect~~impact on the Company’s consolidated financial statements.

2221

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NOTE 9 – DIVIDEND RESTRICTION

NorthEast Community Bancorp MHC (the “MHC”) held 7,273,750 shares, or ~~57.5%~~58.8%, of the Company’s issued and outstanding common stock, and the minority public shareholders held ~~42.5%~~41.2% of outstanding stock, at September 30, ~~2013.~~2014. The MHC filed notice with, and received approval from, the Federal Reserve Bank of Philadelphia to waive its right to receive cash dividends for the period from November ~~9, 2012~~13, 2013 through November ~~9, 2013.~~12, 2014.

The MHC intends to file a notice with the Federal Reserve Bank of Philadelphia to waive its right to receive cash dividends declared by the Company in the 12 months subsequent to the members’ approval to waive such right at a meeting of the MHC’s members to be held on November 25, 2014.

The MHC has waived receipt of all past dividends paid by the Company through September 30, ~~2013,~~2014, with the exception of the dividend for the quarter ended June 30, 2012. Because the MHC determined not to waive receipt of the dividend for the quarter ended June 30, 2012, the MHC received $218,000 in dividends in August 2012. The dividends waived are considered as a restriction on the retained earnings of the Company. As of September 30, ~~2013~~2014 and December 31, ~~2012,~~2013, the aggregate retained earnings restricted for cash dividends waived were ~~$5,019,000~~$5,892,000 and ~~$4,364,000,~~$5,237,000, respectively.

NOTE 10 – RECLASSIFICATION OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME

Amounts reclassified from Accumulated Other Comprehensive Income are as follows:

Details about Accumulated Other Comprehensive Income Components	Three Months Ended September 30, 2014			Nine Months Ended September 30, 2014			Affected Line Item in the Consolidated Statements of Comprehensive Income (Loss)
	(In thousands)

Amortization of defined benefit pension items:
Prior service costs	$	5	(1)	$	16	(1)	Salary and employee benefits
Actuarial loss		1	(1)		(1	) (1)	Salary and employee benefits
		6			15		Total before tax
		(4	)		(6	)	Provision for income taxes
Total reclassifications for the period	$	2		$	9		Net of taxes

(1)

These accumulated other comprehensive income components are included in the computation of net periodic pension cost.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

This quarterly report contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. The Company’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 include, but are not limited to, changes in interest rates, national and regional economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company’s market area, changes in real estate market values in the Company’s market area, and changes in relevant accounting principles and guidelines. Additional factors that may affect the Company’s results are discussed in the Company’s Annual Report on Form 10-K under “Item 1A. Risk Factors.” 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.

Table of Contents

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 allowance for loan losses and valuation of goodwill to be a critical accounting policy. There have been no changes to our critical accounting policies and procedures during the nine months ended September 30, 2014.

~~Allowance for Loan Losses.~~The allowance for loan losses is the amount estimated by management as necessary to cover probable credit losses in the loan portfolio at the statement of financial condition date. The allowance is established through the provision for loan losses, which is charged to income. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are: loss exposure at default; the amount and timing of future cash flows on impaired loans; value of collateral; and determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change. Management reviews the level of the allowance on a quarterly basis and establishes the provision for loan losses based upon an evaluation of the portfolio, past loss experience, current economic conditions and other factors related to the collectability of the loan portfolio. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation.

Due to the conversion of the Bank to a New York State-chartered savings bank on June 29, 2012, the Federal Deposit Insurance Corporation (“FDIC”) and the New York State Department of Financial Services (“NYS”) are now the Bank’s primary regulators. As such, the FDIC and NYS, as an integral part of their examination process, periodically review our allowance for loan losses. The FDIC and NYS could require us to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examinations. A large loss or a series of losses could deplete the allowance and require increased provisions to replenish the allowance, which would negatively affect earnings. For additional ~~discussion, see~~information on our critical accounting policies, please refer to Note 1 toof the consolidated financial statements included in ~~the Company’s~~our 2013 Annual Report on Form ~~10-K for the year ended December 31, 2012.~~

~~Intangibles – Goodwill and Other.~~ ~~Accounting Standard Codification (ASC) Topic 350,~~~~Intangibles – Goodwill and Other,~~requires that goodwill is not amortized to expense, but rather that it be assessed or tested for impairment at least annually. Impairment write-downs are charged to results of operations in the period in which the impairment is determined. If certain events occur which might indicate goodwill has been impaired, the goodwill is tested for impairment when such events occur. The Company recorded goodwill of $1.3 million in connection with the Hayden Financial Group acquisition in 2007. Other acquired intangible assets with finite lives, such as customer lists, are required to be amortized over the estimated lives. These intangibles are generally amortized using the straight line method over the estimated useful lives of ten years.

~~Table of Contents~~

The Company identified an impairment on its outstanding goodwill as a result of its most recent testing conducted in December 2012. As a result, the Company recorded an impairment charge of $227,000 in 2012. During the second quarter of 2013, the Company determined that an adjustment to the goodwill impairment of $227,000 previously recorded in 2012 was necessary. As a result, the Company recognized an additional impairment charge of $334,000 during the second quarter of 2013. The impairment was caused primarily by the expected decrease in other revenue from this division resulting from a reduction in personnel.10-K.

Third Quarter Performance Highlights

The Company’s earnings for the quarter ended September 30, ~~2013 increased~~2014 decreased by ~~$1.4 million~~$3,000 compared to the same period in ~~2012~~2013 primarily due to ~~a credit to~~increases in the ~~allowance~~provision for loan losses, innon-interest expenses, and the ~~2013 period~~provision for income taxes and a decrease in non-interest ~~expenses,~~income, partially offset by ~~a decrease~~an increase in net interest ~~income, a decrease in non-interest income, and~~income. The Company had an ~~increase in the~~$8,000 provision ~~(benefit) for income taxes. The credit to the allowance~~ for loan losses ~~in 2013 was due~~during the quarter ended September 30, 2014 compared to a ~~decrease~~credit of $191,000 in provision for loan losses during the ~~balance of non-performing loans.~~quarter ended September 30, 2013.

Non-performing loans ~~decreased~~(comprised of non-accrual loans) increased by ~~$1.7~~$4.1 million, or ~~41.6%~~87.1%, to ~~$2.3~~$8.7 million as of September 30, ~~2013~~2014 from ~~$4.0~~$4.6 million as of December 31, ~~2012.~~2013. The ~~decrease~~increase in non-performing loans was primarily due to the ~~identification, monitoring,~~addition of two non-performing commercial and ~~resolution of several~~industrial loans totaling $2.5 million, two non-performing non-residential mortgage loans ~~that were paid-off or became performing as of, or prior to, September 30, 2013. We will continue to monitor our~~totaling $2.3 million, two non-performing multi-family mortgage loans totaling $897,000, one non-performing mixed-use mortgage loan ~~portfolio closely~~totaling $230,000, and ~~adjust the level of allowance for loan losses appropriately as updated information becomes available.~~

~~The decrease in non-interest expense was due primarily to a decrease in expenses related to salaries and employee benefits in 2013 as~~payments made by the Company ~~continues its efforts~~for real estate taxes, water and sewer charges totaling $120,000 on properties secured by the non-performing mortgage loans, partially offset by the conversion from non-performing to ~~control such expenses by reducing staff in various departments, including~~performing status of one non-residential mortgage loan totaling $823,000, the satisfaction of one non-residential mortgage ~~brokerage department,~~loan totaling $789,000 and two commercial and industrial loans totaling $85,000, and the ~~wealth management department, and branch operations.~~charge-off of $325,000 for one mixed-use mortgage loan.

Our interest rate spread decreased to 3.42% for the three months ended September 30, 2014 from 3.45% for the three months ended September 30, 2013 ~~from 3.93%~~and our net interest margin decreased to 3.64% for the three months ended September 30, ~~2012 and our net interest margin decreased to~~2014 from 3.69% for the three months ~~ended September 30, 2013 from 4.17% for the three months ended September 30, 2012.~~

Due to market conditions, we discontinued purchasing participation interests in construction loans in 2009. In 2012, we commenced originating construction loans secured by multi-family or non-residential properties as an accommodation to maintain and/or develop relationships with our deposit and loan customers. Recently, we have expanded our construction lending department and currently expect that our origination of construction loans for multi-family, mixed-use and non-residential buildings will increase.

~~Comparison of Financial Condition at September 30, 2013 and December 31, 2012~~

Total assets decreased by $11.1 million, or 2.5%, to $433.1 million at September 30, 2013 from $444.2 million at December 31, 2012. The decrease in total assets was due to decreases of $18.6 million in cash and cash equivalents, $2.9 million in securities held-to-maturity, $731,000 in other assets, $481,000 in Federal Home Loan Bank of New York (“FHLB”) stock, $450,000 in other real estate owned, $517,000 in premises and equipment, and $334,000 in goodwill, partially offset by increases of $11.7 million in loans receivable, net, $747,000 in certificates of deposits at other financial institutions, $480,000 in bank owned life insurance, and $116,000 in accrued interest receivable. The decrease in total liabilities primarily resulted from decreases of $10.0 million in FHLB advances and $2.2 million in deposits, partially offset by an increase of $365,000 in advance payments by borrowers for taxes and insurance.

Cash and cash equivalents decreased by $18.6 million, or 37.9%, to $30.6 million at September 30, 2013 from $49.2 million at December 31, 2012 due primarily to the above mentioned increases in loans receivable, certificates of deposits at other financial institutions, and advance payments by borrowers for taxes and insurance, net of decreases in securities held-to-maturity, FHLB stock, deposits, and FHLB advances.

Securities held-to-maturity decreased by $3.0 million, or 24.6%, to $9.0 million at September 30, 2013 from $12.0 million at December 31, 2012 due primarily to repayments of $3.0 million. Certificates of deposits at other financial institutions increased by $747,000, or 187.2%, to $1.1 million at September 30, 2013 from $399,000 at December 31, 2012 due to the purchase of four certificates of deposits.

Loans receivable, net, increased by $11.7 million, or 3.5%, to $345.5 million at September 30, 2013 from $333.8 million at December 31, 2012 due primarily to loan originations totaling $48.8 million which exceeded loan repayments and charge-offs totaling $37.1 million. FHLB stock decreased by $481,000, or 35.5%, to $874,000 at September 30, 2013 from $1.4 million at December 31, 2012 due primarily to a decrease in the amount of FHLB stock that we are required to hold as a result of decreases in FHLB advances.

Bank owned life insurance increased by $480,000, or 2.4%, to $20.3 million at September 30, 2013 from $19.9 million at December 31, 2012 due to accrued earnings during 2013. Real estate owned decreased by $450,000, or 10.5%, to $3.8 million at September 30, 2013 from $4.3 million at December 31, 2012 due to the sale of a foreclosed property. Premises and equipment decreased by $517,000, or 4.0%, to $12.4 million at September 30, 2013 from $12.9 million at December 31, 2012 due primarily to depreciation. Other assets decreased by $731,000, or 9.3%, to $7.1 million at September 30, 2013 from $7.8 million at December 31, 2012 due to a refund of the FDIC prepaid insurance and reductions in current and deferred tax assets and prepaid insurance.

~~Table of Contents~~

Deposits decreased by $2.2 million, or 0.7%, to $316.0 million at September 30, 2013 from $318.1 million at December 31, 2012. The decrease in deposits was primarily attributable to decreases of $1.1 million in non-interest bearing accounts, $833,000 in regular savings accounts, and $370,000 in NOW and money market accounts, partially offset by an increase of $173,000 in certificates of deposits.

Advance payments by borrowers for taxes and insurance increased by $365,000, or 10.4%, to $3.9 million at September 30, 2013 from $3.5 million at December 31, 2012 due primarily to an increase in the mortgage loan portfolio. The increase in the mortgage loan portfolio was due to increases of $4.7 million, or 11.2%, in the mixed-use mortgage loan portfolio to $46.6 million at September 30, 2013 from $41.9 million at December 31, 2012 and $3.8 million, or 451.1%, in the construction mortgage loan portfolio to $4.6 million at September 30, 2013 from $841,000 at December 31, 2012.

~~FHLB advances decreased by $10.0 million, or 66.7%, to $5.0 million at September 30, 2013 from $15.0 million at December 31, 2012 due primarily to the maturity and repayment of certain FHLB advances.~~

Stockholders’ equity increased by $783,000 to $104.6 million at September 30, 2013, from $103.8 million at December 31, 2012. This increase was primarily the result of comprehensive income of $1.1 million and the amortization of $118,000 for the ESOP for the period, partially offset by cash dividends declared of $453,000.

~~Comparison of Operating Results for the Three Months Ended September 30, 2013 and 2012~~

~~General.~~ Earnings increased by $1.4 million, or 138.1%, to net income of $381,000 for the quarter ended September 30, 2013, from a net loss of $1.0 million for the quarter ended September 30, 2012. The increase was primarily the result of a credit to the allowance for loan losses of $191,000 during the 2013 period compared to a provision for loan losses of $1.9 million in the 2012 period and a decrease of $1.0 million in non-interest expenses, offset by a decrease of $583,000 in net interest income, a decrease of $230,000 in non-interest income, and an increase of $991,000 in income taxes.

~~Net Interest Income.~~ Net interest income decreased by $583,000, or 14.0%, to $3.6 million for the three months ended September 30, 2013 from $4.2 million for the three months ended September 30, 2012. The decrease in net interest income resulted primarily from a decrease of $561,000 in interest income coupled with an increase of $22,000 in interest expense.

The net interest spread decreased by 48 basis points to 3.45% for the three months ended September 30, 2013 from 3.93% for the three months ended September 30, 2012. The net interest margin decreased by 48 basis points between these periods from 4.17% for the quarter ended September 30, 2012 to 3.69% for the quarter ended September 30, 2013. The decrease in the interest rate spread and the net interest margin in the third quarter of ~~2013~~2014 compared to the same period in ~~2012~~2013 was due to a decrease of nine basis points in the yield on our interest-earning assets ~~coupled with an increase~~that exceeded a decrease of six basis points in the cost of our interest-bearing liabilities.

Our loans receivable, net, increased by $46.7 million, or 12.7%, to $414.5 million as of September 30, 2014 from $367.8 million at December 31, 2013 due primarily to increases of $30.7 million in construction mortgage loans, $8.8 million in mixed-use mortgage loans, $2.6 million in multi-family mortgage loans, $2.5 million in non-residential mortgage loans, $1.1 million in commercial and industrial loans, and $800,000 in one-to-four family mortgage loans, offset by a decrease of $13,000 in consumer loans.

Comparison of Financial Condition at September 30, 2014 and December 31, 2013

Total assets increased by $43.8 million, or 9.6%, to $502.1 million at September 30, 2014 from $458.2 million at December 31, 2013. The increase in total assets was due primarily to increases of $46.7 million in loans receivable, net, $1.7 million in cash and cash equivalents, $465,000 in bank owned life insurance, $210,000 in restricted stocks, $82,000 in accrued interest receivable, and $62,000 in real estate owned, offset by decreases of $2.4 million in other assets, $1.4 million in securities held-to-maturity, $996,000 in certificates of deposit and $418,000 in premises and equipment. The increase in total assets was funded primarily from increases of $38.9 million in deposits and $6.1 million in FHLB advances, partially offset by a decrease of $590,000 in advance payments by borrowers for taxes and insurance.

Loans receivable, net, increased by $46.7 million, or 12.7%, to $414.5 million at September 30, 2014 from $367.8 million at December 31, 2013 due primarily to loan originations totaling $115.5 million which exceeded loan repayments and charge-offs totaling $68.8 million. The increase in the mortgage loan portfolio was due to increases of $30.7 million, or 467.1%, in the construction mortgage loan portfolio to $37.3 million at September 30, 2014 from $6.6 million at December 31, 2013, $8.8 million, or 17.4%, in the mixed-use mortgage loan portfolio to $59.3 million at September 30, 2014 from $50.5 million at December 31, 2013, $2.5 million, or 3.0%, in the non-residential mortgage loan portfolio to $84.5 million at September 30, 2014 from $82.0 million at December 31, 2013, $2.6 million, or 1.4%, in the multi-family mortgage loan portfolio to $191.6 million at September 30, 2014 from $188.9 million at December 31, 2013, $1.1 million, or 3.6%, in the commercial and industrial loan portfolio to $32.5 million at September 30, 2014 from $31.3 million at December 31, 2013, and $800,000, or 6.8%, in the one-to-four family mortgage loan portfolio to $12.6 million at September 30, 2014 from $11.8 million at December 31, 2013, partially offset by a decrease of $13,000, or 8.1%, in the consumer loan portfolio to $148,000 at September 30, 2014 from $161,000 at December 31, 2013.

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The increase in the construction mortgage loan portfolio was due to the Company’s entry in 2012 in the Massachusetts construction market through the origination of construction loans secured by the construction of multi-family and single family properties and the Company’s entry during the latter part of 2013 into the New York City metropolitan area construction market through the origination of construction loans secured by the construction of multi-family properties located in the New York City metropolitan area. The increase in the construction mortgage loan portfolio, the multi-family, mixed-use and non-residential mortgage loan portfolio and the commercial and industrial loan portfolio was due to the Company’s more aggressive origination activities through the hiring of two new chief lending officers in our two lending regions in the New York City metropolitan area. The purpose of the increase in loan origination was to increase interest income.

Cash and cash equivalents increased by $1.7 million, or 5.5%, to $33.3 million at September 30, 2014 from $31.5 million at December 31, 2013 due primarily to increases in deposits and FHLB advances, offset by an increase in the loan portfolio. Bank owned life insurance increased by $465,000, or 2.3%, to $21.0 million at September 30, 2014 from $20.5 million at December 31, 2013 due to accrued earnings during 2014. Investments in restricted stocks increased by $210,000, or 13.2%, to $1.8 million at September 30, 2014 from $1.6 million at December 31, 2013 due to an increase in FHLB advances and the purchase of $70,000 in ACBB stock. The FHLB requires the purchase of FHLB restricted stock amounting to 4.5% of the borrowed amount. The purchase of ACBB restricted stock was due to the Company’s decision to become a member of ACBB, a banker’s bank, in order to provide the Company with an additional source of correspondent banking services such as borrowings as a source of liquidity and investments in overnight Federal Funds as a source of additional interest income.

Accrued interest receivable increased by $82,000, or 6.5%, to $1.35 million at September 30, 2014 from $1.27 million at December 31, 2013 due primarily to an increase in the mortgage loan portfolio. Other assets decreased by $2.4 million, or 32.2%, to $5.1 million at September 30, 2014 from $7.5 million at December 31, 2013 due to a $1.9 million income tax refund from the Internal Revenue Service that reduced current tax assets. Securities held-to-maturity decreased by $1.4 million, or 17.1%, to $7.0 million at September 30, 2014 from $8.4 million at December 31, 2013 due primarily to repayments. Premises and equipment decreased by $418,000, or 3.4%, to $11.8 million at September 30, 2014 from $12.2 million at December 31, 2013 due primarily to depreciation.

Deposits increased by $38.9 million, or 12.0%, to $364.1 million at September 30, 2014 from $325.2 million at December 31, 2013. The increase in deposits was primarily attributable to increases of $30.4 million in certificates of deposit, $6.7 million in NOW and money market accounts, and $2.4 million in non-interest bearing accounts, partially offset by decreases of $674,000 in regular savings accounts. The increase in certificates of deposit was due to the offering of competitive interest rates for non-broker certificates of deposit gathered through a non-broker nationwide certificate of deposit listing service from banks and credit unions in amounts greater than $75,000 and less than $250,000. In this regard, we obtained $29.3 million in non-broker certificates of deposit since December 31, 2013. FHLB advances increased by $6.1 million, or 29.2%, to $27.1 million at September 30, 2014 from $21.0 million at December 31, 2013. The increase in deposits and FHLB advances was primarily attributable to efforts by the Company to increase liquidity, fund loan originations, increase reliance on long term certificates of deposit, and diversify sources of funds.

Advance payments by borrowers for taxes and insurance decreased by $590,000, or 14.8%, to $3.4 million at September 30, 2014 from $4.0 million at December 31, 2013 due primarily to remittances of taxes for our borrowers.

Stockholders’ equity decreased by $601,000, or 0.6%, to $103.6 million at September 30, 2014, from $104.2 million at December 31, 2013. This decrease was primarily the result of stock repurchases of $1.4 million, and cash dividends declared and paid of $433,000, partially offset by comprehensive income of $1.1 million and the amortization of $139,000 for the ESOP for the period.

Comparison of Operating Results for the Three Months Ended September 30, 2014 and 2013

General. Net income decreased by $3,000, or 0.8%, to $378,000 for the quarter ended September 30, 2014 from net income of $381,000 for the quarter ended September 30, 2013. The decrease was primarily the result of an increase of $199,000 in provision for loan losses from a credit of $191,000 in provision for loan losses in 2013 to an $8,000 in provision for loan losses in 2014, an increase of $163,000 in non-interest expenses, an increase of $22,000 in the provision for income taxes and a decrease of $22,000 in non-interest income, partially offset by an increase of $403,000 in net interest income.

Net Interest Income. Net interest income increased by $403,000, or 11.2%, to $4.0 million for the three months ended September 30, 2014 from $3.6 million for the three months ended September 30, 2013. The increase in net interest income resulted primarily from an increase of $466,000 in interest income, partially offset by an increase of $63,000 in interest expense.

The net interest spread decreased by three basis points to 3.42% for the three months ended September 30, 2014 from 3.45% for the three months ended September 30, 2013. The net interest margin decreased by five basis points between these periods from 3.69% for the quarter ended September 30, 2013 to 3.64% for the quarter ended September 30, 2014. The decrease in the interest rate spread and the net interest margin in the third quarter of 2014 compared to the same period in 2013 was due to a decrease of nine basis points in the yield on our interest-earning assets that exceeded a decrease of six basis points in the cost of our interest-bearing liabilities.

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The average yield on our interest-earning assets decreased by 44nine basis points to 4.42% for the three months ended September 30, 2014 from 4.51% for the three months ended September 30, 2013 ~~from 4.95%~~and the cost of our interest-bearing liabilities decreased by six basis points to 1.00% for the three months ended September 30, ~~2012 and the cost of our interest-bearing liabilities increased by 4 basis points to~~2014 from 1.06% for the three months ended September 30, ~~2013 from 1.02% for the three months ended September 30, 2012.~~2013. The decrease in the yield on our interest-earning assets was due to ~~decreases~~a decrease in the yield on loans receivable, offset by increases in the yield on securities and other interest-earning assets. The ~~increase~~decrease in the cost of our interest-bearing liabilities was due to a decrease in the ~~offering~~cost of ~~competitive interest rates to generate deposits in connection with the opening of two new branches in Framingham and Quincy, Massachusetts during the latter part of the third quarter of 2012,~~borrowed money, offset by an increase in the ~~our decision to reduce the interest rates offered on our deposits during the second quarter~~cost of ~~2013.~~interest-bearing deposits.

~~Table of Contents~~

The following table summarizes average balances and average yields and costs of interest-earning assets and interest-bearing liabilities for the three months ended September 30, ~~2013~~2014 and ~~2012.~~2013.

	Three Months Ended September 30,																Three Months Ended September 30,
	2013								2012								2014								2013
				Interest								Interest								Interest								Interest
	Average			and		Yield/			Average			and		Yield/			Average			and		Yield/			Average			and		Yield/
	Balance			Dividends		Cost			Balance			Dividends		Cost			Balance			Dividends		Cost			Balance			Dividends		Cost

	(Dollars in thousands)																(Dollars in thousands)
Assets:
Interest-earning assets:
Loans	$	339,682		$	4,304		5.07	%	$	353,314		$	4,817		5.45	%	$	400,390		$	4,770		4.77	%	$	339,682		$	4,304		5.07	%
Securities (including FHLB stock)		10,629			72		2.75			15,176			116		3.06
Securities (including restricted stock)																		9,045			68		3.01			10,629			72		2.75
Other interest-earning assets		38,483			3		0.02			30,822			7		0.09			28,739			7		0.10			38,483			3		0.02
Total interest-earning assets		388,794			4,379		4.51			399,312			4,940		4.95			438,174			4,845		4.42			388,794			4,379		4.51
Allowance for loan losses		(4,203	)							(3,828	)							(4,021	)							(4,203	)
Non-interest-earning assets		48,797								42,841								49,320								48,797
Total assets	$	433,388							$	438,325							$	483,473							$	433,388

Liabilities and equity:
Interest-bearing liabilities:
Interest-bearing demand	$	63,666		$	60		0.38	%	$	72,713		$	63		0.35	%	$	66,296		$	61		0.37	%	$	63,666		$	60		0.38	%
Savings and club accounts		82,630			112		0.54			87,541			117		0.53			85,136			119		0.56			82,630			112		0.54
Certificates of deposit		147,862			577		1.56			127,736			454		1.42			171,142			651		1.52			147,862			577		1.56
Total interest-bearing deposits		294,158			749		1.02			287,990			634		0.88			322,574			831		1.03			294,158			749		1.02

Borrowings		5,000			46		3.68			15,000			139		3.71			21,860			27		0.49			5,000			46		3.68
Total interest-bearing liabilities		299,158			795		1.06			302,990			773		1.02			344,434			858		1.00			299,158			795		1.06

Noninterest-bearing demand		22,769								20,806								28,657								22,769
Other liabilities		6,814								7,087								7,238								6,814
Total liabilities		328,741								330,883								380,329								328,741

Stockholders’ equity		104,647								107,442								103,144								104,647
Total liabilities and
Stockholders’ equity	$	433,388							$	438,325							$	483,473							$	433,388
Net interest income				$	3,584							$	4,167							$	3,987							$	3,584
Interest rate spread							3.45	%							3.93	%							3.42	%							3.45	%
Net interest margin							3.69	%							4.17	%							3.64	%							3.69	%
Net interest-earning assets	$	89,636							$	96,322							$	93,740							$	89,636
Interest-earning assets to interest-bearing liabilities		129.96	%							131.79	%							127.22	%							129.96	%

Total interest income ~~decreased~~increased by ~~$561,000,~~$466,000, or ~~11.4%~~10.6%, to $4.8 million for the three months ended September 30, 2014 from $4.4 million for the three months ended September 30, ~~2013, from $4.9~~2013. Interest income on loans increased by $466,000, or 10.8%, to $4.8 million for the three months ended September 30, ~~2012. Interest income on loans decreased by $513,000, or 10.6%, to~~2014 from $4.3 million for the three months ended September 30, ~~2013 from $4.8~~2013. The increase was primarily the result of an increase of $60.7 million, or 17.9%, in the average balance of the loan portfolio to $400.4 million for the three months ended September 30, ~~2012.~~2014 from $339.7 million for the three months ended September 30, 2013 as originations outpaced repayments and charge-offs, net of recoveries. The ~~decrease~~increase in the average balance of the loan portfolio was ~~primarily the result of~~offset by a decrease of 3830 basis points in the average yield on loans to 4.77% for the three months ended September 30, 2014 from 5.07% for the three months ended September 30, ~~2013 from 5.45% for the three months ended September 30, 2012.~~2013. The decrease in ~~interest income and~~ the average yield on loans was ~~also~~ due to the pay-off of numerous higher yielding mortgage loans and the refinancing and/or re-pricing to lower interest rates of numerous mortgage loans in our loan portfolio. ~~This resulted in a decrease of $13.6 million,~~

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Interest income on securities decreased by $4,000, or ~~3.9%~~5.6%, ~~in the average balance of the loan portfolio~~ to ~~$339.7 million~~$68,000 for the three months ended September 30, ~~2013~~2014 from ~~$353.3 million for the three months ended September 30, 2012 as repayments outpaced originations and charge-offs, net of recoveries.~~

~~Interest income on securities decreased by $44,000, or 37.9%, to~~ $72,000 for the three months ended September 30, ~~2013 from $116,000 for the three months ended September 30, 2012.~~2013. The decrease was primarily due to a decrease of ~~$4.5~~$1.6 million, or ~~30.0%~~14.9%, in the average balance of securities to $9.0 million for the three months ended September 30, 2014 from $10.6 million for the three months ended September 30, 2013, ~~from $15.2 million~~offset by an increase of 26 basis points in the average yield on securities to 3.01% for the three months ended September 30, ~~2012.~~2014 from 2.75% for the three months ended September 30, 2013. The decrease in the average balance was due to the principal repayments on investment securities, ~~and a decrease~~offset by an increase in FHLB New York stock. The ~~decrease~~increase in ~~interest~~the yield was due to dividends from FHLB New York stock that yielded approximately 4.0% and an increase in FHLB New York stock as a percentage of total investment securities.

Interest income on ~~securities~~other interest-earning assets (consisting solely of interest-earning deposits) increased by $4,000, or 133.3% to $7,000 for the three months ended September 30, 2014 from $3,000 for the three months ended September 30, 2013. The increase was ~~also~~primarily due to ~~a decrease~~an increase of 31eight basis points in the average yield on ~~securities~~other interest-earning assets to ~~2.75%~~0.10% for the three months ended September 30, 2014 from 0.02% for the three months ended September 30, 2013, ~~from 3.06%~~offset by a decrease of $9.7 million, or 25.3%, in the average balance of interest-earning assets to $28.7 million for the three months ended September 30, ~~2012.~~2014 from $38.5 million for the three months ended September 30, 2013. The ~~decline~~increase in interest income on interest-earnings deposits was due to an increase in the ~~yield~~average balance of higher yielding certificates of deposit at other financial institutions, offset by a decrease in the average balance of interest-earning deposits maintained at the FHLB and Federal Reserve Bank of New York.

Total interest expense increased by $63,000, or 7.9%, to $858,000 for the three months ended September 30, 2014 from $795,000 for the three months ended September 30, 2013. Interest expense on deposits increased by $82,000, or 10.9%, to $831,000 for the three months ended September 30, 2014 from $749,000 for the three months ended September 30, 2013. The increase in the interest expense on deposits was a result of an increase of $28.4 million, or 9.7%, in the average balance of interest bearing deposits to $322.6 million for the three months ended September 30, 2014 from $294.2 million for the three months ended September 30, 2013. The increase in the interest expense on deposits was also a result of an increase of one basis point in the average cost of interest-bearing deposits to 1.03% for the three months ended September 30, 2014 from 1.02% for the three months ended September 30, 2013.

The interest expense of our interest-bearing demand deposits increased by $1,000, or 1.7%, to $61,000 for the three months ended September 30, 2014 from $60,000 for the three months ended September 30, 2013. The increase in interest expense in our interest-bearing demand deposits was due to an increase of $2.6 million, or 4.1%, in the average balance of our interest-bearing demand deposits to $66.3 million for the three months ended September 30, 2014 from $63.7 million for the three months ended September 30, 2013, offset by a decrease of one basis point in the average interest cost to 0.37% for the three months ended September 30, 2014 from 0.38% for the three months ended September 30, 2013 as we offered competitive interest rates to generate deposits.

The interest expense of our interest-bearing savings and club deposits increased by $7,000, or 6.3%, to $119,000 for the three months ended September 30, 2014 from $112,000 for the three months ended September 30, 2013. The increase in interest expense in our interest-bearing savings and club deposits was due to an increase of $2.5 million, or 3.0%, in the average balance of our interest-bearing savings and club deposits to $85.1 million for the three months ended September 30, 2014 from $82.6 million for the three months ended September 30, 2013. The increase in interest expense in our interest-bearing savings and club deposits was also due to a two basis point increase in the average interest cost to 0.56% for the three months ended September 30, 2014 from 0.54% for the three months ended September 30, 2013 as we continued to offer competitive interest rates to generate deposits.

The interest expense of our interest-bearing certificates of deposit increased by $74,000, or 12.8%, to $651,000 for the three months ended September 30, 2014 from $577,000 for the three months ended September 30, 2013. The increase in interest expense in our interest-bearing certificates of deposit was due to an increase of $23.3 million, or 15.7%, in the average balance of our interest-bearing certificates of deposit to $171.1 million for the three months ended September 30, 2014 from $147.9 million for the three months ended September 30, 2013. The increase in our interest-bearing certificates was due to management’s decision to continue offering competitive interest rates to generate deposits through a non-broker nationwide certificate of deposit listing service. The increase in interest expense of our interest-bearing certificates of deposit was offset by a four basis point decrease in the average interest cost on such certificates to 1.52% for the three months ended September 30, 2014 from 1.56% for the three months ended September 30, 2013. The decrease in the average interest cost of our interest-bearing certificates of deposit was due to the re-pricing of maturing certificates of deposit and the ~~yield~~acquisition of ~~our adjustable rate investment securities and~~competitively priced interest-bearing certificates of deposit through a ~~decrease in FHLB stock yield from 4.5% at September 30, 2012 to 4.0% at September 30, 2013.~~non-broker nationwide certificate of deposit listing service.

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Interest ~~income~~expense on ~~other interest-earning assets (consisting solely of interest-earning deposits)~~borrowings decreased by ~~$4,000,~~$19,000, or ~~57.1%~~41.3%, to ~~$3,000~~$27,000 for the three months ended September 30, ~~2013~~2014 from $7,000 for the three months ended September 30, 2012. The decrease was primarily due to a decrease of 7 basis points in the average yield on other interest-earning assets to 0.02% for the three months ended September 30, 2013 from 0.09% for the three months ended September 30, 2012, offset by an increase of $7.7 million, or 24.9%, in the average balance of interest-earning assets to $38.5 million for the three months ended September 30, 2013 from $30.8 million for the three months ended September 30, 2012. The decline in the yield was due to the maturity of higher yielding certificates of deposits at other financial institutions. The increase in the average balance of other interest-earning assets was due to decreases in the average balances of loans and increases in the average balances of deposits.

Total interest expense increased by $22,000, or 2.8%, to $795,000 for the three months ended September 30, 2013 from $773,000 for the three months ended September 30, 2012. Interest expense on deposits increased by $115,000, or 18.1%, to $749,000 for the three months ended September 30, 2013 from $634,000 for the three months ended September 30, 2012. The increase in the interest expense on deposits was a result of a shift in deposits from lower costing interest-bearing demand accounts and interest-bearing savings and club accounts to higher costing interest-bearing certificates of deposit. The increase in the interest expense on deposits was also a result of offering competitive interest rates to generate deposits in connection with the opening of two new branches in Framingham and Quincy, Massachusetts during the latter part of the third quarter of 2012. These two factors resulted in an increase of 14 basis points in the average cost of deposits to 1.02% for the three months ended September 30, 2013 from 0.88% for the three months ended September 30, 2012. These two factors also resulted in an increase of $6.2 million, or 2.1%, in the average balance of interest bearing deposits to $294.2 million for the three months ended September 30, 2013 from $288.0 million for the three months ended September 30, 2012.

The interest expense of our interest-bearing demand deposits decreased by $3,000, or 4.8%, to $60,000 for the three months ended September 30, 2013 from $63,000 for the three months ended September 30, 2012. The decrease in interest expense in our interest-bearing demand deposits was due to a shift in deposits to higher costing interest-bearing certificates of deposits, offset by the offering of competitive interest rates to generate deposits in connection with the opening of two new branches in Framingham and Quincy, Massachusetts during the latter part of the third quarter of 2012. This resulted in a decrease of $9.0 million, or 12.4%, in the average balance of our interest-bearing demand deposits to $63.7 million for the three months ended September 30, 2013 from $72.7 million for the three months ended September 30, 2012. This also resulted in a 3 basis point increase in the average interest cost to 0.38% for the three months ended September 30, 2013 from 0.35% for the three months ended September 30, 2012.

The interest expense of our interest-bearing savings and club deposits decreased by $5,000, or 4.3%, to $112,000 for the three months ended September 30, 2013 from $117,000 for the three months ended September 30, 2012. The decrease in interest expense in our interest-bearing savings and club deposits was due to a shift in deposits to higher costing interest-bearing certificates of deposits, offset by the offering of competitive interest rates to generate deposits in connection with the opening of two new branches in Framingham and Quincy, Massachusetts during the latter part of the third quarter of 2012. This resulted in a decrease of $4.9 million, or 5.6%, in the average balance of our interest-bearing savings and club deposits to $82.6 million for the three months ended September 30, 2013 from $87.5 million for the three months ended September 30, 2012. This also resulted in a 1 basis point increase in the average interest cost to 0.54% for the three months ended September 30, 2013 from 0.53% for the three months ended September 30, 2012.

The interest expense of our interest-bearing certificates of deposit increased by $123,000, or 27.1%, to $577,000 for the three months ended September 30, 2013 from $454,000 for the three months ended September 30, 2012. The increase in interest expense in our interest-bearing certificates of deposit was due to offering competitive interest rates in connection with the opening of two new branches in Framingham and Quincy, Massachusetts during the latter part of the third quarter of 2012. This resulted in an increase of $20.1 million, or 15.8%, in the average balance of our interest-bearing certificates of deposit to $147.9 million for the three months ended September 30, 2013 from $127.7 million for the three months ended September 30, 2012. The increase in interest expense of our interest-bearing certificates of deposit was also due to a 14 basis point increase in the average interest cost to 1.56% for the three months ended September 30, 2013 from 1.42% for the three months ended September 30, 2012.

~~Interest expense on borrowings decreased by $93,000, or 66.9%, to~~ $46,000 for the three months ended September 30, 2013 from $139,000 for the three months ended September 30, 2012. The decrease was primarily due to a decrease of $10.0 million, or 66.7%, in the average balance of borrowed money to $5.0 million for the three months ended September 30, 2013 from $15.0 million for the three months ended September 30, 2012.2013. The decrease in interest expense on borrowings was ~~also~~ due to a decrease of 3319 basis points in the cost of borrowed money to 0.49% for the three months ended September 30, 2014 from 3.68% for the three months ended September 30, 2013 ~~from 3.71% for the three months ended September 30, 2012~~ due primarily to the maturity and repayment of higher costing FHLB advances and new lower cost FHLB advances obtained during the nine months ended September 30, 2014. The decrease in interest expense on borrowings was partially offset by an increase of $16.9 million, or 337.2%, in the average balance of borrowed money to $21.9 million for the three months ended September 30, 2014 from ~~2012 to~~$5.0 million for the three months ended September 30, 2013.

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Provision for Loan Losses. The following table summarizes the activity in the allowance for loan losses and provision for loan losses for the three months ended September 30, ~~2013~~2014 and ~~2012.~~2013.

	Three Months						Three Months
	Ended September 30,						Ended September 30,
	2013			2012			2014			2013

	(Dollars in thousands)						(Dollars in thousands)
Allowance at beginning of period	$	4,205		$	3,867		$	3,930		$	4,205
Provision (credit) for loan losses		(191	)		1,912			8			(191	)
Charge-offs		—			(85	)		(188	)		—
Recoveries		—			11			101			—
Net charge-offs		—			(74	)		(87	)		—
Allowance at end of period	$	4,014		$	5,705		$	3,851		$	4,014

Allowance to non-performing loans		173.78	%		40.70	%
Allowance to total loans outstanding at the end of the period		1.15	%		1.65	%
Net charge-offs (recoveries) to average loans outstanding during the period		—			2.00	%
End of period - Allowance to non-performing loans								44.11	%		173.78	%
End of period - Allowance to total loans outstanding								0.92	%		1.15	%
Net charge-offs to average loans outstanding during the period								0.02	%		—

The allowance to non-performing loans ratio ~~increased~~decreased to 44.11% at September 30, 2014 from 173.78% at September 30, 2013 ~~from 40.70%~~due primarily to an increase in non-performing loans to $8.7 million at September 30, ~~2012 due primarily to a decrease in non-performing loans to~~2014 from $2.3 million at September 30, 2013 ~~from $14.0 million at September 30, 2012, offset by~~and a decrease of $163,000 in the allowance for loan losses. The ~~decrease~~increase in non-performing loans was due to the ~~identification, monitoring~~addition of six mortgage loans totaling $5.4 million and ~~resolution~~two commercial and industrial loans totaling $2.5 million, partially offset by the conversion from non-performing to performing status of ~~several non-performing loans that were paid-off or became performing as~~one mortgage loan totaling $810,000 and the satisfaction of ~~or prior to, September 30, 2013.~~one mortgage loan totaling $742,000.

The allowance for loan losses was ~~$4.01~~$3.9 million at September 30, ~~2013, $4.65~~2014, $4.0 million at December 31, ~~2012,~~2013, and ~~$5.71~~$4.0 million at September 30, ~~2012.~~2013. We recorded a provision for loan losses of $8,000 for the three months ended September 30, 2014 compared to a credit provision for loan losses of ($191,000) for the three month period ended September 30, ~~2013 compared to provision for loan losses of $1.9 million for the three month period ended September 30, 2012.~~2013. The reduction in the ~~provision~~allowance for loan losses was due to ~~a decrease~~the Company’s assessment that there are no additional losses currently anticipated in connection with the increase in non-performing loans beyond the amounts already charged-off, that there has been an improvement in the Company’s historical charge-offs, and that the level of allowance for loan losses was adequate due to improvements in the economy and the multi-family, mixed-use and non-residential real estate market.

The reduction in the allowance for loan losses was also due to the Company’s decision to revise the methodology used to calculate the historical loss factor. The Company has revised the historical loss look back period from three to two years as a result of the Company’s determination that the Company’s historical loss charge-offs from 2009 to 2012 was a result of the recent economic recession, that the bulk of the loss charge-offs from 2009 to 2012 occurred in 2012, that there has not been a significant amount of ~~non-performing loans~~loss charge-offs during the past two years, and that the Company’s loan portfolio has weathered the recession with no further anticipated significant loss charge-offs. The Company’s allowance for loan losses at September 30, 2014 and provision for loan losses recognized for the quarter ended September 30, 2014 would have been $176,000 larger without the change in the ~~loan portfolio.~~methodology.

We had charge-offs of $188,000 during the three months ended September 30, 2014 compared to no charge-offs during the three months ended September 30, ~~2013 compared to charge-offs~~2013. We recorded recoveries of ~~$85,000~~$101,000 during the three months ended September 30, ~~2012. We recorded~~2014 compared to no recoveries during the three months ended September 30, ~~2013 compared to recoveries of $11,000 during the three months ended September 30, 2012.~~2013.

Non-interest Income. Non-interest income decreased by ~~$230,000,~~$22,000, or ~~32.8%~~4.7%, to $450,000 for the three months ended September 30, 2014 from $472,000 for the three months ended September 30, ~~2013 from $702,000 for the three months ended September 30, 2012.~~2013. The decrease was primarily due to ~~a $171,000~~decreases of $26,000 in other loan fees and service charges, and $5,000 in earnings on bank owned life insurance, offset by increases of $8,000 in advisory fee income generated by our wealth management division and $1,000 in other non-interest income. The decrease in other loan fees and service charges ~~primarily~~was due to decreases of $9,000 in loan late charges, $6,000 in loan fees, and $3,000 in deposit account service charges. The decrease in earnings on bank owned life insurance was due to a decrease in the effective yield of ~~$147,000~~the underlying investments. The increase in ~~mortgage broker~~advisory fee income ~~and a $59,000 decrease in fee income generated by~~from our wealth management ~~division. The decrease in mortgage broker fee income~~division was due to ~~the elimination~~an increase in ~~January 2013 of the 1-4 family residential mortgage loan brokerage department and the termination of the related staff.~~assets under management.

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Non-interest Expense. Non-interest expense ~~decreased~~increased by ~~$1.1~~$163,000, or 4.4%, to $3.9 million ~~or 22.5%, to~~for the three months ended September 30, 2014 from $3.7 million for the three months ended September 30, ~~2013 from $4.8 million for the three months ended September 30, 2012.~~2013. The ~~decrease~~increase resulted primarily from ~~decreases~~increases of ~~$692,000~~$231,000 in salaries and employee benefits, ~~$305,000~~$103,000 in ~~other non-interest expense, $81,000 in equipment expense, $68,000 in advertising expense, $36,000~~real estate owned expenses, $51,000 in outside data processing expense, and ~~$23,000~~$3,000 in ~~occupancy~~advertising expense, partially offset by ~~increases~~decreases of ~~$64,000~~$127,000 in other non-interest expense, $40,000 in FDIC insurance expense, $30,000 in occupancy expense, and ~~$59,000~~$28,000 in ~~real estate owned expenses.~~equipment expense.

Salaries and employee benefits, which represented ~~50.0%~~53.9% of the Company’s non-interest expense during the quarter ended September 30, ~~2013, decreased~~2014, increased by ~~$692,000,~~$231,000, or ~~27.1%~~12.4%, to $2.1 million in 2014 from $1.9 million in 2013 ~~from $2.6 million in 2012~~ due to the staffing of the Rockland County, New York loan production office, offset by a ~~decrease~~reduction in the number of full time equivalent employees to 98 at September 30, 2014 from 102 at September 30, ~~2013 from 126 at September 30, 2012.~~2013. The ~~decrease~~reduction in ~~full time employees was due to the Company’s efforts to control the increase~~staff occurred in ~~salaries and employee benefits by reducing staff in various departments, including the mortgage brokerage department,~~ the wealth management department, ~~and~~ branch operations, lending operations, and headquarters support personnel as part of a continued effort to contain expenses.

Real estate owned expense increased by $103,000, or 174.6%, to $162,000 in 2014 from $59,000 in 2013 due to operating expenses related to two foreclosed properties during the quarter ended September 30, ~~2012~~2014 compared to one foreclosed property during the quarter ended September 30, 2013. The ~~decrease~~Company acquired and sold one foreclosed multi-family property during a relatively short period of time during the quarter ended September 30, 2014 resulting in ~~salaries and employee benefits was also~~a charge-off of $188,000 against the allowance for loan losses.

Outside data processing expense increased by $51,000, or 22.3%, to $280,000 in 2014 from $229,000 in 2013 due to the ~~resignation~~addition of the ~~former chief financial officer~~Rockland County, New York loan production office in ~~July~~January 2014 and an upgrade in data services. Advertising expense increased by $3,000, or 23.1%, to $16,000 in 2014 from $13,000 in 2013 ~~that resulted in the reversal of certain forfeited benefits.~~due to marketing efforts to promote services and products.

Other non-interest expense decreased by ~~$305,000,~~$127,000, or ~~25.0%~~13.9%, to $787,000 in 2014 from $914,000 in 2013 ~~from $1.2 million in 2012~~ due mainly to decreases of ~~$170,000~~$88,000 in ~~recruitment~~miscellaneous other non-interest expenses, ~~related to the hiring of additional personnel in the Company’s Headquarters and Massachusetts locations, $111,000~~$56,000 in directors, officers and employee expenses, ~~$32,000~~$20,000 in ~~regulatory assessments, $16,000~~audit and accounting fees, and $11,000 in directors compensation, offset by increases of $18,000 in service contracts, $14,000 in telephone expenses, $11,000 in legal fees, $2,000 in insurance expenses, and $1,000 in office supplies and ~~stationery, $14,000~~stationery. The decrease in ~~legal~~miscellaneous other non-interest expenses was partially due to decreases of $50,000 in consulting expenses, $24,000 in personnel recruitment fees, and ~~$8,000~~$7,000 in ~~service contracts. These decreases were partially~~postage expenses.

FDIC insurance expense decreased by $40,000, or 25.8%, to $115,000 in 2014 from $155,000 in 2013 due to a decrease in the Company’s quarterly assessment multiplier, offset by ~~increases~~an increase in the Company’s assessment base from 2013 to 2014. Occupancy expense decreased by $30,000, or 8.5%, to $322,000 in 2014 from $352,000 in 2013 due to a reimbursement of ~~$22,000~~rental expense for our First Avenue branch office, offset by the addition of the Rockland County, New York loan production office in ~~director’s compensation, $15,000~~January 2014. Equipment expense decreased by $28,000, or 20.3%, to $110,000 in ~~telephone expenses,~~2014 from $138,000 in 2013 due to decreases in the purchases of additional equipment and ~~$14,000 in audit and accounting fees.~~continued efforts to contain expenses.

Income Taxes.Income tax expense increased by $22,000, or 15.3%, to $166,000 for the three months ended September 30, 2014 from $144,000 for the three months ended September 30, 2013. The increase resulted primarily from a $19,000 increase in pre-tax income in 2014 compared to 2013. The effective tax rate was 30.5% for the three months ended September 30, 2014 and 27.4% for the three months ended June 30, 2013. The increase in the effective tax rate between periods was due to a lower percentage of our pre-tax income being tax-exempt, specifically the earnings on bank-owned life insurance, in 2014 compared to 2013.

Comparison of Operating Results For The Nine Months Ended September 30, 2014 and 2013

General.Net income increased by $80,000, or 8.3%, to $1.1 million for the nine months ended September 30, 2014 from $969,000 for the nine months ended September 30, 2013. The increase was primarily the result of an increase of $467,000 in net interest income and a decrease of $181,000 in non-interest expenses, offset by a decrease of $346,000 in credit to the provision for loan losses, a decrease of $91,000 in non-interest income, and an increase of $131,000 in the provision for income taxes.

Net Interest Income. Net interest income increased by $467,000, or 4.1%, to $12.0 million for the nine months ended September 30, 2014 from $11.5 million for the nine months ended September 30, 2013. The increase in net interest income resulted primarily from an increase of $590,000 in interest income that exceeded an increase of $123,000 in interest expense.

The net interest spread decreased by 17 basis points to 3.52% for the nine months ended September 30, 2014 from 3.69% for the nine months ended September 30, 2013. The net interest margin decreased by 20 basis points between these periods from 3.94% for the nine months ended September 30, 2013 to 3.74% for the nine months ended September 30, 2014. The decrease in the interest rate spread and the net interest margin in 2014 compared to the same period in 2013 was due to a decrease of 23 basis points in the yield on our interest-earning assets that exceeded a decrease of six basis points in the cost of our interest-bearing liabilities.

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~~Equipment expense~~The average yield on our interest-earning assets decreased by ~~$81,000, or 37.0%,~~23 basis points to $138,000 in 2013 from $219,000 in 2012 and advertising expense decreased by $36,000, or 84.0%, to $13,000 in 2013 from $81,000 in 2012 due to decreases in the purchases of additional equipment and a decrease in marketing efforts in order to contain expenses. Outside data processing expense decreased by $36,000, or 13.6%, to $229,000 in 2013 from $265,000 in 2012 due to a one-time correction in billings that reduced data processing expense and a reduction in one-time fees for new services from the Company’s data processing vendors. Occupancy expense decreased by $23,000, or 6.1%, to $352,000 in 2013 from $375,000 in 2012 due to efforts to contain expenses.

FDIC insurance expense increased by $64,000, or 70.3%, to $155,000 in 2013 from $91,000 in 2012 due to an increase in the FDIC risk assessment of the Company. Real estate owned expense increased by $59,000 due to operating expenses related to one foreclosed property totaling $3.8 million as of September 30, 2013 compared to no real estate owned as of September 30, 2012.

~~Income Taxes~~.~~Income taxes increased by $991,000, or 117.0%, to an expense of $144,000~~4.53% for the ~~three~~nine months ended September 30, ~~2013~~2014 from a benefit of $847,000 for the three months ended September 30, 2012. The increase resulted primarily from a $2.4 million increase in pre-tax income in 2013 compared to 2012. The effective tax rate was an expense of 27.4% for the three months ended September 30, 2013 and a benefit of 45.9% for the three months ended September 30, 2012.

~~Comparison of Operating Results For The Nine Months Ended September 30, 2013 and 2012~~

~~General.~~~~Earnings increased by $1.5 million, or 300.6%, to net income of $969,000~~4.76% for the nine months ended September 30, 2013 ~~from a net loss~~and the cost of ~~$483,000~~our interest-bearing liabilities decreased by six basis points to 1.01% for the nine months ended September 30, 2012. The increase was primarily the result of a credit to the allowance for loan losses of $554,000 during the 2013 period compared to a provision for loan losses of $2.0 million in the 2012 period and a decrease of $960,000 in non-interest expenses, offset by a decrease of $724,000 in net interest income, a decrease of $351,000 in non-interest income, and an increase of $1.0 million in income taxes.

~~Net Interest Income~~. ~~Net interest income decreased by $724,000, or 5.9%, to $11.5 million for the nine months ended September 30, 2013~~2014 from $12.2 million for the nine months ended September 30, 2012. The decrease in net interest income resulted primarily from a decrease of $1.2 million in interest income that exceeded a decrease of $471,000 in interest expense.

The net interest spread increased by 26 basis points to 3.69% for the nine months ended September 30, 2013 from 3.43% for the nine months ended September 30, 2012. The net interest margin increased by 25 basis points between these periods from 3.69% for the nine months ended September 30, 2012 to 3.94%1.07% for the nine months ended September 30, 2013. The ~~increase in the interest rate spread and the net interest margin in 2013 compared to 2012 was due to an increase in the yield on our interest-earning assets coupled with a~~ decrease ~~in the cost of our interest-bearing liabilities.~~

The average yield on our interest-earning assets increased by 21 basis points to 4.76% for the nine months ended September 30, 2013 from 4.55% for the nine months ended September 30, 2012 and the cost of our interest-bearing liabilities decreased by 5 basis points to 1.07% for the nine months ended September 30, 2013 from 1.12% for the nine months ended September 30, 2012. The increase in the yield on our interest-earning assets was due to a decrease in ~~other interest-earning assets, resulting in a shift in~~ the ~~composition of interest-earning assets whereby higher yielding~~yield on loans receivable, ~~represented a larger percentage of total interest-earning assets for the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012. The increase~~offset by increases in the yield ~~of our~~on securities and other interest-earning ~~assets was also due to a decrease in our non-performing assets by $11.7 million, or 83.5%, to $2.3 million as of September 30, 2013 from $14.0 million as of September 30, 2012.~~assets. The decrease in the cost of our interest-bearing liabilities was due to ~~our decision to reduce interest rates offered on our~~a decrease in the cost of borrowed money, offset by an increase in the cost of interest-bearing deposits.

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The following table summarizes average balances and average yields and costs of interest-earning assets and interest-bearing liabilities for the nine months ended September 30, ~~2013~~2014 and ~~2012.~~2013.

	Nine Months Ended September 30,																Nine Months Ended September 30,
	2013								2012								2014								2013
				Interest								Interest								Interest								Interest
	Average			and		Yield/			Average			and		Yield/			Average			and		Yield/			Average			and		Yield/
	Balance			Dividends		Cost			Balance			Dividends		Cost			Balance			Dividends		Cost			Balance			Dividends		Cost

	(Dollars in thousands)																(Dollars in thousands)
Assets:
Interest-earning assets:
Loans	$	342,571		$	13,627		5.30	%	$	356,695		$	14,678		5.49	%	$	388,934		$	14,250		4.89	%	$	342,571		$	13,627		5.30	%
Securities		11,772			255		2.89			16,277			379		3.10			9,468			215		3.03			11,772			255		2.89
Other interest-earning assets		34,821			9		0.03			68,791			29		0.06			27,955			16		0.08			34,821			9		0.03
Total interest-earning assets		389,164			13,891		4.76			441,763			15,086		4.55			426,357			14,481		4.53			389,164			13,891		4.76
Allowance for loan losses		(4,403	)							(5,891	)							(4,116	)							(4,403	)
Non-interest-earning assets		49,606								39,421								48,701								49,606
Total assets	$	434,367							$	475,293							$	470,942							$	434,367

Liabilities and equity:																		��
Interest-bearing liabilities:
Interest-bearing demand	$	62,217		$	163		0.35	%	$	101,174		$	442		0.58	%	$	63,062		$	170		0.36	%	$	62,217		$	163		0.35	%
Savings and club accounts		82,638			331		0.53			88,977			445		0.67			85,609			352		0.55			82,638			331		0.53
Certificates of deposit		147,755			1,713		1.55			135,213			1,564		1.54			165,238			1,875		1.51			147,755			1,713		1.55
Total interest-bearing deposits		292,610			2,207		1.01			325,364			2,451		1.00			313,909			2,397		1.02			292,610			2,207		1.01

Borrowings		7,070			192		3.62			16,355			419		3.42			19,974			125		0.83			7,070			192		3.62
Total interest-bearing liabilities		299,680			2,399		1.07			341,719			2,870		1.12			333,883			2,522		1.01			299,680			2,399		1.07

Noninterest-bearing demand		22,331								18,460								25,539								22,331
Other liabilities		7,504								7,580								8,039								7,504
Total liabilities		329,515								367,759								367,461								329,515

Stockholders’ equity		104,852								107,534								103,481								104,852
Total liabilities and
Stockholders’ equity	$	434,367							$	475,293							$	470,942							$	434,367
Net interest income				$	11,492							$	12,216							$	11,959							$	11,492
Interest rate spread							3.69	%							3.43	%							3.52	%							3.69	%
Net interest margin							3.94	%							3.69	%							3.74	%							3.94	%
Net interest-earning assets	$	89,484							$	100,044							$	92,474							$	89,484
Average interest-earning assets to
average interest-bearing liabilities		129.86	%							129.28	%							127.70	%							129.86	%

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Total interest income ~~decreased~~increased by ~~$1.2~~$590,000, or 4.2%, to $14.5 million ~~or 7.9%, to~~for the nine months ended September 30, 2014, from $13.9 million for the nine months ended September 30, ~~2013, from $15.1~~2013. Interest income on loans increased by $623,000, or 4.6%, to $14.3 million for the nine months ended September 30, ~~2012. Interest income on loans decreased by $1.1 million, or 7.2%, to~~2014 from $13.6 million for the nine months ended September 30, 2013 ~~from $14.7~~as a result of an increase of $46.4 million, or 13.5%, in the average balance of the loan portfolio to $388.9 million for the nine months ended September 30, ~~2012~~2014 from $342.6 million for the nine months ended September 30, 2013 as ~~a result~~originations outpaced repayments. The increase in the average balance of the loan portfolio was offset by a decrease of 1941 basis points in the average yield on loans to 4.89% for the nine months ended September 30, 2014 from 5.30% for the nine months ended September 30, ~~2013 from 5.49% for the nine months ended September 30, 2012.~~2013. The decrease in ~~interest income and~~ the average yield on loans was due to the pay-off of higher yielding mortgage loans and the refinancing and/or re-pricing to lower interest rates of mortgage loans in our loan portfolio. The decrease in interest income was also due to a decrease of $14.1 million, or 4.0%, in the average balance of the loan portfolio to $342.6 million for the nine months ended September 30, 2013 from $356.7 million for the nine months ended September 30, 2012 as repayments outpaced originations.

Interest income on securities decreased by ~~$124,000,~~$40,000, or ~~32.7%~~15.7%, to $215,000 for the nine months ended September 30, 2014 from $255,000 for the nine months ended September 30, ~~2013 from $379,000 for the nine months ended September 30, 2012.~~2013. The decrease was primarily due to a decrease of ~~$4.5~~$2.3 million, or ~~27.7%~~19.6%, in the average balance of securities to $9.5 million for the nine months ended September 30, 2014 from $11.8 million for the nine months ended September 30, 2013, ~~from $16.3 million~~offset by an increase of 14 basis points in the average yield on securities to 3.03% for the nine months ended September 30, ~~2012.~~2014 from 2.89% for the nine months ended September 30, 2013. The decrease in the average balance was due to the principal repayments on investment securities, ~~and a decrease~~offset by an increase in FHLB New York stock. The decrease in interest income on securities was also due to a decrease of 21 basis points in the average yield on securities to 2.89% for the nine months ended September 30, 2013 from 3.10% for the nine months ended September 30, 2012. The declineincrease in the yield was due to ~~the re-pricing of the yield of our adjustable rate investment securities~~dividends from FHLB New York stock that yielded approximately 4.0% and ~~a decrease~~an increase in FHLB New York stock ~~yield from 4.5% at September 30, 2012 to 4.0% at September 30, 2013.~~as a percentage of total investment securities.

~~Table of Contents~~

Interest income on other interest-earning assets (consisting solely of interest-earning deposits) ~~decreased~~increased by ~~$20,000,~~$7,000, or ~~69.0%~~77.8%, to $16,000 for the nine months ended September 30, 2014 from $9,000 for the nine months ended September 30, ~~2013 from $29,000~~2013. The increase was primarily due to an increase of five basis points in the average yield on other interest-earning assets to 0.08% for the nine months ended September 30, ~~2012. The decrease was primarily~~2014 from 0.03% for the ~~result of~~nine months ended September 30, 2013, offset by a decrease of ~~$34.0~~$6.9 million or ~~49.4%~~19.7%, in the average balance of ~~other~~ interest-earning assets to $28.0 million for the nine months ended September 30, 2014 from $34.8 million for the nine months ended September 30, ~~2013 from $68.8~~2013. The increase in interest income on interest-earnings deposits was also due to an increase in the average balance of higher yielding certificates of deposit at other financial institutions, offset by a decrease in the average balance of interest-earning deposits maintained at the FHLB and Federal Reserve Bank of New York.

Total interest expense increased by $123,000, or 5.1%, to $2.5 million for the nine months ended September 30, 2012. The decrease in the average balance of other interest-earning assets was due to decreases in the average balance of cash equivalents as a result of decreases in the average balance of deposits. The decrease in interest income on other interest-earning assets was also due to a decrease of 3 basis points in the yield to 0.03%2014 from $2.4 million for the nine months ended September 30, ~~2013 from 0.06% for the nine months ended September 30, 2012. The decline in the yield was due to the maturity of higher yielding certificates of~~2013. Interest expense on deposits ~~at other financial institutions.~~

~~Total interest expense decreased~~increased by ~~$471,000,~~$190,000, or ~~16.4%~~8.6%, to $2.4 million for the nine months ended September 30, ~~2013~~2014 from ~~$2.9 million for the nine months ended September 30, 2012. Interest expense on deposits decreased by $244,000, or 10.0%, to~~ $2.2 million for the nine months ended September 30, ~~2013 from $2.5~~2013. The increase in the interest expense on deposits was a result of an increase of $21.3 million, or 7.3%, in the average balance of interest bearing deposits to $313.9 million for the nine months ended September 30, ~~2012. During this same period, the average interest cost of deposits increased by 1 basis point to 1.01% for the nine months ended September 30, 2013~~2014 from ~~1.00% for the nine months ended September 30, 2012.~~

~~The decrease in interest expense on deposits was due to a decrease of $32.8 million, or 10.1%, in the average balance of interest-bearing deposits to~~ $292.6 million for the nine months ended September 30, ~~2013 from $325.4 million~~2013. The increase in the interest expense on deposits was also a result of an increase of one basis point in the average cost of interest-bearing deposits to 1.02% for the nine months ended September 30, ~~2012. The decrease in~~2014 from 1.01% for the average balance of interest-bearing deposits was due to decreases in the average balance of our interest-bearing demand deposits and interest-bearing savings and club accounts, offset by increases in the average balance of our interest-bearing certificates of deposits. The decrease in the average balances of our interest-bearing demand deposits and interest-bearing savings and club accounts was due to our decision to reduce the interest rates offered on these deposits. The increase in the average balance of our interest-bearing certificates of deposit was due to offering competitive interest rates in connection with the opening of two new branches in Framingham and Quincy, Massachusetts during the latter part of the third quarter of 2012.nine months ended September 30, 2013.

The interest expense of our interest-bearing demand deposits ~~decreased~~increased by ~~$279,000,~~$7,000, or ~~63.1%~~4.3%, to $170,000 for the nine months ended September 30, 2014 from $163,000 for the nine months ended September 30, ~~2013 from $442,000 for the nine months ended September 30, 2012.~~2013. The ~~decrease~~increase in interest expense in our interest-bearing demand deposits was due to our decision to reduce the interest rates on interest-bearing demand deposits that resulted in a 23 basis point decrease in the average interest cost to 0.35% for the nine months ended September 30, 2013 from 0.58% for the nine months ended September 30, 2012. The decrease in interest expense on our interest-bearing demand deposits was also due to a decreasean increase of ~~$39.0 million,~~$845,000, or ~~38.5%~~1.4%, in the average balance of our interest-bearing demand deposits to $63.1 million for the nine months ended September 30, 2014 from $62.2 million for the nine months ended September 30, 2013 ~~from $101.2 million~~and an increase of one basis point in the average interest cost to 0.36% for the nine months ended September 30, ~~2012.~~2014 from 0.35% for the nine months ended September 30, 2013 as we continued to offer competitive interest rates to generate deposits.

The interest expense of our interest-bearing savings and club deposits ~~decreased~~increased by ~~$114,000,~~$21,000, or ~~25.6%~~6.3%, to $352,000 for the nine months ended September 30, 2014 from $331,000 for the nine months ended September 30, ~~2013 from $445,000 for the nine months ended September 30, 2012.~~2013. The ~~decrease~~increase in interest expense in our interest-bearing savings and club deposits resulted from our decision to reduce the interest rates on interest-bearing savings and club deposits that resulted in a 14 basis point decrease in the average interest cost to 0.53% for the nine months ended September 30, 2013 from 0.67% for the nine months ended September 30, 2012. The decrease in interest expense on our interest-bearing savings and club deposits was ~~also~~ due to ~~a decrease~~an increase of ~~$6.3~~$3.0 million, or ~~7.1%~~3.6%, in the average balance of our interest-bearing savings and club deposits to $85.6 million for the nine months ended September 30, 2014 from $82.6 million for the nine months ended September 30, ~~2013 from $89.0 million~~2013. The increase in interest expense in our interest-bearing savings and club deposits was also due to a two basis point increase in the average interest cost to 0.55% for the nine months ended September 30, ~~2012.~~2014 from 0.53% for the nine months ended September 30, 2013 as we continued to offer competitive interest rates to generate deposits.

The interest expense of our interest-bearing certificates of deposit increased by ~~$149,000,~~$162,000, or 9.5%, to $1.9 million for the nine months ended September 30, 2014 from $1.7 million for the nine months ended September 30, ~~2013 from $1.6 million for the nine months ended September 30, 2012.~~2013. The increase in interest expense in our interest-bearing certificates of deposit was due to an increase of ~~$12.5~~$17.5 million, or ~~9.3%~~11.8%, in the average balance of our interest-bearing certificates of deposit to $165.2 million for the nine months ended September 30, 2014 from $147.8 million for the nine months ended September 30, ~~2013 from $135.2 million~~2013. The increase in our interest-bearing certificates of deposit was due to management’s decision to continue offering competitive interest rates to generate deposits through a non-broker nationwide certificate of deposit listing service. The increase in interest expense of our interest-bearing certificates of deposit was offset by a four basis point decrease in the average interest cost on such certificates to 1.51% for the nine months ended September 30, ~~2012 and an increase of 1 basis point in the average interest cost to~~2014 from 1.55% for the nine months ended September 30, ~~2013 from 1.54% for the nine months ended September 30, 2012.~~2014. The ~~increase~~decrease in the average ~~balance~~interest cost of our interest-bearing certificates of deposit ~~and the average interest cost~~ was due to ~~offering competitive interest rates in connection with~~ the ~~opening~~re-pricing of ~~two new branches in Framingham~~maturing certificates of deposit and ~~Quincy, Massachusetts during~~ the ~~latter part~~acquisition of ~~the third quarter~~competitively priced interest-bearing certificates of ~~2012.~~deposit through a non-broker nationwide certificate of deposit listing service.

Interest expense on borrowings decreased by $227,000, or 54.2%, to $192,000 for the nine months ended September 30, 2013 from $419,000 for the nine months ended September 30, 2012. The decrease was primarily due to a decrease of $9.3 million, or 56.8%, in the average balance of borrowed money to $7.1 million for the nine months ended September 30, 2013 from $16.4 million for the nine months ended September 30, 2012. Offsetting the decrease in interest expense on borrowings, resulting from a decrease in the average balance, was an increase of 20 basis points in the cost of borrowed money to 3.62% for the nine months ended September 30, 2013 from 3.42% for the nine months ended September 30, 2012 due primarily to the maturity and repayment of lower costing FHLB advances from 2012 to 2013.

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Interest expense on borrowings decreased by $67,000, or 34.9%, to $125,000 for the nine months ended September 30, 2014 from $192,000 for the nine months ended September 30, 2013. The decrease in interest expense on borrowings was due to a decrease of 279 basis points in the cost of borrowed money to 0.83% for the nine months ended September 30, 2014 from 3.62% for the nine months ended September 30, 2013 due primarily to the maturity and repayment of higher costing FHLB advances during the nine months ended September 30, 2014 and new lower costing FHLB advances obtained in December 2013 and the nine months ended September 30, 2014. The decrease in interest expense on borrowings was partially offset by an increase of $12.9 million, or 182.5%, in the average balance of borrowed money to $20.0 million for the nine months ended September 30, 2014 from $7.1 million for the nine months ended September 30, 2013.

Allowance for Loan Losses. The following table summarizes the activity in the allowance for loan losses for the nine months ended September 30, ~~2013~~2014 and ~~2012.~~2013.

	Nine Months						Nine Months
	Ended September 30,						Ended September 30,
	2013			2012			2014			2013
	(Dollars in thousands)						(Dollars in thousands)
Allowance at beginning of period	$	4,646		$	7,397		$	4,015		$	4,646
Provision (credit) for loan losses		(554	)		2,029			(208	)		(554	)
Charge-offs		(105	)		(3,737	)		(621	)		(105	)
Recoveries		27			16			665			27
Net charge-offs		(78	)		(3,721	)
Net recovery (charge-offs)								44			(78	)
Allowance at end of period	$	4,014		$	5,705		$	3,851		$	4,014

We recorded provisions (credit) for loan losses of ($~~554,000)~~208,000) and ~~$2.0 million~~($554,000) for the nine-month periods ended September 30, ~~2013~~2014 and ~~2012,~~2013, respectively. We charged-off $621,000 against two non-performing multi-family mortgage loans, one mixed-use mortgage loan, one non-residential mortgage loan, and one foreclosed multi-family mortgage loan during the nine months ended September 30, 2014 compared to charge-offs of $105,000 against two non-performing non-residential mortgage loans during the nine months ended September 30, ~~2013 compared to charge-offs~~2013. We recorded recoveries of ~~$3.7 million against six non-performing multi-family mortgage loans, four non-performing non-residential mortgage loans, and one non-performing construction mortgage loan~~$665,000 during the nine months ended September 30, ~~2012. We recorded~~2014 compared to recoveries of $27,000 during the nine months ended September 30, ~~2013 compared~~2013.

The reduction in the allowance for loan losses was also due to ~~recoveries~~the Company’s decision to revise the methodology used to calculate the historical loss factor. The Company has revised the historical loss look back period from three to two years as a result of ~~$16,000~~the Company’s determination that the Company’s historical loss charge-offs from 2009 to 2012 was a result of the recent economic recession, that the bulk of the loss charge-offs from 2009 to 2012 occurred in 2012, that there has not been a significant amount of loss charge-offs during the past two years, and that the Company’s loan portfolio has weathered the recession with no further anticipated significant loss charge-offs. The Company’s allowance for loan losses at September 30, 2014 would have been $176,000 larger and the provision (credit) for loan losses recognized for the nine months ended September 30, ~~2012.~~2014 would have been $176,000 lower without the change in the methodology.

Non-interest Income. Non-interest income decreased by ~~$351,000,~~$91,000, or ~~19.0%~~6.1%, to $1.4 million for the nine months ended September 30, 2014 from $1.5 million for the nine months ended September 30, ~~2013 from $1.8 million for the nine months ended September 30, 2012.~~2013. The decrease was primarily due to ~~a $144,000 decrease~~decreases of $130,000 in other loan fees and service charges and $16,000 in earnings on bank owned life insurance, partially offset by increases of $53,000 in advisory fee income generated by our wealth management division ~~a $254,000 decrease in other loan fees~~ and ~~service charges, partially offset by a $33,000 increase in earnings on bank owned life insurance and a $5,000 increase~~$2,000 in other non-interest income. The decrease in other loan fees and service charges was due to ~~a decrease~~decreases of ~~$308,000~~$66,000 in mortgage broker fee income, ~~offset by increases of $30,000~~$40,000 in ~~commercial and industrial~~ loan fee income, and ~~$27,000~~$11,000 in ~~deposit and ATM fees.The decrease~~loan late charges. The increase in ~~mortgage broker~~advisory fee income from our wealth management division was due to ~~the elimination~~an increase in ~~January 2013 of the 1-4 family residential mortgage loan brokerage department and the termination of the related staff.~~assets under management.

Non-interest Expense. Non-interest expense decreased by ~~$960,000,~~$181,000, or ~~7.3%~~1.5%, to $12.1 million for the nine months ended September 30, 2014 from $12.3 million for the nine months ended September 30, ~~2013~~2013. The decrease resulted primarily from ~~$13.2 million~~decreases of $334,000 in impairment loss on goodwill, $114,000 in other non-interest expense, $64,000 in equipment expenses, $44,000 in real estate owned expenses, and $6,000 in advertising expense, offset by increases of $249,000 in salaries and employee benefits, $95,000 in FDIC insurance expense, $31,000 in outside data processing expenses, and $6,000 in occupancy expense.

The Company did not have any impairment loss on goodwill for the nine months ended September 30, 2012. The decrease resulted primarily from decreases of $731,000 in salaries and employee benefits, $725,000 in other non-interest expense, $151,000 in advertising expense, $108,000 in equipment expense, and $15,000 in FDIC insurance expense, partially offset by increases of $334,000 in impairment loss on goodwill, $318,000 in real estate owned expenses, $109,000 in occupancy expense, and $9,000 in outside data processing expense.

Salaries and employee benefits, which represented 50.5% of the Company’s non-interest expense during the nine months ended September 30, 2013, decreased by $731,000, or 10.6%, to $6.2 million in 2013 from $6.9 million in 2012 due to a decrease in the number of full time equivalent employees to 102 at September 30, 2013 from 126 at September 30, 2012, offset by the staffing of the Framingham and Quincy, Massachusetts branch offices that opened during the latter part of the third quarter of 2012. The decrease in full time employees was due to the Company’s efforts to control the increase in salaries and employee benefits by reducing staff in various departments, including the mortgage brokerage department, the wealth management department, and branch operations from September 30, 2012 to September 30, 2013. The decrease in salaries and employee benefits was also due to the resignation of the former chief financial officer in July 2013 that resulted in the reversal of certain forfeited benefits.

Other non-interest expense decreased by $725,000, or 20.8%, to $2.8 million in 2013 from $3.5 million in 2012 due mainly to decreases of $363,000 in recruitment expenses related to the hiring of additional personnel in the Company’s Headquarters and Massachusetts locations in 2012, $348,000 in directors, officers and employee expenses, $85,000 in legal fees, $70,000 in regulatory assessments, $23,000 in office supplies, $22,000 in service contracts, $16,000 in donations, and $10,000 in postage expenses, partially offset by increases of $88,000 in audit and accounting fees, $72,000 in director’s compensation, $44,000 in telephone expenses, and $6,000 in insurance expense.

Advertising expense decreased by $151,000, or 77.8%, to $43,000 in 2013 from $194,000 in 2012 and equipment expense decreased by $108,000, or 18.7%, to $469,000 in 2013 from $577,000 in 2012 due to efforts to contain cost that resulted in decreases in marketing efforts and decreases in the purchases of additional equipment. FDIC insurance expense decreased by $15,000, or 5.3%, to $268,000 in 2013 from $283,000 in 2012 due to a decrease in deposits, offset by an increase in the FDIC risk assessment of the Company.

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2014. During the second quarter of 2013, the Company determined that an adjustment to the goodwill impairment of $227,000 previously recorded in 2012 was necessary. As a result, an additional impairment charge of $334,000 was recognized for the nine months ended September 30, 2013. The goodwill was recorded in connection with the Hayden Financial Group acquisition in 2007. The impairment was caused primarily by the expected decrease in other revenue from this division resulting from a reduction in personnel.

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Other non-interest expense decreased by $114,000, or 4.1%, to $2.7 million in 2014 from $2.8 million in 2013 due mainly to decreases of $218,000 in legal fees, $52,000 in directors, officers and employee expenses, $48,000 in directors compensation, and $14,000 in office supplies and stationery, offset by increases of $71,000 in audit and accounting fees, $66,000 in service contracts, $59,000 in telephone expenses, $13,000 in miscellaneous other non-interest expenses, and $8,000 in insurance expenses. The ~~Company did not have any impairment loss on goodwill for~~decrease in legal fees was due primarily to the ~~nine months ended September 30, 2012.~~Company’s decision to capitalize certain legal fees. The decrease in directors, officers and employee expenses was due to efforts to contain expense. The increase in audit and accounting fees was due to an increase in services provided by our independent and contract internal auditors.

Equipment expense decreased by $64,000, or 13.6%, to $405,000 in 2014 from $469,000 in 2013 due to decreases in the purchases of additional equipment and continued efforts to contain expenses. Real estate owned expense ~~increased~~decreased by $44,000, or 13.8%, to $274,000 in 2014 from $318,000 in 2013 due primarily to ~~operating expenses related to the addition of two foreclosed properties subsequent to September 30, 2012 and~~ a loss of $51,000 on the sale of ~~one of the~~a real estate owned ~~resulting in an increase in real estate owned to $3.8 million as of~~during the nine months ended September 30, 2013. Advertising expense decreased by $6,000, or 14.0%, to $37,000 in 2014 from $43,000 in 2013 ~~from no real estate owned as~~due to continued efforts to contain expenses. Salaries and employee benefits, which represented 53.3% of the Company’s non-interest expense during the nine months ended September 30, ~~2012.~~2014, increased by $249,000, or 4.0%, to $6.4 million in 2014 from $6.2 million in 2013 due to the staffing of the Rockland County, New York loan production office, offset by a reduction in the number of full time equivalent employees to 98 at September 30, 2014 from 102 at September 30, 2013. The reduction in staff occurred in the wealth management department, branch operations, lending operations and headquarters support personnel as part of a continued effort to contain expenses.

~~Occupancy~~FDIC insurance expense increased by ~~$109,000,~~$95,000, or ~~11.1%~~35.4%, to ~~$1.1 million~~$363,000 in 2014 from $268,000 in 2013 due to increases in the Company’s assessment base, offset by a decrease in the quarterly assessment multiplier from ~~$983,000~~2013 to 2014. Outside data processing expense increased by $31,000, or 3.9%, to $820,000 in ~~2012~~2014 from $789,000 in 2013 due to the addition of the ~~new Framingham and Quincy, Massachusetts branch offices and payment of arrearage cooperative assessments for the 23~~^rd ~~Street,~~Rockland County, New York ~~branch office. Outside~~loan production office in January 2014 and an upgrade in data ~~processing~~services. Occupancy expense increased by ~~$9,000,~~$6,000, or ~~1.2%~~0.5%, to ~~$789,000~~$1.1 million in ~~2013~~2014 from ~~$780,000~~$1.1 million in ~~2012~~2013 due to the addition of ~~two new branch offices~~the Rockland County, New York loan production office in the latter part of the third quarter of 2012 and additional services provided by the Company’s data processing vendors, offset by a one-time correction in billings that reduced data processing expense.January 2014.

Income Taxes.Income ~~taxes~~tax expense increased by ~~$1.0 million,~~$131,000, or ~~142.2%~~43.4%, to ~~an expense of~~$433,000 for the nine months ended September 30, 2014 from $302,000 for the nine months ended September 30, ~~2013~~2013. The increase resulted primarily from a ~~benefit of $714,000~~$211,000 increase in pre-tax income in 2014 compared to 2013. The effective tax rate was 29.2% for the nine months ended September 30, ~~2012. The increase resulted primarily from a $2.5 million increase in pre-tax income in 2013~~2014 compared to ~~2012. The effective tax rate was an expense of~~ 23.8% for the nine months ended September 30, ~~2013 and a benefit~~2013. The increase in the effective tax rate was primarily due to the decreased portion of ~~59.7% for the nine months ended September 30, 2012.~~pre-tax income during 2014 attributed to tax-exempt earnings on bank-owned life insurance.

NON PERFORMING ASSETS

The following table provides information with respect to our non-performing assets at the dates indicated.

	At			At			At			At
	September 30, 2013			December 31, 2012			September 30, 2014			December 31, 2013
	(Dollars in thousands)						(Dollars in thousands)

Non-accrual loans	$	2,310		$	3,957		$	8,731		$	4,666
Loans past due 90 days or more and accruing		—			—			—			—
Total nonaccrual and 90 days or more
past due loans		2,310			3,957
Other non-performing loans		—			—
Total non-performing loans		2,310			3,957			8,731			4,666
Real estate owned		3,821			4,271			4,047			3,985
Total non-performing assets		6,131			8,228			12,778			8,651

Accruing troubled debt restructurings		15,825			12,236			12,196			15,535
Nonaccrual troubled debt restructurings		1,259			1,197			2,545			1,269
Total troubled debt restructurings		17,084			13,433			14,741			16,804
Less nonaccrual troubled debt restructurings in total nonaccrual loans		1,259			1,197			2,545			1,269
Total troubled debt restructurings and
non-performing assets	$	21,956		$	20,464

Total troubled debt restructurings and non-performing assets							$	24,974		$	24,186
Total non-performing loans to total loans		0.66	%		1.17	%		2.09	%		1.26	%
Total non-performing assets to total assets		1.42	%		1.85	%		2.54	%		1.89	%
Total non-performing assets and troubled
debt restructurings to total assets		5.07	%		4.61	%		4.97	%		5.28	%

~~The non-accrual loans at September 30, 2013 consisted of four non-residential mortgage loans.~~

Non-performing loans decreased by $1.6 million, or 41.6%, to $2.3 million at September 30, 2013 from $4.0 million at December 31, 2012. The decrease in non-performing loans was due to the satisfaction of two non-accrual multi-family mortgage loans totaling $196,000 and the conversion from non-performing to performing status of three residential mortgage loans and one non-residential mortgage loan totaling $1.8 million, partially offset by the addition of one non-residential mortgage loan totaling $309,000.

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The non-accrual loans at September 30, 2014 consisted of 10 loans in the aggregate, comprised of two multi-family mortgage loans, two mixed-use mortgage loans, four non-residential mortgage loans, ~~net~~and two commercial and industrial loans.

Non-performing loans increased by $4.1 million, or 87.1%, to $8.7 million as of ~~charge-offs~~September 30, 2014 from $4.6 million as of ~~$1.0~~December 31, 2013. The increase in non-performing loans was primarily due to the addition of two non-performing commercial and industrial loans totaling $2.5 million, ~~totaled~~two non-performing non-residential mortgage loans totaling $2.3 million, two non-performing multi-family mortgage loans totaling $897,000, one non-performing mixed-use mortgage loan totaling $230,000, and payments made by the Company for real estate taxes, water and sewer charges totaling $120,000 on properties secured by the non-performing mortgage loans, partially offset by the conversion from non-performing to performing status of one non-residential mortgage loan totaling $823,000, the satisfaction of one non-residential mortgage loan totaling $789,000 and two commercial and industrial loans totaling $85,000, and the charge-off of $325,000 for one mixed-use mortgage loan.

The two non-accrual multi-family mortgage loans totaled $897,000 at September 30, ~~2013~~2014 and consisted primarily of the following mortgage loans:

(1)

An outstanding balance of ~~$810,000, net of a charge-off of $371,000,~~$694,000 secured by a ~~gasoline service station and car wash. The~~23 unit apartment building. We classified this loan ~~is classified~~ as substandard. AThe Company has commenced a foreclosure ~~action is proceeding and we~~action. We are evaluating the options currently available to us.

(2)

An outstanding balance of ~~$742,000, net of a charge-off of $234,000,~~$204,000 secured by a ~~medical office~~six unit apartment building. We classified this loan as substandard. The Company has commenced a foreclosure ~~action and the Court has appointed a receiver who is collecting rent and managing the building.~~action. We are evaluating the options currently available to us.

The two non-accrual mixed-use mortgage loans totaled $2.2 million at September 30, 2014 and consisted primarily of the following mortgage loans:

(1)

An outstanding balance of $2.0 million, net of charge-off of $325,000, secured by three separate buildings with 25 apartment units and office spaces. We classified this loan as substandard. We acquired the property as real estate owned via a receiver sale on October 3, 2014 and we have retained a management company to operate the property. We plan to renovate the property and will evaluate the options currently available to us. Prior to the receiver sale, the Court appointed a forensic accountant who is still reviewing the books and records of the borrowing entity and managing partner.

(2)

An outstanding balance of $230,000 secured by two apartments above a full service gas station. We classified this loan as special mention. We are negotiating with the borrower to bring the loan current.

The four non-accrual non-residential mortgage loans totaled $3.1 million at September 30, 2014 and consisted primarily of the following mortgage loans:

(1)

An outstanding balance of $2.1 million secured by an office building. We classified this loan as substandard. We acquired the property via a deed-in-lieu of foreclosure in November 2014. The Company has retained a property management company to operate the property. Upon minor renovation and lease-up of the property, the Company will market the property for sale. We do not anticipate any loss due to the projected positive cash flow from the property.

(2)

An outstanding balance of $448,000, net of charge-off of $400,000, secured by a strip shopping center and warehouse. We classified this loan as substandard. The property was severely damaged by fire and the Company and borrower are currently suing the insurance company and the borrower’s insurance agent as part of the Company’s collection efforts. The borrower is marketing the property for sale.

(3)

An outstanding balance of $348,000, secured by a building housing auto repair and auto rental facilities. We classified this loan as substandard. We acquired the property as real estate owned via a foreclosure sale on October 17, 2014. We have a contract to sell the property and we expect to close the sale by the end of 2014.

(4)

An outstanding balance of $204,000, secured by a restaurant and seafood market. We classified this loan as substandard. The Company has commenced a foreclosure action. We are evaluating the options currently available to us.

The two non-accrual commercial and industrial loans totaled $2.5 million at September 30, 2014 and consisted primarily of the following loans:

(1)

Two loans with an aggregate balance of $2.5 million, consisting of a line of credit with an outstanding balance of $1.4 million and remaining available line of credit of $76,000 and a term loan with an outstanding balance of $1.1 million. The loans are secured by the assets of a construction company. The Company is working with the borrower and the borrower’s surety bonding company to cure the delinquencies and/or satisfy the loans.

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Based on current appraisals and/or fair value analyses of these properties, the Company does not anticipate any losses beyond the amounts already charged off.

At September 30, ~~2013,~~2014, we ownedone foreclosed property with a net balance of ~~$3.8~~$4.0 million consisting of an office building located in New Jersey. The property was most recently appraised in November 2013 for $4.3 million. The Company plans to renovate the property shortly to attract more tenants. Upon completion of the renovation, the Company will order an updated appraisal. The Company’s managing agent is operating and marketing the building. for additional tenants and sale. The Company won a $1.7 million judgment in July 2014 against the former borrower whereby the judgment protects the Company in the event of a loss on the sale of the property.

The Company acquired and sold one foreclosed multi-family property in the quarter ended September 30, 2014 resulting in a charge-off of $188,000 against the allowance for loan losses.

TROUBLED DEBT RESTRUCTURED LOANS

There were no loans modified that were deemed to be TDRs during the three and nine months ended September 30, 2014. As of September 30, 2014, none of the loans that were modified during the previous twelve months had defaulted in the three and nine month period ended September 30, 2014.

The following tables show the activity in TDR loans for the period indicated:

									Commercial
	Residential			Nonresidential					and
	Real Estate			Real Estate			Construction		Industrial		Consumer		Total
	(in thousands)

Balance at December 31, 2013	$	6,419		$	10,385		$	—	$	—	$	—	$	16,804
Additions		—			100			—		—		—		100
Repayments		(49	)		(50	)		—		—		—		(99	)
Transfer to real estate owned		(2,151	)											(2,151	)
Amortization of TDR reserves		13			74			—		—		—		87
Balance - September 30, 2014	$	4,232		$	10,509		$	—	$	—	$	—	$	14,741
Related allowance	$	—		$	—		$	—	$	—	$	—	$	—

There were no charge-offs of loans classified as TDRs in the three and nine months ended September 30, 2014. Additions for the period consist of real estate taxes and similar items paid to protect the collateral position of the Company.

There were no loans modified during the three months ended September 30, 2013. There were four loans modified during the nine months ended September 30, 2013.

~~The~~One multi-family mortgage loan ~~that was modified~~ had an original interest rate of 6.75% with an amortization of 25 years. ~~The Company~~We reduced the interest rate and converted the monthly payments to interest only for twenty months and then amortizing for 30 years, with a balloon payment after approximately five and one-half years from the modification date.

Two non-residential mortgage loans ~~that were modified~~ had an original interest rate of ~~4.00%~~6.75% with an amortization of 25 years. ~~The Company~~We reduced the interest rate and converted the monthly payments to interest only for twenty months and then amortizing for 30 years, with a balloon payment after approximately five and one-half years from the modification date.

One non-residential mortgage loan ~~that was modified~~ had an original interest rate of ~~4.00%~~6.75% with an amortization of 30 years. ~~The Company~~We reduced the interest rate and converted the monthly payments to interest only for nineteen months and then amortizing for 30 years, with a balloon payment after two years from the modification date.

As of September 30, 2013, none of the loans that were modified during the previous twelve months had defaulted in the three and nine month periods ended September 30, 2013.

~~The following tables show the activity in troubled debt restructured loans for the period indicated:~~

Commercial
Residential Nonresidential and
Real Estate Real Estate Construction Industrial Consumer Total

Balance at December 31, 2012 $ 6,444 $ 6,989 $ — $ — $ — $ 13,433
   Additions 315 3,376 — — — 3,691
   Repayments (34 ) (6 ) — — — (40 )
   Balance - September 30, 2013 $ 6,725 $ 10,359 $ — $ — $ — $ 17,084
   Related allowance $ — $ — $ — $ — $ — $ —

~~There were no charge offs of loans classified as troubled debt restructurings in the three and nine months ended September 30, 2013.~~

~~Additions for the period consist of the aforementioned four mortgage loans that were modified, real estate taxes and similar items paid to protect the collateral position of the Company.~~

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The following tables show the activity in ~~troubled debt restructured~~TDR loans for the period indicated:

									Commercial															Commercial
	Residential			Nonresidential					and							Residential			Nonresidential					and
	Real Estate			Real Estate			Construction		Industrial		Consumer		Total			Real Estate			Real Estate			Construction		Industrial		Consumer		Total
																(in thousands)
Balance at December 31, 2011	$	9,886		$	5,587		$	—	$	—	$	—	$	15,473

Balance at December 31, 2012																$	6,444		$	6,989		$	—	$	—	$	—	$	13,433
Additions		1,259			11,707			—		—		—		12,966			251			3,291			—		—		—		3,542
Repayments		(2,748	)		(4,637	)		—		—		—		(7,385	)		(9	)		(32	)		—		—		—		(41	)
Balance - September 30, 2012	$	8,397		$	12,657		$	—	$	—	$	—	$	21,054
Amortization of TDR reserves																	40			110			—		—		—		150
Balance - September 30, 2013																$	6,726		$	10,358		$	—	$	—	$	—	$	17,084
Related allowance	$	—		$	—		$	—	$	—	$	—	$	—		$	—		$	—		$	—	$	—	$	—	$	—

There were no charge offs ~~of $1.8 million~~ against loans classified as ~~troubled debt restructurings~~TDRs in the three and nine months ended September 30, ~~2012.~~

2013. Additions for the period consist of four non-residential mortgage loans and one residential mortgage ~~loans~~loan that were modified and real estate taxes and similar items paid to protect the collateral position of the Company.

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 Federal Home Loan Bank of New York. 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 demands; (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. Cash and cash equivalents totaled ~~$30.6~~$33.3 million at September 30, ~~2013~~2014 and ~~consist~~consisted primarily of interest-bearing deposits at other financial institutions and miscellaneous cash items. The Company can alsoborrow anadditional ~~$92.5~~ $72.3 million from the FHLB of New York and $8.0 million from ACBB to provide additional liquidity.

At September 30, ~~2013,~~2014, we had ~~$41.5~~$83.6 million in loan commitments outstanding, consisting of ~~$23.1~~$32.9 million in unused loans in process, $28.2 million in unused commercial and industrial loan lines of credit, ~~$9.6~~$19.7 million of real estate loan commitments, ~~$6.5~~$2.7 million in unused real estate equity lines of credit, ~~$2.1 million in unused loans in process, $197,000 in commercial~~ and ~~industrial loan commitments, and $133,000~~$119,000 in consumer lines of credit. Certificates of deposit due within one year of September 30, ~~2013~~2014 totaled ~~$69.5~~$63.6 million. This represented ~~46.9%~~35.0% of certificates of deposit at September 30, ~~2013.~~2014. We believe a large percentage of certificates of deposit that mature within one year reflects customers’ hesitancy to invest their funds for long periods in the current interest rate environment. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we paid on the certificates of deposit due on or before September 30, ~~2013.~~2014. We believe, however, based on past experience, a significant portion of our certificates of deposit 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 deposit accounts and FHLB ~~advances~~.advances. At September 30, ~~2013,~~2014, we had the ability to borrow ~~$92.5~~$72.3 million, net of ~~$5.0~~$27.1 million in outstanding advances, from the FHLB of New York. At September 30, ~~2013,~~2014, we had no overnight advances outstanding. 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 maintain or increase our core deposit relationships depending on our level of real estate loan commitments outstanding. Occasionally, we offer promotional rates on certain deposit products to attract deposits or to lengthen repricing time frames.

During the quarter ended September 30, 2014, the Company became a member of ACBB, a banker’s bank, in order to provide the Company with an additional source of correspondent services that includes the ability to borrow $8.0 million from ACBB via a line of credit. The Company has thus far not utilized this line of credit.

The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Company is responsible for paying any dividends declared to its shareholders and for the repurchase, if any, of its shares of common stock. At September 30, ~~2013,~~2014, the Company had liquid assets of ~~$13.7~~$11.4 million.

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Capital Management.The Bank is subject to various regulatory capital requirements administered by the FDIC, 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, ~~2013,~~2014, the Bank exceeded all regulatory capital requirements. The Bank is considered “well capitalized” under regulatory guidelines.

~~Table of Contents~~

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, letters of credit and lines of credit.

For the three and nine months ended September 30, ~~2013~~2014 and the year ended December 31, ~~2012,~~2013, we engaged in no off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

~~Item 3.~~

~~Quantitative and Qualitative Disclosures About Market Risk.~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Qualitative Aspects of Market Risk.The Company’s most significant form of market risk is interest rate risk. We manage the interest rate sensitivity of our interest-bearing liabilities and interest-earning assets in an effort to minimize the adverse effects of changes in the interest rate environment. Deposit accounts typically react more quickly to changes in market interest rates than mortgage loans because of the shorter maturities of deposits. As a result, sharp increases in interest rates may adversely affect our earnings while decreases in interest rates may beneficially affect our earnings. To reduce the potential volatility of our earnings, we have sought to improve the match between asset and liability maturities and rates, while maintaining an acceptable interest rate spread.

Our strategy for managing interest rate risk emphasizes: originating mortgage real estate loans that re-price to market interest rates in three to five years; purchasing securities that typically re-price within a three year time frame to limit exposure to market fluctuations; and, where appropriate, offering higher rates on long term certificates of deposit to lengthen the re-pricing time frame of our liabilities. We currently do not participate in hedging programs, interest rate swaps or other activities involving the use of derivative financial instruments.

We have an Asset/Liability Committee, comprised of our Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Chief Retail Banking Officer, and three Chief Lending ~~Officer – New England Region, and Chief Lending Officer – Mid-Atlantic Region,~~Officers, whose function is to communicate, coordinate and control all aspects involving asset/liability management. The committee establishes and monitors the volume, maturities, pricing and mix of assets and funding sources with the objective of managing assets and funding sources to provide results that are consistent with liquidity, growth, risk limits and profitability goals.

Our goal is to manage asset and liability positions to moderate the effects of interest rate fluctuations on net interest income and net income.

Quantitative Aspects of Market Risk. We use an interest rate sensitivity analysis prepared by an independent third party to review our level of interest rate risk. This analysis measures interest rate risk by computing changes in the net portfolio value of our cash flows from assets, liabilities and off-balance sheet items in the event of a range of assumed changes in market interest rates. Net portfolio value represents the market value of portfolio equity and is equal to the market value of assets minus the market value of liabilities, with adjustments made for off-balance sheet items. These analyses assess the risk of loss in market risk-sensitive instruments in the event of a sudden and sustained 50100 to ~~300~~400 basis point increase or ~~50 and~~ 100 basis point decrease in market interest rates with no effect given to any steps that we might take to counter the effect of that interest rate movement.

The following table presents the change in our net portfolio value at September 30, ~~2013that~~2014 that would occur in the event of an immediate change in interest rates based on the independent third party assumptions, with no effect given to any steps that we might take to counteract that change.

Net Portfolio Value
as % of
Net Portfolio Value Portfolio Value of
(Dollars in thousands) Assets
Basis Point (“bp”) $ $ % NPV
Change in Rates Amount Change Change Ratio Change
300 $ 103,988 $ (15,356 ) -12.87 % 24.96 % (182) bp
200 109,207 (10,137 ) -8.49 % 25.67 % (111) bp
100 114,822 (4,522 ) -3.79 % 26.36 % (42) bp
0 119,344 — 26.78 %
(100) 125,081 5,737 4.81 % 27.47 % 69 bp

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										Net Portfolio Value
										as % of
		Net Portfolio Value								Portfolio Value of
		(Dollars in thousands)								Assets
Basis Point (“bp”)		$		$			%			NPV
Change in Rates		Amount		Change			Change			Ratio	Change
	400	$	110,254	$	(10,769	)		(8.90	)%	23.29%	(22) bp
	300		113,554		(7,469	)		(6.17	)%	23.53%	2 bp
	200		116,329		(4,694	)		(3.88	)%	23.60%	9 bp
	100		118,448		(2,575	)		(2.13	)%	23.55%	4 bp
	0		121,023							23.51%
	(100)		127,915		6,892			5.69	%	24.24%	73 bp

We use various assumptions in assessing interest rate risk. These assumptions relate to interest rates, loan prepayment rates, deposit decay rates and the market values of certain assets under differing interest rate scenarios, among others. As with any method of measuring interest rate risk, certain shortcomings are inherent in the methods of analyses presented in the foregoing tables. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates.

Additionally, certain assets, such as adjustable-rate mortgage loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, expected rates of prepayments on loans and early withdrawals from certificates could deviate significantly from those assumed in calculating the table. Prepayment rates can have a significant impact on interest income. Because of the large percentage of loans we hold, rising or falling interest rates have a significant impact on the prepayment speeds of our earning assets that in turn affect the rate sensitivity position. When interest rates rise, prepayments tend to slow. When interest rates fall, prepayments tend to rise. Our asset sensitivity would be reduced if prepayments slow and vice versa. While we believe these assumptions to be reasonable, there can be no assurance that assumed prepayment rates will approximate actual future loan repayment activity.

~~Item 4.~~

~~Controls and Procedures~~

Item 4. Controls and Procedures

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

There were no changes in the Company’s internal control over financial reporting during the three months ended September 30, ~~2013~~2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II.

OTHER INFORMATION

~~Item 1.~~

Item 1.

Legal Proceedings

On October 31, 2011, a complaint was filed by Stilwell Value Partners IV, L.P. in the Supreme Court of New York, New York County (the “Court”), against the ~~Company, the~~ MHC and each of the directors of the Company and the ~~MHC.~~MHC as defendants, and against the Company as a nominal defendant. The complaint alleged that the directors had breached their fiduciary duties by not expanding the Company board to allow for disinterested consideration of a “second-step” conversion of the MHC. As relief, the complaint requested, among other things, that the Company’s board of directors be increased by at least three new members, that such new members be given sole responsibility to determine whether the Company should engage in a second-step conversion and that the Court order the Company to engage in a second-step conversion. A motion to dismiss the Complaint was filed on December 14, 2011. On September 27, 2012, the Court granted the Company’s motion to dismiss and dismissed the complaint granting Stilwell leave to file an amended complaint within 20 days. On December 14, 2012 Stilwell filed an amended complaint, alleging that the directors had breached their fiduciary duties by not voting to authorize a ~~second-step~~second step conversion or permitting disinterested consideration by new, independent board members of a second step conversion. Stilwell asserted claims against the MHC, as majority shareholder of the Company, for breach of fiduciary duty and for aiding and abetting the directors’ alleged breach of fiduciary duty.

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The defendants and the Company filed a motion to dismiss on February 1, 2013. Stilwell filed his opposition on March 8, 2013, and the defendants and the Company filed ~~its~~their reply brief on March 29, 2013. The Court held a hearing on the motion on June 12, 2013. On October 23, 2013, the Court denied the motion to dismiss, holding ~~that~~ the Court could not say that Stilwell had not alleged a viable claim, and thus the Court allowed the lawsuit against the Company’s directors and the MHC to proceed. The defendants and the Company appealed that decision to the Supreme Court of the State of New York’s Appellate Division, First Department, (“Appellate Division”) on November 27, 2013. The defendants and the Company filed their opening appeal brief on February 18, 2014. Stilwell filed his response brief on March 26, 2014. The defendants and the Company filed their reply brief on April 4, 2014. The Appellate Division heard oral argument on May 22, 2014.

Additionally, on February 21, 2014, Stilwell moved to disqualify the Company’s counsel, which represents the Company, the individual directors, and MHC in this litigation. Stilwell argued that he was suing the directors and MHC on behalf of the Company and thus that there was a conflict of interest among the defendants that required the Company to have separate counsel. The defendants opposed the motion on March 7, 2014. Stilwell filed a reply on March 13, 2014. The Court held oral argument on April 9, 2014, and denied the disqualification motion. Plaintiff appealed and filed its opening brief on July 1, 2014, which was docketed on July 7, 2014. Defendant’s opposition was filed on August 6, 2014. Plaintiffs’ reply brief was filed on August 15, 2014. The parties are waiting a decision on that appeal.

On July 3, 2014, Salvatore Randazzo, a former director of the MHC, the Company and the Bank, retained separate counsel to represent him in the litigation.

The parties have completed fact discovery, including fact witness depositions and document production, and have begun expert discovery.

The Company and Bank are also subject to claims and litigation that arise primarily in the ordinary course of business. Based on information presently available and advice received from legal counsel representing the Company and Bank in connection with such claims and litigation, it is the opinion of management that the disposition or ultimate determination of such claims and litigation will not have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Company.

~~Table of Contents~~

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, ~~2012,~~2013, which could materially affect our business, financial condition or future results. 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 or that we currently deem to be immaterial also may materially affect our business, financial condition and/or operating results.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3.

Defaults Upon Senior Securities

Not applicable

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

None

Item 6.

Exhibits

31.1

CEO certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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31.2

CFO certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002.

32.1

CEO and CFO certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.0

The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2013,~~2014, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to the Consolidated Financial Statements.

3839

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Northeast Community Bancorp, Inc.


Date: November 14, ~~2013~~2014	By:	/s/ Kenneth A. Martinek
		Kenneth A. Martinek
		Chief Executive Officer


Date: November 14, ~~2013~~2014	By:	/s/ Donald S. Hom
		Donald S. Hom
		Executive Vice President and Chief Financial Officer

	Residential Real Estate			Non- residential Real Estate			Construction		Commercial and Industrial			Consumer		Total
Allowance for loan losses:
Beginning balance		3,216			996			—		434			—		4,646
Charge-offs		—			(105	)		—		—			—		(105	)
Recoveries		23			4			—		—			—		27
Provision (credit)		(672	)		66			118		(66	)		—		(554	)
Ending balance	$	2,567		$	961		$	118	$	368		$	—	$	4,014
Ending balance: individually evaluated for impairment	$	—		$	—		$	—	$	—		$	—	$	—

Ending balance: collectively evaluated for impairment	$	2,567		$	961		$	118	$	368		$	—	$	4,014

Loans receivable:
Ending balance	$	235,935		$	82,875		$	4,635	$	25,294		$	159	$	348,898

Ending balance: individually evaluated for impairment	$	6,726		$	11,409		$	—	$	—		$	—	$	18,135

Ending balance: collectively evaluated for impairment	$	229,209		$	71,466		$	4,635	$	25,294		$	159	$	330,763

	Three Months Ended September 30, 2012				Nine Months Ended September 30, 2012
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized

	(In thousands)

Residential real estate-Multi-family	$	9,804	$	164	$	9,756	$	295
Non-residential real estate		13,479		15		13,476		1,370
Commercial and industrial		1,750		26		1,713		79
Total	$	25,033	$	205	$	24,945	$	1,744