Louisiana Bancorp 10K 2013 Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x	Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended: December 31, 2013

o	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: 001-33573

LOUISIANA BANCORP, INC.

(Exact name of Registrant as specified in its charter)

Louisiana	20-8715162
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification Number)

1600 Veterans Memorial Boulevard, Metairie, Louisiana	70005
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (504) 834-1190

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $.01 par value per share	The Nasdaq Stock Market, LLC

Securities registered pursuant to Section 12(g) of the Act: none

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES o NO x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES o NO x

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 and (2) has been subject to such filing requirements for the past 90 days. YES x NO o

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 (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). YES x NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o

Non-accelerated filer o 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 Act). YES o NO x

The aggregate market value of the 1,840,898 shares of the Registrant’s common stock held by non-affiliates, based upon the closing price of $17.00 for the common stock on June 30, 2013, as reported by the Nasdaq Stock Market, was approximately $31.3 million. Shares of common stock held by executive officers, directors, the Company’s Employee Stock Ownership Plan and the 2007 Recognition and Retention Plan have been excluded since such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

Number of shares of common stock outstanding as of March 25, 2014: 2,864,092

DOCUMENTS INCORPORATED BY REFERENCE

Set forth below are the documents incorporated by reference and the part of the Form 10-K into which the document is incorporated:

Portions of the definitive Proxy Statement for the 2014 Annual Meeting of Stockholders are incorporated by reference into Part III, Items 10-14 of this Form 10-K.

LOUISIANA BANCORP, INC.

2012 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	2
Item 1A.	Risk Factors	34
Item 1B.	Unresolved Staff Comments	37
Item 2.	Properties	37
Item 3.	Legal Proceedings	37
Item 4.	Mine Safety Disclosures	37
PART II
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	39
Item 6.	Selected Financial Data	40
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	57
Item 8.	Financial Statements and Supplementary Data	58
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	108
Item 9A.	Controls and Procedures	108
Item 9B.	Other Information	109
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	109
Item 11.	Executive Compensation	109
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	109
Item 13.	Certain Relationships and Related Transactions, and Director Independence	110
Item 14.	Principal Accounting Fees and Services	110
PART IV
Item 15.	Exhibits and Financial Statement Schedules	111
SIGNATURES		112

Forward-Looking Statements

This Annual Report on Form 10-K contains certain forward looking statements (as defined in the Securities Exchange Act of 1934 and the regulations thereunder). Forward looking statements are not historical facts but instead represent only the beliefs, expectations or opinions of Louisiana Bancorp, Inc. and its management regarding future events, many of which, by their nature, are inherently uncertain. Forward looking statements may be identified by the use of words such as: “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, or words of similar meaning, or future or conditional terms such as “will”, “would”, “should”, “could”, “may”, “likely”, “probably”, or “possibly.” Forward looking statements include, but are not limited to, financial projections and estimates and their underlying assumptions; statements regarding plans, objectives and expectations with respect to future operations, products and services; and statements regarding future performance. Such statements are subject to certain risks, uncertainties and assumptions, many of which are difficult to predict and generally are beyond the control of Louisiana Bancorp, Inc. and its management, that could cause actual results to differ materially from those expressed in, or implied or projected by, forward looking statements. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward looking statements: (1) economic and competitive conditions which could affect the volume of loan originations, deposit flows and real estate values; (2) the levels of non-interest income and expense and the amount of loan losses; (3) competitive pressure among depository institutions increasing significantly; (4) changes in the interest rate environment causing reduced interest margins; (5) general economic conditions, either nationally or in the markets in which Louisiana Bancorp, Inc. is or will be doing business, being less favorable than expected;(6) political and social unrest, including acts of war or terrorism; or (7) legislation or changes in regulatory requirements adversely affecting the business in which Louisiana Bancorp, Inc. is engaged. Louisiana Bancorp, Inc. undertakes no obligation to update these forward looking statements to reflect events or circumstances that occur after the date on which such statements were made.

As used in this report, unless the context otherwise requires, the terms “we,” “us,” or the “Company” refer to Louisiana Bancorp, Inc., a Louisiana corporation, and the term the “Bank” refers to Bank of New Orleans, a federally chartered savings bank and wholly owned subsidiary of the Company. In addition, unless the context otherwise requires, references to the operations of the Company include the operations of the Bank.

PART I

Item 1. Business.

General

Louisiana Bancorp, Inc. is a Louisiana corporation that became the holding company for Bank of New Orleans following the conversion of the Bank in July 2007 from a federally chartered mutual savings bank to a federally chartered stock savings bank. The Bank currently operates out of its headquarters and three traditional bank branches located in the New Orleans, Louisiana metropolitan area. At December 31, 2013, the Bank had 69 full-time employees and one part-time employee. At December 31, 2013, 2012 and 2011, the Company had total assets of $316.7 million, $311.9 million, and $313.1 million, respectively. Net interest income during these years was $10.1 million, $10.0 million and $9.8 million, respectively, and net income was $2.7 million, $2.5 million, and $2.1 million, respectively.

We are primarily engaged in attracting deposits from the general public and using those funds to invest in loans and securities. Our principal sources of funds are deposits, repayments of loans and mortgage-backed securities, maturities of investments and interest-bearing deposits, other funds provided from operations and funds borrowed from outside sources such as the Federal Home Loan Bank of Dallas, the Federal Reserve Bank of Atlanta, and commercial banks. These funds are primarily used for the origination of various loan types including single-family residential mortgage loans, multi-family residential and commercial real estate mortgage loans, home equity loans and lines of credit and other consumer loans. The Bank derives its income principally from interest earned on loans, mortgage-backed and other securities and, to a lesser extent, from fees received in connection with the origination of loans and for other services. Bank of New Orleans’ primary expenses are interest expense on deposits and borrowings, and general operating expenses.

We are an active originator of residential home mortgage loans and commercial real estate loans in our market area. Our commercial real estate loans are primarily secured by multi-family residential collateral, non-residential collateral and vacant land. Our business plan is focused on developing a portfolio of residential home loans and commercial real estate loans that will benefit the residents and small to mid-sized businesses of the New Orleans metropolitan area. Our total real estate loan portfolio has grown from $158.5 million at December 31, 2009, to $248.8 million at December 31, 2013. At December 31, 2013, our one-to four-family residential loans comprised 55.7%, or $139.1 million, of the total loan portfolio, while multi-family residential, commercial real estate and land loans comprised 32.5%, or $81.1 million, of total loans. Home equity loans and lines of credit were $28.6 million, or 11.5%, of the total loan portfolio at December 31, 2013.

Deposits with the Bank are insured to the maximum extent provided by law by the Federal Deposit Insurance Corporation. The Bank is subject to examination and comprehensive regulation by the Office of Comptroller of the Currency and the FDIC. The Company is a savings and loan holding company subject to examination and regulation by the Board of Governors of the Federal Reserve System. The Bank is also a member of the Federal Home Loan Bank of Dallas, which is one of the 12 regional banks comprising the Federal Home Loan Bank System. The Bank is also subject to regulations of the Board of Governors of the Federal Reserve System governing reserves required to be maintained against deposits and certain other matters.

Our headquarters office is located at 1600 Veterans Memorial Boulevard, Metairie, Louisiana, and our telephone number is (504) 834-1190. We maintain a website at www.bankofneworleans.com, and we provide our customers with on-line banking and telephone banking services.

Market Area and Competition

Bank of New Orleans’ primary market area is southeastern Louisiana, in general and, more specifically, Jefferson Parish, Orleans Parish and St. Tammany Parish. Jefferson, Orleans and St. Tammany Parishes are the three largest parishes in the seven parish New Orleans Metropolitan Statistical Area (“MSA”). According to the latest data available from the U.S. Census Bureau, the estimated populations of Jefferson, Orleans and St. Tammany Parishes as of December 31, 2013, were 433,676, 369,250, and 239,453, respectively. Based on these estimates, Jefferson, Orleans and St. Tammany Parishes are ranked second, third, and fifth, respectively, in total population within the state. Jefferson and St. Tammany Parishes have traditionally been referred to as suburban markets, characterized by relatively high levels of home ownership and per capita income. Orleans Parish has been considered an urban community with home ownership rates below 50% and per capita income below the state average. The Orleans Parish market area was severely impacted by the devastation of Hurricane Katrina in August 2005. The post-Katrina population remains approximately 130,000 residents below the pre-Katrina levels. Management and the Board of the Company are optimistic that the city’s repopulation trend will continue in the coming years as a result of the federal investment in recovery projects and the development of a diversified economy that will be spearheaded by a biomedical district in the heart of the central business district.

The local economy in southern Louisiana is reliant on a variety of sectors. Traditionally, the oil industry, the Port of New Orleans and tourism were the bellwethers of the local economy. The local economy has diversified, although oil, shipping and tourism remain important sectors of the economy. According to the U.S. Bureau of Labor Statistics, the trade, transportation and utilities sector represented 20.5% of the New Orleans MSA labor force at December 31, 2013, followed by leisure and hospitality (14.6%), education and health services (14.5%) and government (13.8%). The trade, transportation, and utilities sector includes wholesale trade, retail trade, transportation and warehousing, and utilities.

At December 31, 2013, the U.S. Bureau of Labor Statistics estimated that the seasonally adjusted unemployment rate for the nation was 6.7%, a decrease of 1.1% from December 31, 2012. The unemployment rate for state of Louisiana and the New Orleans MSA was 5.40% and 4.70%, respectively, at December 31, 2013. These rates indicate a year-over-year decrease in unemployment of 0.8% for both the state and New Orleans MSA.

According to data provided by the National Association of Realtors, the average sales price of existing single family residential units in the New Orleans MSA increased by 7.6% during 2013 compared to an increase of 2.1% in 2012. During 2013, the average sales price of existing single family residential units increased by 8.3%, 5.0% and 9.4%, respectively, in Jefferson, St. Tammany and Orleans Parishes.

We face significant competition in originating loans and attracting deposits. This competition stems primarily from commercial banks, other savings banks and savings associations and mortgage-banking companies. In the New Orleans MSA, as of June 30, 2013, there were 36 FDIC-insured institutions competing for a share of the deposit market. Many of the financial service providers operating in our market area are significantly larger, and have greater financial resources, than us. Based on the most recent data available through the FDIC, the Bank’s $207.1 million in deposits at June 30, 2013 represented a deposit market share of 0.65% for the seven parish New Orleans MSA, and a 0.70% market share for Jefferson, Orleans and St. Tammany Parishes. Of the 34 FDIC-insured institutions operating in Jefferson, Orleans and St. Tammany Parishes as of June 30, 2013, we rank 16th in terms of deposit market share. We face additional competition for deposits from short-term money market funds and other corporate and government securities funds, mutual funds and from other non-depository financial institutions such as brokerage firms and insurance companies. We believe that the presence of a local executive management team experienced with the challenges associated with the region’s rebuilding efforts provides the Bank with an advantage over the national banks in our market area, particularly as it relates to the credit approval process.

Lending Activities

General. At December 31, 2013, our net loan portfolio totaled $247.5 million, or 78.14% of total assets. Our principal lending activity is the origination of first mortgage loans collateralized by one- to four-family, also known as “single-family,” residential real estate loans located in our market area. In addition, the Bank originates home equity loans and lines of credit secured by residential real estate. Over the past several years, we have increased our emphasis on originating multi-family (over four units) residential and commercial real estate loans. We also originate consumer loans, consisting of loans secured by deposits, auto loans, and unsecured home improvement loans, in addition to commercial and personal loans. We do not originate sub-prime, “alt-a”, no-interest, or “no-doc” loans, nor do we hold any such loans in our loan portfolio.

The types of loans that we may originate are subject to federal and state law and regulations. Interest rates charged by us on loans are affected principally by the demand for such loans and the supply of money available for lending purposes and the rates offered by our competitors. These factors are, in turn, affected by general and economic conditions, the monetary policy of the federal government, including the Federal Reserve Board, legislative tax policies and governmental budgetary matters.

Loan Portfolio Composition. The following table shows the composition of our loan portfolio by type of loan at the dates indicated.

	December 31,
	2013						2012					2011					2010					2009
	Amount			%			Amount		%			Amount		%			Amount		%			Amount		%
	(Dollars In Thousands)
Real estate loans:
One- to four-family residential(1)	$	139,069			55.7	%	$	107,556		50.0	%	$	105,718		53.5	%	$	98,635		54.5	%	$	85,726		53.4	%
Home equity loans and lines		28,617			11.5			26,305		12.2			18,467		9.3			15,745		8.7			14,389		9.0
Multi-family residential		21,728			8.7			17,644		8.2			14,591		7.4			11,785		6.5			9,423		5.9
Commercial real estate		59,170			23.7			62,771		29.2			56,492		28.6			52,594		29.0			47,798		29.8
Land loans		197			0.1			206		0.1			1,299		0.7			951		0.5			1,213		0.8
Total real estate loans		248,781			99.7			214,482		99.7			196,567		99.5			179,710		99.2			158,549		98.9
Consumer and other loans:
Student loans		-			-			-		-			-		-			-		-			485		0.3
Loans secured by deposits		421			0.2			458		0.2			568		0.3			464		0.3			478		0.3
Other		346			0.1			266		0.1			452		0.2			900		0.5			835		0.5
Total consumer loans		767			0.3			724		0.3			1,020		0.5			1,364		0.8			1,798		1.1
Total loans	$	249,548			100.0	%	$	215,206		100.0	%	$	197,587		100.0	%	$	181,074		100.0	%	$	160,347		100.0	%
Less:
Deferred loan (costs)/fees		(152	)					130					150					205					240
Allowance for loan losses		2,221						1,917					1,805					1,759					1,661
Net loans	$	247,479					$	213,159				$	195,632				$	179,110				$	158,446

_____________________

(1)

For purposes of this report on Form 10-K, the one- to four-family residential category consists of single-family residential mortgage loans secured by first mortgages. We typically have second mortgages on home equity loans and lines of credit. Total loans include $406,000 and $1.8 million of loans held-for-sale at December 31, 2013 and 2012, respectively. We held no loans for sale at December 31, 2011, 2010 or 2009.

Contractual Terms to Final Maturities. The following table shows the scheduled contractual maturities of our loans as of December 31, 2013, before giving effect to net items. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less. The amounts shown below do not take into account anticipated loan prepayments.

	One- to Four-Family Residential		Home Equity Loans & Lines		Multi-family Residential		Commercial Real Estate
	(In Thousands)
Amounts due after December 31, 2013 in:
One year or less	$	306	$	343	$	335	$	1,351
After one year through two years		833		425		936		344
After two years through three years		1,606		428		2,440		4,726
After three years through five years		3,229		1,903		5,596		6,002
After five years through ten years		30,166		7,038		5,047		25,653
After ten years through 15 years		57,643		7,180		5,243		21,094
After 15 years		45,286		11,300		2,131		-
Total	$	139,069	$	28,617	$	21,728	$	59,170

	Land Loans		Consumer and Other		Total Loans
	(In Thousands)
Amounts due after December 31, 2013 in:
One year or less	$	178	$	180	$	2,693
After one year through two years		-		78		2,616
After two years through three years		-		385		9,585
After three years through five years		-		115		16,845
After five years through ten years		19		9		67,932
After ten years through 15 years		-		-		91,160
After 15 years		-		-		58,717
Total	$	197	$	767	$	249,548

The following table shows the dollar amount of our loans at December 31, 2013 due after December 31, 2014 as shown in the preceding table, which have fixed interest rates or which have floating or adjustable interest rates.

	Fixed-Rate		Floating or Adjustable-Rate		Total
Real Estate Loans:	(In Thousands)
One- to four-family residential	$	106,242	$	32,521	$	138,763
Home equity loans & lines		9,200		19,074		28,274
Multi-family residential		20,149		1,244		21,393
Commercial real estate		57,671		148		57,819
Land loans		19		-		19
Consumer and other		576		11		587
Total	$	193,857	$	52,998	$	246,855

Loan Originations. Our lending activities are subject to underwriting standards and loan origination procedures established by our board of directors and management. Loan originations are obtained through a variety of sources, primarily existing customers as well as new customers obtained from referrals and local advertising and promotional efforts. Single-family residential mortgage loan applications and consumer loan applications are taken primarily at our main office. Applications for other loans typically are taken personally by our commercial loan officer or consumer loan officer, although they may be received by a branch office initially and then referred to our commercial loan officer or consumer loan officer. All loan applications are processed and underwritten centrally at our main office.

Our single-family residential mortgage loans are written on standardized documents used by the Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”) and Federal National Mortgage Association (“FNMA” or “Fannie Mae”). We also utilize an automated loan processing and underwriting software system for our new single-family residential mortgage loans. Property valuations of loans secured by real estate are undertaken by an independent third-party appraiser approved by our board of directors.

In addition to originating loans, we occasionally purchase participation interests in larger balance loans, typically commercial real estate and multi-family residential mortgage loans and construction loans, from other financial institutions in our market area or other markets in Louisiana. Such participations are reviewed for compliance with our underwriting criteria before they are purchased. Generally, we have purchased such loans without any recourse to the seller. However, we actively monitor the performance of such loans through the receipt of regular reports from the lead lender regarding the loan’s performance, physically inspecting the loan security property on a periodic basis, discussing the loan with the lead lender on a regular basis and receiving copies of updated financial statements from the borrower. Bank of New Orleans’ largest potential exposure on a purchased participation interest at December 31, 2013 was a $966,000 participation interest in a $4.2 million loan secured by a strip shopping center in metropolitan New Orleans. At December 31, 2013, our total purchased interest in participation loans was $2.4 million, of which $2.1 million were performing in accordance with their contractual terms at such date. The remaining $309,000 represents the Bank’s participation interest in a $618,000 loan secured by a strip shopping center in Lafayette, Louisiana. This loan matured in December 2013, but remained unpaid as of year-end and was subsequently classified as substandard. This loan was fully repaid in February 2014.

In addition, Bank of New Orleans also occasionally sells participation interests in loans it originates. We generally have sold participation interests when a loan would exceed our internal limitations for concentrations of credit, or exceeds our statutory loans-to-one borrower limit. Our loans-to-one borrower limit, with certain exceptions, generally is 15% of our unimpaired capital and surplus, or $7.0 million at December 31, 2013. At December 31, 2013, the Bank’s five largest borrowers, and their related entities, have aggregate loan balances of $4.9 million, $3.8 million, $3.5 million, $3.3 million and $3.1 million, respectively, and all of such loans were performing in accordance with their terms at such date.

The following table shows our total loans originated, purchased, sold and repaid during the periods indicated.

	Year Ended December 31,
	2013			2012			2011
	(In thousands)
Loan originations:
Real Estate Loans:
One- to four-family residential	$	98,805		$	85,061		$	59,218
Home equity loans and lines		11,324			3,641			9,906
Multi-family residential		6,542			5,228			6,180
Commercial real estate		17,163			16,689			18,641
Land loans		-			-			370
Consumer and other		215			163			842
Total loan originations		134,049			110,782			95,157
Loans purchased(1)		1,000			-			-
Loans sold		(40,913	)		(59,169	)		(30,715	)
Loan principal repayments		(59,772	)		(33,664	)		(47,771	)
Total loans sold and principal repayments		(100,685	)		(92,833	)		(78,486	)
Transfer to other real estate owned		(22	)		(330	)		(158	)
(Decrease) increase due to other items, net(2)		(22	)		(92	)		9
Net increase in total loans	$	34,320		$	17,527		$	16,522

(1)	Includes purchases of participation interests in loans.

(2)	Other items consist of deferred fees and the allowance for loan losses.

One-to Four-Family Residential Mortgage Lending. One of our primary lending activities continues to be the origination of loans secured by first mortgages on one- to four-family residences in our market area. At December 31, 2013, $139.1 million of our total loan portfolio consisted of single-family residential mortgage loans, an increase of $31.5 million from December 31, 2012, and an increase of $53.3 million from December 31, 2009. Originations of one- to four-family loans were $98.8 million, $85.1 million, and $59.2 million, respectively, for the years ended December, 31, 2013, 2012 and 2011. During this three-year period, our single-family residential real estate loans as a percentage of total loans increased from 53.4% at December 31, 2009, to 55.7% at December 31, 2013.

Our single-family residential mortgage loan originations include loans that are underwritten on terms and documentation conforming to guidelines issued by Freddie Mac and Fannie Mae, and non-conforming “jumbo” loans, which have principal balances in excess of the Fannie Mae conforming loan limit of $417,000. Applications for one-to four-family residential mortgage loans are accepted at any of our banking offices and are then referred to the Residential Lending Department at our main office in order to underwrite the creditworthiness of the loan. Once our underwriting process is completed, the loan package is submitted to our mortgage loan committee for approval. We currently originate fixed-rate, fully amortizing mortgage loans with maturities of 10, 15, 20 or 30 years. We generally sell into the secondary market our newly originated secondary market eligible loans with 30-year terms to maturity. During the current year, we have focused our origination efforts on increasing our production of adjustable rate mortgage (“ARM”) loans, where the interest rate either adjusts on an annual basis or is fixed for an initial period of three, five, or seven years and then adjusts annually. The retention of ARM loans helps management mitigate the risk that future interest rate increases may have on our portfolio. We do not originate ARM loans that would be considered “sub-prime”, interest-only, or those that provide for the negative amortization of principal. At December 31, 2013, $32.5 million, or 23.4%, of our one- to four-family residential loan portfolio maturing after December 31, 2013 consisted of ARM loans. In addition to traditional mortgage loan products offered by the Bank, we also offer reverse mortgages on an agency basis where we sell the origination to a third party that “table funds” the loan at closing.

We underwrite one- to four-family residential mortgage loans with loan-to-value ratios of up to 90%, provided that the borrower obtains private mortgage insurance on loans that exceed 80% of the appraised value or sales price, whichever is less, of the secured property. We also require that title insurance, hazard insurance and, if appropriate, flood insurance be maintained on all properties securing real estate loans. We require that a licensed appraiser from our list of approved appraisers perform and submit to us an appraisal on all properties securing one- to four-family first mortgage loans. Our mortgage loans generally include due-on-sale clauses which provide us with the contractual right to deem the loan immediately due and payable in the event the borrower transfers ownership of the property. Due-on-sale clauses are an important means of adjusting the yields of fixed-rate mortgage loans in the portfolio and we generally exercise our rights under these clauses.

Home Equity Loans and Lines of Credit. In addition to the origination of first mortgage loans secured by single-family residences, the Bank also originates home equity loans and lines of credit, typically secured by second mortgages. At December 31, 2013, our total home equity loans and lines of credit were $28.6 million, an increase of $2.3 million from December 31, 2012. Our home equity loans have fixed rates of interest and final maturities of 5, 10 or 15 years. Our home equity lines of credit generally have floating interest rates tied to the Wall Street Journal prime index. In some cases, a fixed credit spread may be added to the index based on the creditworthiness of the borrower, as determined by our underwriting policies and procedures. At December 31, 2013, the unused portion of our home equity lines of credit was $19.4 million.

Multi-Family Residential, Commercial Real Estate and Land Loans. At December 31, 2013, our multi-family residential, commercial real estate and land loans amounted to an aggregate of $81.1 million, or 32.5% of our total loan portfolio. Our aggregate multi-family residential, commercial real estate and land loans increased by $474,000 from December 31, 2012 to December 31, 2013, and by $22.7 million from December 31, 2009 to December 31, 2013.

Our commercial real estate and multi-family residential real estate loan portfolio consists primarily of loans secured by office buildings, retail and industrial use buildings, strip shopping centers, residential properties with five or more units and other properties used for commercial and multi-family purposes located in our market area. At December 31, 2013, our multi-family residential real estate loans were $21.7 million, or 8.7% of our total loan portfolio, and consisted primarily of loans secured by properties with 20 or fewer rental units. The average outstanding balance of our multi-family residential loans was $483,000, with our largest multi-family residential loan having a balance of $3.2 million at December 31, 2013. Our commercial real estate loans comprised 23.7% of our total loan portfolio, and had an aggregate balance of $59.2 million at December 31, 2013. The five largest commercial real estate loans outstanding at year end 2013 were $3.1 million, $2.7 million, $2.6 million, $2.2 million and $2.1 million, and all of such loans were performing in accordance with all their terms at such date.

Although terms for multi-family residential, commercial real estate and land loans vary, our underwriting standards generally allow for terms of up to 15 years with monthly amortization over the life of the loan and loan-to-value ratios of not more than 80%. Interest rates are either fixed or, on occasion, adjustable, based upon designated market indices such as the prime rate or LIBOR, and fees of up to 2.0% are charged to the borrower at the origination of the loan. In light of local market demands, substantially all of our multi-family residential, commercial real estate and land loans originated in recent years have been fixed-rate loans with terms to maturity of 10 to 15 years. However, the actual lives of such loans generally are less due to prepayments and re-financings. In originating multi-family residential, commercial real estate and land loans we estimate what we expect will be the actual life of the loan to maturity and generally seek to originate loans which we expect will have an average estimated life of 6-7 years. Generally, we obtain personal guarantees of the principals as additional collateral for multi-family residential, commercial real estate and land loans.

Multi-family residential, commercial real estate and land lending involves different risks than single-family residential lending. These risks include larger loans to individual borrowers and loan payments that are dependent upon the successful operation of the project or the borrower’s business. These risks can be affected by supply and demand conditions in the project’s market area of rental housing units, office and retail space, warehouses, and other commercial space. We attempt to minimize these risks for loans we originate by limiting loans to businesses with existing operating performance which can be analyzed or to borrowers with whom we are familiar and who have historical results that we can analyze. We also use conservative debt coverage ratios in our underwriting, and periodically monitor the operation of the business or project and the physical condition of the property.

Various aspects of multi-family residential and commercial real estate loan transactions are evaluated in an effort to mitigate the additional risk in these types of loans. In our underwriting procedures, consideration is given to the stability of the property’s cash flow history, future operating projections, current and projected occupancy levels, location and physical condition. Generally, we impose a debt service ratio (the ratio of net cash flows from operations before the payment of debt service to debt service) of not less than 125% in the case of multi-family residential, commercial real estate and land loans. We also evaluate the credit and financial condition of the borrower, and if applicable, the guarantor. Appraisal reports prepared by independent appraisers are obtained on each loan to substantiate the property’s market value, and are reviewed by us prior to the closing of the loan.

Consumer and Other Lending Activities. In our efforts to provide a full range of financial services to our customers, we offer various types of consumer loans. Our consumer and other loans amounted to $767,000 or 0.3% of our total loan portfolio at December 31, 2013. Our consumer loans include loans secured by deposit accounts, automobile loans, home improvement loans, and unsecured personal loans. Consumer loans are originated primarily through existing and walk-in customers and direct advertising.

In addition to consumer loans, the Bank offers secured and unsecured commercial loans and lines of credit. Our non-mortgage commercial loans and lines of credit at December 31, 2013 amounted to $198,000.

Consumer and non-mortgage commercial loans generally have higher interest rates and shorter terms than residential mortgage loans; however, they have additional credit risk due to the type of collateral securing the loan or in some cases the absence of collateral. During 2013, we recorded charge-offs of $22,000 related to consumer and non-mortgage commercial loans. In 2012, we had $158,000 in charge-offs related to consumer loans, of which $50,000 was recovered during 2013.

Loan Approval Procedures and Authority. Our Board of Directors establishes the Bank’s lending policies and procedures. Our Lending Policy Manual is reviewed on at least an annual basis by our management team in order to propose modifications as a result of market conditions, regulatory changes and other factors. All modifications must be approved by our Board of Directors.

Various officers or combinations of officers of Bank of New Orleans have the authority within specifically identified limits to approve new loans. Our Commercial Lending Committee (comprised of our President, Chief Financial Officer, Commercial Loan Manager and two outside directors) has authority to approve multi-family residential, commercial real estate and land loans in amounts up to $750,000. Our Loan Committee (comprised of our President, Chief Financial Officer, Residential Loan Manager and Consumer Loan Manager) has authority to approve single-family residential mortgage loans in amounts up to $650,000, and consumer loans up to $100,000. All other loans must be approved by the Board of Directors of Bank of New Orleans.

Asset Quality

General. One of our key objectives has been, and continues to be, maintaining a high level of asset quality. In addition to maintaining credit standards for new originations which we believe are sound, we are proactive in our loan monitoring, collection and workout processes in dealing with delinquent or problem loans.

When a borrower fails to make a scheduled payment, we attempt to cure the deficiency by making personal contact with the borrower. Initial contacts are generally made within 10 to 15 days after the date the payment is due. In most cases, deficiencies are promptly resolved. If the delinquency continues, late charges are assessed and additional efforts are made to collect the deficiency. All loans with an outstanding balance of more than $100,000 which are delinquent 30 days or more are reported to the Board of Directors of Bank of New Orleans.

On loans where the collection of principal or interest payments is doubtful, the accrual of interest income ceases (“non-accrual” loans). It is our policy, with certain limited exceptions, to discontinue accruing additional interest and reverse any interest accrued on any loan which is 90 days or more past due. On occasion, this action may be taken earlier if the financial condition of the borrower raises significant concern with regard to his/her ability to service the debt in accordance with the terms of the loan agreement. Interest income is not accrued on these loans until the borrower’s financial condition and payment record demonstrate an ability to service the debt.

Real estate which is acquired as a result of foreclosure is classified as real estate owned until sold. Real estate owned is recorded at the lower of cost or fair value less estimated selling costs. Costs associated with acquiring and improving a foreclosed property are usually capitalized to the extent that the carrying value does not exceed fair value less estimated selling costs. Holding costs are charged to expense. Gains and losses on the sale of real estate owned are charged to operations, as incurred.

We account for our impaired loans under generally accepted accounting principles. An impaired loan generally is one for which it is probable, based on current information, that the lender will not collect all the amounts due under the contractual terms of the loan. Large groups of smaller balance, homogeneous loans are collectively evaluated for impairment. Loans collectively evaluated for impairment include smaller balance commercial real estate loans, residential real estate loans and consumer loans. These loans are evaluated as a group because they have similar characteristics and performance experience. Larger multi-family residential, commercial real estate and construction loans are individually evaluated for impairment. As of December 31, 2013 and 2012, our recorded investment in impaired loans was $1.3 million and $1.5 million, respectively.

Federal regulations and our policies require that we utilize an internal asset classification system as a means of reporting problem and potential problem assets. We have incorporated an internal asset classification system, substantially consistent with Federal banking regulations, as a part of our credit monitoring system. Federal banking regulations set forth a classification scheme for problem and potential problem assets as “substandard,” “doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are required to be designated “special mention.”

A savings institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by Federal bank regulators which can order the establishment of additional loss allowances. The Federal banking agencies, have adopted an interagency policy statement on the allowance for loan and lease losses. The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. Generally, the policy statement recommends that institutions have effective systems and controls to identify, monitor and address asset quality problems; that management analyze all significant factors that affect the collectibility of the portfolio in a reasonable manner; and that management establish acceptable allowance evaluation processes that meet the objectives set forth in the policy statement. Our management believes that, based on information currently available, its allowance for loan losses is maintained at a level which covers all known and inherent losses that are both probable and reasonably estimable at each reporting date. However, actual losses are dependent upon future events and, as such, further additions to the level of allowances for loan losses may become necessary.

We review and classify assets on a monthly basis and the Board of Directors is provided with monthly reports on our classified assets. We classify assets in accordance with the management guidelines described above. At December 31, 2013 and 2012, our recorded investment in assets classified as “substandard” was $1.5 million and $1.3 million, respectively. There were $99,000 in loss allowances allocated to such substandard loans at December 31, 2013, and $91,000 in such allowances at December 31, 2012. At December 31, 2013, we had $581,000 in assets classified as “special mention” compared to $1.6 million in “special mention” assets at December 31, 2012.

Delinquent Loans. At December 31, 2013, we had $437,000 in loans delinquent 30 to 89 days, compared to $201,000 at December 31, 2012. Our loans delinquent 30 to 89 days as of December 31, 2013 were composed of six home equity loans or lines of credit totaling $122,000, one commercial real estate loan with a principal balance of $308,000, and four consumer loans totaling $7,000.

The following table shows the delinquencies in our loan portfolio (other than past-due loans on non-accrual status) as of the dates indicated.

	December 31, 2013										December 31, 2012
	30-89 Days Overdue					90 or More Days Overdue and Still Accruing					30-89 Days Overdue					90 or More Days Overdue and Still Accruing
	Number of Loans		Principal Balance			Number of Loans		Principal Balance			Number of Loans		Principal Balance			Number of Loans		Principal Balance
Real Estate Loans:	(Dollars in Thousands)
One- to four-family residential		-	$	-			-	$	-			3	$	122			-	$	-
Home equity loans and lines		6		122								5		75
Multi-family residential		-		-			-		-			-		-			-		-
Commercial real estate		1		308								-		-
Land		-		-								-		-
Consumer and other		4		7			-		-			2		4			-		-
Total delinquent loans		11	$	437			-	$	-			10	$	201			-	$	-
Delinquent loans to total net loans				0.18	%				-	%				0.09	%				-	%
Delinquent loans to total loans				0.18	%				-	%				0.09	%				-	%

Non-Performing Loans and Real Estate Owned. Our general policy is to cease accruing interest on loans which are 90 days or more past due and to charge-off all accrued interest. At December 31, 2013, our non-performing loans totaled $1.3 million, a decrease of $124,000 from December 31, 2012. The largest components of our non-performing loans at December 31, 2013 were three nonresidential mortgage loans secured by commercial real estate with an aggregate carrying value of $1.3 million.

For the years ended December 31, 2013 and 2012, the amount of additional interest income that would have been recognized on non-accrual loans if such loans had continued to perform in accordance with their contractual terms was $16,000 and $59,000, respectively.

Real estate owned decreased $64,000 to $568,000, during the year ended December 31, 2013. At December 31, 2013, real estate owned consisted primarily of two properties, our 0.6% participation interest in a $170 million mixed-use property development in Baton Rouge, Louisiana having a fair value of $370,000, and a restaurant in Baton Rouge, Louisiana having a fair value of $175,000 at such date.

The following table shows the amounts of our non-performing assets (defined as non-accruing loans, accruing loans 90 days or more past due and real estate owned) at the dates indicated. The Bank had no troubled debt restructurings as of any of the dates indicated below.

	December 31,
	2013			2012			2011			2010			2009

Non-accruing loans:	(Dollars in Thousands)
Real Estate loans:
One- to four-family residential	$	20		$	50		$	110		$	123		$	36
Home equity loans and lines		32			142			569			682			378
Multi-family residential		-			13			-			-			515
Commercial real estate		1,276			1,247			330			-			-
Land loans		-			-			-			34			-
Consumer and other		-			-			65			69			74
Total non-accruing loans		1,328			1,452			1,074			908			1,003
Accruing loans 90 days or more past due:
Real Estate loans:
One- to four-family residential		-			-			-			-			-
Home equity loans and lines		-			-			-			-			-
Multi-family residential		-			-			-			-			-
Commercial real estate		-			-			-			-			-
Land loans		-			-			-			-			-
Consumer and other		-			-			-			-			-
Total accruing loans 90 days or more past due		-			-			-			-			-
Total non-performing loans(1)		1,328			1,452			1,074			908			1,003
Real estate owned, net		568			632			532			1,696			1,573
Total non-performing assets	$	1,896		$	2,084		$	1,606		$	2,604		$	2,576
Total non-performing loans as a percentage of loans, net		0.53	%		0.68	%		0.55	%		0.51	%		0.63	%
Total non-performing loans as a percentage of total assets		0.42	%		0.47	%		0.34	%		0.28	%		0.30	%
Total non-performing assets as a percentage of total assets		0.60	%		0.67	%		0.51	%		0.81	%		0.78	%

_______________

(1)	Non-performing loans consist of non-accruing loans plus accruing loans 90 days or more past due.

Allowance for Loan Losses. The allowance for loan losses is established through a provision for loan losses. We maintain the allowance at a level believed, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio that are both probable and reasonable to estimate at each reporting date. Management reviews the allowance for loan losses on a monthly basis in order to identify those inherent losses and to assess the overall collection probability for the loan portfolio. Our evaluation process includes, among other things, an analysis of delinquency trends, non-performing loan trends, the level of charge-offs and recoveries, prior loss experience, total loans outstanding, the volume of loan originations, the type, size and geographic concentration of our loans, the value of collateral securing the loan, the borrower’s ability to repay and repayment performance, the number of loans requiring heightened management oversight, local economic conditions and industry experience. Such risk ratings are periodically reviewed by management and revised as deemed appropriate. The establishment of the allowance for loan losses is significantly affected by management judgment and uncertainties and there is a likelihood that different amounts would be reported under different conditions or assumptions. Various regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses. Such agencies may require us to make additional provisions for estimated loan losses based upon judgments different from those of management.

The Bank recorded charge-offs of $31,000 during 2013 compared to $208,000 during 2012. During 2013, the Bank recorded $9,000 in charge-offs against home equity loans and lines, and $22,000 against consumer and other loans.

We will continue to monitor and modify our allowances for loan losses as conditions dictate. No assurances can be given that our level of allowance for loan losses will cover all of the inherent losses on our loans or that future adjustments to the allowance for loan losses will not be necessary if economic and other conditions differ substantially from the economic and other conditions used by management to determine the current level of the allowance for loan losses.

The following table shows changes in our allowance for loan losses during the periods presented.

	At or For the Year Ended December 31,
	2013			2012			2011			2010			2009
	(Dollars in Thousands)
Total loans outstanding at end of period	$	249,548		$	215,206		$	197,587		$	181,074		$	160,347

Allowance for loan losses, beginning of period		1,917			1,805			1,759			1,661			1,952
Provision for loan losses		264			246			53			269			337
Charge-offs:
Real Estate loans:
One- to four-family residential		-			-			2			-			31
Home equity loans and lines		9			50			6			3			191
Multi-family residential		-			-			-			171			-
Commercial real estate		-			-			-			-			396
Land loans		-			-			-			-			-
Consumer and other		22			158			-			-			10
Total charge-offs		31			208			8			174			628
Recoveries on loans previously charged off		71			74			1			3			-
Allowance for loan losses, end of period	$	2,221		$	1,917		$	1,805		$	1,759		$	1,661
Allowance for loan losses as a percent of non-performing loans		167.24	%		132.02	%		168.06	%		193.72	%		165.60	%
Allowance for loan losses as a percent of total loans		0.89	%		0.89	%		0.91	%		0.98	%		1.04	%
Ratio of net charge-offs during the period to average loans outstanding during the period		(0.02	)%		0.06	%		-	%		0.10	%		0.47	%

The following table shows how our allowance for loan losses is allocated by type of loan at each of the dates indicated.

	December 31,
	2013					2012					2011					2010					2009
	Amount of Allowance		Loan Category as a % of Total Loans			Amount of Allowance		Loan Category as a % of Total Loans			Amount of Allowance		Loan Category as a % of Total Loans			Amount of Allowance		Loan Category as a % of Total Loans			Amount of Allowance		Loan Category as a % of Total Loans
	(Dollars in Thousands)
Real estate loans:
One-to four-family residential	$	1,126		55.7	%	$	856		50.0	%	$	889		53.5	%	$	858		54.5	%	$	726		53.4	%
Home equity loans and lines		253		11.5			236		12.2			207		9.3			270		8.7			273		9.0
Multi-family residential		190		8.7			160		8.2			148		7.4			100		6.5			167		5.9
Commercial real estate		642		23.7			656		29.2			485		28.6			442		29.0			397		29.8
Land loans		2		0.1			2		0.1			2		0.7			9		0.5			10		0.8
Consumer and other		8		0.3			7		0.3			74		0.5			80		0.8			88		1.1
Unallocated		-		-			-		-			-		-			-		-			-		-
Total	$	2,221		100.0	%	$	1,917		100.0	%	$	1,805		100.0	%	$	1,759		100.0	%	$	1,661		100.0	%

Investment Activities

General. We invest in securities pursuant to our Investment Policy, which has been approved by our Board of Directors. The Board’s ALCO/Investment Committee monitors our investment activity and ensures that the Bank’s investments are consistent with the Investment Policy. The respective Boards of Directors of the Bank and Company review all investment activity at their regular scheduled meetings.

Our investment policy is designed primarily to manage the interest rate sensitivity of our assets and liabilities, to generate a favorable return without incurring undue interest rate and credit risk, to complement our lending activities and to provide and maintain liquidity. On occasion, we also have used a leveraged investment strategy for the purpose of enhancing returns. Pursuant to this strategy, we have utilized borrowings from the Federal Home Loan Bank (“FHLB”) of Dallas as well as other sources to purchase additional investment securities. We attempt to match the advances with the securities purchased in order to obtain a favorable difference, or “spread,” between the interest paid on the advance against the yield received on the security purchased.

At December 31, 2013, our investment and mortgage-backed securities amounted to $53.1 million in the aggregate, or 16.8% of total assets at such date. The largest component of our securities portfolio in recent periods has been mortgage-backed securities, which amounted to $31.1 million, or 58.5% of the securities portfolio at December 31, 2013. The second largest component of our securities portfolio at December 31, 2013 was collateralized mortgage obligations (“CMOs”) which amounted to $19.7 million, or 37.2% of the securities portfolio. Our securities portfolio also contains U.S. agency debt securities which amounted to $2.0 million at December 31, 2013. These U.S. agency debt securities may contain provisions which provide the agency with the ability to call the securities at specified dates.

The Company held equity securities with market values of $280,000 and $258,000, respectively, at December 31, 2013 and 2012. These equity securities are comprised solely of common stock investments in community banks.

At December 31, 2013 and December 31, 2012, we had net unrealized gains of $362,000 and $653,000, respectively, on our available-for-sale securities.

Pursuant to FASB ASC 320-10, our securities are classified as available for sale (“AFS”), held to maturity (“HTM”), or trading, at the time of acquisition. Securities classified as held to maturity must be purchased with the intent and ability to hold that security until its final maturity, and can be sold prior to maturity only under rare circumstances. Held to maturity securities are accounted for based upon the historical cost of the security. Available for sale securities can be sold at any time based upon needs or market conditions. Available for sale securities are accounted for at fair value, with unrealized gains and losses on these securities, net of income tax provisions, reflected in retained earnings as accumulated other comprehensive income. At December 31, 2013, we had $5.8 million of securities classified as available for sale, $47.3 million of securities classified as held to maturity and no securities classified as trading. During the years ended December 31, 2013 and 2012, there were no sales of available-for-sale securities.

We do not purchase mortgage-backed derivative instruments that would be characterized “high-risk” under Federal banking regulations at the time of purchase, nor do we purchase corporate obligations which are not rated investment grade or better.

Our mortgage-backed securities and CMOs were issued by the GNMA, FNMA or FHLMC and we held no mortgage-backed securities from private issuers.

Investments in mortgage-backed securities involve a risk that actual prepayments will be greater than estimated prepayments over the life of the security, which may require adjustments to the amortization of any premium or accretion of any discount relating to such instruments, thereby changing the net yield on such securities. There is also reinvestment risk associated with the cash flows from such securities or in the event such securities are redeemed by the issuer. In addition, the market value of such securities may be adversely affected by changes in interest rates.

The FHLMC is a public corporation chartered by the U.S. Government. The FHLMC issues participation certificates backed principally by conventional mortgage loans. The FHLMC guarantees the timely payment of interest and the ultimate return of principal within one year. The FNMA is a private corporation chartered by the U.S. Congress with a mandate to establish a secondary market for conventional mortgage loans. Because the FHLMC, the FNMA and the GNMA were established to provide support for low- and middle-income housing, there are limits to the maximum size of loans that qualify for these programs. To accommodate larger-sized loans, and loans that, for other reasons, do not conform to the agency programs, a number of private institutions have established their own home-loan origination and securitization programs.

Mortgage-backed securities typically are issued with stated principal amounts, and the securities are backed by pools of mortgages that have loans with interest rates that are within a range and have varying maturities. The cash flow associated with the underlying pool of mortgages, i.e., fixed rate or adjustable rate, as well as prepayment risk, are passed on to the certificate holder. The life of a mortgage-backed pass-through security thus approximates the life of the underlying mortgages.

Collateralized mortgage obligations are typically issued by a special-purpose entity, in our case, by government agencies, which may be organized in a variety of legal forms, such as a trust, a corporation, or a partnership. Substantially all of the collateralized mortgage obligations held in our portfolio consist of senior sequential tranches. By purchasing senior sequential tranches, management attempts to ensure the cash flow associated with such an investment.

The following table sets forth certain information relating to our investment and mortgage-backed securities portfolios at the dates indicated.

	December 31,
	2013				2012				2011
	Amortized Cost		Market Value		Amortized Cost		Market Value		Amortized Cost		Market Value
	(In Thousands)
Securities Available-for-Sale:
Mortgage-backed securities	$	3,228	$	3,463	$	5,333	$	5,755	$	9,648	$	10,356
U.S. government and agency obligations		1,993		2,023		5,970		6,126		11,949		12,211
Equity Securities		183		280		183		258		183		183
Total Securities AFS		5,404		5,766		11,486		12,139		21,780		22,750
Securities Held to Maturity:
Mortgage-backed securities		27,616		28,948		42,365		44,897		57,558		61,041
Collateralized mortgage obligations		19,730		19,435		25,089		25,418		2,023		2,026
Municipal obligations		-		-		-		-		-		-
Total Securities HTM		47,346		48,383		67,454		70,315		59,581		63,067
Total Mortgage-Backed and Investment Securities	$	52,750	$	54,149	$	78,940	$	82,454	$	81,361	$	85,817

The following table sets forth the amount of investment and mortgage-backed securities which mature during each of the periods indicated and the weighted average yields for each range of maturities at December 31, 2013. No tax-exempt yields have been adjusted to a tax-equivalent basis.

	Amounts at December 31, 2013 Which Mature In
	One Year or Less			More than One Year to Five Years			More than Five Years to Ten Years			More Than Ten Years			Total
	(Dollars In Thousands)
Available-for-Sale:
Mortgage-backed securities	$	13		$	805		$	2,645			-		$	3,463
U.S. government and agency obligations		2,023			-			-			-			2,023
Collateralized mortgage obligations		-			-			-			-			-
Total	$	2,036		$	805		$	2,645			-		$	5,486
Weighted Average Yield		4.14	%		5.05	%		5.12	%					4.75	%
Equity Securities													$	280
Total														5,766
Held to Maturity:
Mortgage-backed securities	$	41		$	2,432		$	4,817		$	20,326		$	27,616
U.S. government and agency obligations		-			-			-			-			-
Collateralized mortgage obligations		-			-			19			19,711			19,730
Total	$	41		$	2,432		$	4,836		$	40,037		$	47,346
Weighted Average Yield		4.50	%		4.89	%		5.10	%		2.84	%		3.18	%
Total Mortgage-Backed and Investment Securities:
Mortgage-backed securities	$	54		$	3,237		$	7,462		$	20,326		$	31,079
U.S. government and agency obligations		2,023			-			-			-			2,023
Collateralized mortgage obligations		-			-			19			19,711			19,730
Total	$	2,077		$	3,237		$	7,481		$	40,037			52,832
Weighted Average Yield		4.15	%		4.93	%		5.11	%		2.84	%		3.34	%
Equity Securities													$	280
Total													$	53,112

The following table sets forth the composition of our mortgage-backed securities portfolio at each of the dates indicated.

	December 31,
	2013		2012		2011
	(In Thousands)
Fixed-rate:
Available for sale	$	3,463	$	5,755	$	10,356
Held to maturity		22,803		35,955		50,953
Total fixed-rate		26,266		41,710		61,309
Adjustable-rate:
Available for sale		-		-		-
Held to maturity		4,813		6,410		8,628
Total adjustable-rate		4,813		6,410		8,628
Total mortgage-backed securities	$	31,079	$	48,120	$	69,937

Information regarding the contractual maturities and weighted average yield of our mortgage-backed securities portfolio at December 31, 2013 is presented below. Due to repayments of the underlying loans, the actual maturities of mortgage-backed securities generally are substantially less than the scheduled maturities.

	Amounts at December 31, 2013 Which Mature in
	One Year or Less		Weighted Average Yield			More Than One Year to Five Years		Weighted Average Yield				More Than Five Years to Ten Years		Weighted Average Yield			More than 10 Years		Weighted Average Yield
	(Dollars in Thousands)
Fixed-rate:
Available for sale	$	13		6.50	%	$	805		5.05	%		$	2,645		5.12	%	$	-
Held to maturity		41		4.50			2,362		4.97				4,655		5.22			15,745		3.89	%
Total fixed-rate		54		4.98			3,167		4.99				7,300		5.18			15,745		3.89
Adjustable-rate:
Available for sale		-					-						-		-			-
Held to maturity		-					70		2.30				162		2.04			4,581		2.38
Total adjustable-rate		-					70		2.30		��		162		2.04			4,581		2.38
Total	$	54		4.98	%	$	3,237		4.93	%		$	7,462		5.12	%	$	20,326		3.55	%

Sources of Funds

General. Deposits, loan repayments and prepayments, proceeds from sales of loans, cash flows generated from operations and FHLB advances are the primary sources of our funds for use in lending, investing and for other general purposes.

Deposits. We offer a variety of deposit accounts with a range of interest rates and terms. Our deposits consist of checking, both interest-bearing and non-interest-bearing, money market, savings and certificate of deposit accounts. At December 31, 2013, 38.0% of the funds deposited with Bank of New Orleans were in non-maturity deposits, which are commonly referred to as “core deposits”. Total certificates of deposit were $125.7 million at December 31, 2013 compared to $127.4 million at December 31, 2012.

The flow of deposits is influenced significantly by general economic conditions, changes in money market rates, prevailing interest rates and competition. Our deposits are obtained predominantly from the areas where our branch offices are located. We have historically relied primarily on customer service and long-standing relationships with customers to attract and retain these deposits; however, market interest rates and rates offered by competing financial institutions significantly affect our ability to attract and retain deposits.

Bank of New Orleans uses traditional means of advertising its deposit products, including broadcast and print media and we generally do not solicit deposits from outside our market area. In recent years, we have emphasized the origination of core deposits.

We do not actively solicit certificate accounts of $100,000 or more, known as “jumbo CDs,” or use brokers to obtain deposits. At December 31, 2013, our jumbo CDs amounted to $58.0 million, of which $46.5 million are scheduled to mature within twelve months.

The following table shows the distribution of, and certain other information relating to, our deposits by type of deposit, as of the dates indicated.

	December 31,
	2013					2012					2011
	Amount		%			Amount		%			Amount		%
	(Dollars in Thousands)
Certificate accounts:
Less than 1.00%	$	75,442		37.2	%	$	71,936		36.7	%	$	64,299		33.1	%
1.00% - 1.99%		20,546		10.1			19,070		9.7			20,660		10.6
2.00% - 2.99%		9,537		4.7			12,550		6.4			17,878		9.2
3.00% - 3.99%		20,178		10.0			23,244		11.8			23,784		12.3
4.00% - 4.99%		1		0.0			580		0.3			7,833		4.0
5.00% - 5.99%		-		-			-		-			-		-
Total certificate accounts		125,704		62.0			127,380		64.9			134,454		69.2

Savings accounts		25,071		12.4			24,532		12.5			21,621		11.1
Checking:
Interest bearing		24,660		12.2			20,645		10.5			21,064		10.9
Non-interest bearing		15,125		7.5			14,322		7.3			9,764		5.0
Money market		11,948		5.9			9,327		4.8			7,423		3.8
Total savings and transaction accounts		76,804		38.0			68,826		35.1			59,872		30.8
Total deposits	$	202,508		100.0	%	$	196,206		100.0	%	$	194,326		100.0	%

The following table shows the average balance of each type of deposit and the average rate paid on each type of deposit for the periods indicated.

	Year Ended December 31,
	2013							2012							2011
	Average Balance		Interest Expense		Average Rate Paid			Average Balance		Interest Expense		Average Rate Paid			Average Balance		Interest Expense		Average Rate Paid
	(Dollars in Thousands)
Passbook Savings Accounts	$	25,204	$	53		0.21	%	$	22,813	$	57		0.25	%	$	20,618	$	82		0.40	%
Checking		22,411		36		0.16			19,458		31		0.16			18,998		27		0.14
Money market		10,458		36		0.34			9,014		32		0.36			7,018		31		0.44
Certificates of deposit		126,199		1,541		1.22			131,734		1,951		1.48			135,030		2,506		1.86
Total interest-bearing Deposits	$	184,272	$	1,666		0.90	%	$	183,019	$	2,071		1.13	%	$	181,664	$	2,646		1.46	%

The following table shows our savings flows during the periods indicated.

	Year Ended December 31,
	2013		2012		2011
	(In Thousands)
Beginning balance	$	196,206	$	194,326	$	188,362
Net increase before interest credited		5,090		313		3,896
Interest credited		1,212		1,567		2,068
Net increase in deposits		6,302		1,880		5,964
Ending balance	$	202,508	$	196,206	$	194,326

The following table presents, by various interest rate categories and maturities, the amount of certificates of deposit at December 31, 2013.

	Balance at December 31, 2013 Maturing in the 12 Months Ending December 31,
Certificates of Deposit	2014		2015		2016		Thereafter		Total
	(In Thousands)
Less than 1.00%	$	68,536	$	4,892	$	2,004	$	10	$	75,442
1.00% - 1.99%		7,472		1,298		585		11,191		20,546
2.00% - 2.99%		45		1,365		7,903		224		9,537
3.00% - 3.99%		14,573		5,572		-		33		20,178
4.00% - 4.99%		-		-		1		-		1
5.00% - 5.99%		-		-		-		-		-
Total certificate accounts	$	90,626	$	13,127	$	10,493	$	11,458	$	125,704

The following table shows the maturities of our certificates of deposit of $100,000 or more at December 31, 2013 by time remaining to maturity.

Quarter Ending:	Amount		Weighted Average Rate
	(Dollars in Thousands)
March 31, 2014	$	27,955		0.45	%
June 30, 2014		9,910		0.59
September 30, 2014		5,695		2.29
December 31, 2014		2,976		0.88
After December 31, 2014		11,480		1.88
Total certificates of deposit with balances of $100,000 or more	$	58,016		0.96	%

Borrowings. We utilize advances from the Federal Home Loan Bank of Dallas as an alternative to retail deposits to fund our operations as part of our operating strategy. These FHLB advances are collateralized primarily by certain mortgage loans and mortgage-backed securities and other investment securities held in safekeeping at the Federal Home Loan Bank. FHLB advances are made pursuant to several different credit programs, each of which has its own interest rate and range of maturities. The maximum amount that the Federal Home Loan Bank of Dallas will advance to member institutions, including Bank of New Orleans, fluctuates from time to time in accordance with the policies of the Federal Home Loan Bank. At December 31, 2013, we had $51.0 million in outstanding FHLB advances and $104.0 million of additional FHLB advances available. In addition, the Bank periodically accesses other borrowing sources as a source of liquidity and term funding. These sources include regional or national commercial banks that structure the borrowings as reverse repurchase agreements with terms ranging from 30 days to five years. These borrowings are secured by the pledge of US Government or US Agency debt instruments. At December 31, 2013, the Bank had no such borrowings compared to $16.0 million at December 31, 2012. Finally, as a member bank, we have access to borrowings from the Federal Reserve Bank of Atlanta. At December 31, 2013, we had no borrowings from the Federal Reserve Bank of Atlanta.

The following table shows certain information regarding our borrowings at or for the dates indicated:

	At or For the Year Ended December 31,
	2013			2012			2011
	(Dollars in Thousands)
FHLB advances and other borrowings:
Average balance outstanding	$	55,824		$	61,745		$	64,230
Maximum amount outstanding at any month-end during the period		66,153			68,507			69,330
Balance outstanding at end of period		51,040			53,454			57,113
Average interest rate during the period		2.22	%		3.39	%		3.85	%
Weighted average interest rate at end of period		2.12	%		2.93	%		3.84	%

Subsidiaries

Bank of New Orleans has one subsidiary, First Louisiana Mortgage, LLC, a Louisiana limited liability corporation, which has been inactive since its inception.

Employees

At December 31, 2013, we had 69 full-time and one part-time employee. None of such employees are represented by a collective bargaining group, and we believe that our relationship with our employees is excellent.

REGULATION

Set forth below is a brief description of certain laws relating to the regulation of Louisiana Bancorp and Bank of New Orleans. This description does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations.

General

Louisiana Bancorp is a savings and loan holding company regulated by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board” or “FRB”). Bank of New Orleans is a federally chartered savings bank subject to federal regulation and oversight by the Office of the Comptroller of the Currency (the “OCC”) extending to all aspects of its operations. Bank of New Orleans also is subject to regulation and examination by the Federal Deposit Insurance Corporation, which insures the deposits of Bank of New Orleans to the maximum extent permitted by law, and requirements established by the Federal Reserve Board. Federally chartered savings institutions are required to file periodic reports with the OCC and are subject to periodic examinations by the OCC. The investment and lending authority of savings institutions are prescribed by federal laws and regulations, and such institutions are prohibited from engaging in any activities not permitted by such laws and regulations. Such regulation and supervision primarily is intended for the protection of depositors and not for the purpose of protecting shareholders.

As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Office of Thrift Supervision (“OTS”) was eliminated and, as of July 21, 2011, the regulatory oversight functions and authority of the OTS related to Bank of New Orleans were transferred to the OCC and the regulatory oversight functions and authority of the OTS related to Louisiana Bancorp were transferred to the Federal Reserve Board. See “2010 Regulatory Reform,” below.

Federal law provides the federal banking regulators, including the OCC, the FRB and Federal Deposit Insurance Corporation, with substantial enforcement powers. The OCC’s enforcement authority over all savings institutions includes, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to initiate injunctive actions. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with the OCC. The FRB has comparable enforcement authority of the Company. Any change in such regulations, whether by the Federal Deposit Insurance Corporation, OCC or Congress, could have a material adverse impact on Louisiana Bancorp and Bank of New Orleans and their operations.

2010 Regulatory Reform

On July 21, 2010, the President signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. The financial reform and consumer protection act imposes new restrictions and an expanded framework of regulatory oversight for financial institutions, including depository institutions. In addition, the new law changed the jurisdictions of existing bank regulatory agencies and in particular transferred the regulation of federal savings associations, such as the Bank, from the OTS to the OCC effective July 21, 2011. Savings and loan holding companies, such as the Company, are now regulated by the Federal Reserve Board. The law also establishes an independent federal consumer protection bureau within the Federal Reserve Board. The following discussion summarizes significant aspects of the new law that may affect the Company and the Bank. Many of the regulations implementing these changes have not been promulgated, so we cannot determine the full impact on our business and operations at this time.

The following aspects of the financial reform and consumer protection act are related to the operations of the Bank:

•

A new independent consumer financial protection bureau was established within the Federal Reserve Board, empowered to exercise broad regulatory, supervisory and enforcement authority with respect to both new and existing consumer financial protection laws. However, smaller financial institutions, like the Bank, continue to be subject to the supervision and enforcement of their primary federal banking regulator with respect to the federal consumer financial protection laws.

•

Tier 1 capital treatment for “hybrid” capital items like trust preferred securities was eliminated subject to various grandfathering and transition rules.

•

The prohibition on payment of interest on demand deposits was repealed, effective July 21, 2011.

•

Deposit insurance was permanently increased to $250,000.

•

The deposit insurance assessment base calculation now equals the depository institution’s total assets minus the sum of its average tangible equity during the assessment period.

•

The minimum reserve ratio of the Deposit Insurance Fund increased to 1.35 percent of estimated annual insured deposits or assessment base; however, the Federal Deposit Insurance Corporation is directed to “offset the effect” of the increased reserve ratio for insured depository institutions with total consolidated assets of less than $10 billion.

The following aspects of the financial reform and consumer protection act are related to the operations of the Company:

•

Authority over savings and loan holding companies was transferred to the Federal Reserve Board on July 21, 2011.

•

Leverage capital requirements and risk based capital requirements applicable to depository institutions and bank holding companies will be extended to thrift holding companies. However, the FRB has not yet issued regulations that address the levels of these capital requirements or when they will apply to the Company.

•

The Federal Deposit Insurance Act was amended to direct federal regulators to require depository institution holding companies to serve as a source of strength for their depository institution subsidiaries.

•

Public companies are now required to provide their shareholders with a non-binding vote: (i) at least once every three years on the compensation paid to executive officers, and (ii) at least once every six years on whether they should have a “say on pay” vote every one, two or three years.

•

A separate, non-binding shareholder vote is now required regarding golden parachutes for named executive officers when a shareholder vote takes place on mergers, acquisitions, dispositions or other transactions that would trigger the parachute payments.

•

Securities exchanges, which include the Nasdaq, are required to prohibit brokers from using their own discretion to vote shares not beneficially owned by them for certain “significant” matters, which include votes on the election of directors, executive compensation matters, and any other matter determined to be significant.

•

Stock exchanges will be prohibited from listing the securities of any issuer that does not have a policy providing for (i) disclosure of its policy on incentive compensation payable on the basis of financial information reportable under the securities laws, and (ii) the recovery from current or former executive officers, following an accounting restatement triggered by material noncompliance with securities law reporting requirements, of any incentive compensation paid erroneously during the three-year period preceding the date on which the restatement was required that exceeds the amount that would have been paid on the basis of the restated financial information.

•

Disclosure in annual proxy materials will be required concerning the relationship between the executive compensation paid and the financial performance of the issuer.

•

Item 402 of Regulation S-K will be amended to require companies to disclose the ratio of the Chief Executive Officer’s annual total compensation to the median annual total compensation of all other employees.

•

Smaller reporting companies are exempt from complying with the internal control auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act.

Regulation of Louisiana Bancorp, Inc.

Holding Company Acquisitions. Federal law generally prohibits a savings and loan holding company, without prior FRB approval, from acquiring the ownership or control of any other savings institution or savings and loan holding company, or all, or substantially all, of the assets or more than 5% of the voting shares of the savings institution or savings and loan holding company. These provisions also prohibit, among other things, any director or officer of a savings and loan holding company, or any individual who owns or controls more than 25% of the voting shares of such holding company, from acquiring control of any savings institution not a subsidiary of such savings and loan holding company, unless the acquisition is approved by the FRB.

The Federal Reserve Board may not approve any acquisition that would result in a multiple savings and loan holding company controlling savings institutions in more than one state, subject to two exceptions: (1) the approval of interstate supervisory acquisitions by savings and loan holding companies; and (2) the acquisition of a savings institution in another state if the laws of the state of the target savings institution specifically permit such acquisitions. The states vary in the extent to which they permit interstate savings and loan holding company acquisitions.

Holding Company Activities. Louisiana Bancorp operates as a unitary savings and loan holding company and is permitted to engage only in the activities permitted for financial holding companies under Federal Reserve Board regulations or for multiple savings and loan holding companies. Multiple savings and loan holding companies are permitted to engage in the following activities: (i) activities permitted for a bank holding company under section 4(c) of the Bank Holding Company Act (unless the FRB prohibits or limits such 4(c) activities); (ii) furnishing or performing management services for a subsidiary savings association; (iii) conducting any insurance agency or escrow business; (iv) holding, managing, or liquidating assets owned by or acquired from a subsidiary savings association; (v) holding or managing properties used or occupied by a subsidiary savings association; (vi) acting as trustee under deeds of trust; or (vii) activities authorized by regulation as of March 5, 1987, to be engaged in by multiple savings and loan holding companies. Although savings and loan holding companies are not currently subject to specific capital requirements, recent legislation authorized the FRB to establish capital requirements for savings and loan holding companies. That legislation also authorized federal regulators to require depository institution holding companies to serve as a source of strength to their depository institution subsidiaries. Bank of New Orleans is required to notify the FRB 30 days before declaring any dividend to the Company. In addition, the financial impact of a holding company on its subsidiary institution is a matter that is evaluated by the Federal Reserve Board and the agency has authority to order cessation of activities or divestiture of subsidiaries deemed to pose a threat to the safety and soundness of the institution.

Declaration of Dividends. A savings institution, such as Bank of New Orleans, that is part of a savings and loan holding company structure must file a notice of declaration of a dividend with the FRB not less than 30 days prior to the proposed declaration of dividend by its board of directors.

Federal Securities Laws. Our common stock is registered with the Securities and Exchange Commission under Section 12(b) of the Securities Exchange Act of 1934. We are subject to the proxy and tender offer rules, insider trading reporting requirements and restrictions, and certain other requirements under the Securities Exchange Act of 1934.

The Sarbanes-Oxley Act. As a public company, the Company is subject to the Sarbanes-Oxley Act of 2002 which addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. As directed by the Sarbanes-Oxley Act, our principal executive officer and principal financial officer are required to certify that our quarterly and annual reports do not contain any untrue statement of a material fact. The rules adopted by the SEC under the Sarbanes-Oxley Act have several requirements, including having these officers certify that: they are responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal control over financial reporting; they have made certain disclosures to our auditors and the audit committee of the Board of Directors about our internal control over financial reporting; and they have included information in our quarterly and annual reports about their evaluation and whether there have been changes in our internal control over financial reporting or in other factors that could materially affect internal control over financial reporting.

Volcker Rule Regulations. Regulations were recently adopted by the federal banking agencies to implement the provisions of the Dodd Frank Act commonly referred to as the Volcker Rule. The regulations contain prohibitions and restrictions on the ability of financial institutions holding companies and their affiliates to engage in proprietary trading and to hold certain interests in, or to have certain relationships with, various types of investment funds, including hedge funds and private equity funds. The regulations will become effective on April 1, 2014 with full compliance being phased in over a period ending on July 21, 2015. The Company is currently reviewing its investment portfolio to ensure compliance as the various provisions of the Volcker Rule regulations become effective.

Bank of New Orleans

General. Bank of New Orleans is a federally chartered stock savings bank subject to examination and regulation by the OCC which has extensive authority over the operations of federally-chartered savings institutions. As part of this authority, Bank of New Orleans is required to file periodic reports with the OCC and is subject to periodic examinations by the OCC and the Federal Deposit Insurance Corporation. The investment and lending authority of savings institutions are prescribed by federal laws and regulations, and such institutions are prohibited from engaging in any activities not permitted by such laws and regulations. Such regulation and supervision is primarily intended for the protection of depositors and the Deposit Insurance Fund (“DIF”) administered by the Federal Deposit Insurance Corporation.

Insurance of Accounts. The deposits of Bank of New Orleans are insured to the maximum extent permitted by the DIF and are backed by the full faith and credit of the U.S. Government. The 2010 financial institution reform legislation permanently increased deposit insurance on most accounts to $250,000. As insurer, the Federal Deposit Insurance Corporation is authorized to conduct examinations of, and to require reporting by, insured institutions. It also may prohibit any insured institution from engaging in any activity determined by regulation or order to pose a serious threat to the Federal Deposit Insurance Corporation. The Federal Deposit Insurance Corporation also has the authority to initiate enforcement actions against savings institutions, after giving the OCC an opportunity to take such action.

The Federal Deposit Insurance Corporation's risk-based premium system provides for quarterly assessments. Each insured institution is placed in one of four risk categories depending on supervisory and capital considerations. Within its risk category, an institution is assigned to an initial base assessment rate which is then adjusted to determine its final assessment rate based on its brokered deposits, secured liabilities and unsecured debt, with less risky institutions paying lower assessments. To implement the 2010 legislation, the Federal Deposit Insurance Corporation recently amended its deposit insurance regulations (1) to change the assessment base for insurance from domestic deposits to average assets minus average tangible equity and (2) to lower overall assessment rates. The revised assessments rates are between 2.5 to 9 basis points for banks in the lowest risk category and between 30 to 45 basis points for banks in the highest risk category.

In addition, all institutions with deposits insured by the Federal Deposit Insurance Corporation are required to pay assessments to fund interest payments on bonds issued by the Financing Corporation (“FICO”), a mixed-ownership government corporation established to recapitalize a predecessor to the DIF.

The Federal Deposit Insurance Corporation may terminate the deposit insurance of any insured depository institution, including Bank of New Orleans, if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed by an agreement with the Federal Deposit Insurance Corporation. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the Federal Deposit Insurance Corporation. Management is aware of no existing circumstances which would result in termination of Bank of New Orleans’ deposit insurance.

Regulatory Capital Requirements. Federally insured savings associations are required to maintain minimum levels of regulatory capital. The OCC has established capital standards consisting of a “tangible capital requirement,” a “leverage capital requirement” and “a risk-based capital requirement.” The OCC also is authorized to impose capital requirements in excess of these standards on individual institutions on a case-by-case basis.

Current OCC capital standards require savings institutions to satisfy the following capital requirements:

tangible capital requirement – “tangible” capital equal to at least 1.5% of adjusted total assets;

leverage capital requirement – “core” capital equal to at least 3.0% of adjusted total assets;

an additional “cushion” of at least 100 basis points of core capital for all but the most highly rated savings associations, effectively increasing their minimum Tier 1 leverage ratio to 4.0% or more; and

risk-based capital requirement – “total” capital (a combination of core and “supplementary” capital) equal to at least 8.0% of “risk-weighted” assets.

Core capital generally consists of common stockholders’ equity (including retained earnings). Tangible capital generally equals core capital minus intangible assets, with only a limited exception for purchased mortgage servicing rights. Bank of New Orleans had no intangible assets at December 31, 2013. Both core and tangible capital are further reduced by an amount equal to a savings institution’s debt and equity investments in subsidiaries engaged in activities not permissible to national banks (other than subsidiaries engaged in activities undertaken as agent for customers or in mortgage banking activities and subsidiary depository institutions or their holding companies). These adjustments do not affect Bank of New Orleans’ regulatory capital.

In determining compliance with the risk-based capital requirement, a savings institution is allowed to include both core capital and supplementary capital in its total capital, provided that the amount of supplementary capital included does not exceed the savings institution’s core capital. Supplementary capital generally consists of general allowances for loan losses up to a maximum of 1.25% of risk-weighted assets, together with certain other items. In determining the required amount of risk-based capital, total assets, including certain off-balance sheet items, are multiplied by a risk weight based on the risks inherent in the type of assets. The risk weights range from 0% for cash and securities issued by the U.S. Government or unconditionally backed by the full faith and credit of the U.S. Government to 100% for loans (other than qualifying residential loans weighted at 50%) and repossessed assets.

Savings institutions must value securities available for sale at amortized cost for regulatory capital purposes. This means that in computing regulatory capital, savings institutions should add back any unrealized losses and deduct any unrealized gains, net of income taxes, on debt securities reported as a separate component of GAAP capital.

At December 31, 2013, Bank of New Orleans exceeded all of its regulatory capital requirements, with core, tier 1 risk-based and total risk-based capital ratios of 14.80%, 25.37% and 26.58%, respectively.

Any savings institution that fails any of the capital requirements is subject to possible enforcement actions by the OCC or the Federal Deposit Insurance Corporation. Such actions could include a capital directive, a cease and desist order, civil money penalties, the establishment of restrictions on the institution’s operations, termination of federal deposit insurance and the appointment of a conservator or receiver. The OCC’s capital regulation provides that such actions, through enforcement proceedings or otherwise, could require one or more of a variety of corrective actions.

The Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, adopted Basel III in September 2010, which constitutes a strengthened set of capital requirements for banking organizations in the United States and around the world. In July of 2013 the respective U.S. federal banking agencies issued final rules implementing Basel III and the Dodd-Frank Act capital requirements to be fully-phased in on a global basis on January 1, 2019. The new regulations establish a new tangible common equity capital requirement, increase the minimum requirement for the current Tier 1 risk-weighted asset (“RWA”) ratio, phase out certain kinds of intangibles treated as capital and certain types of instruments and change the risk weightings of certain assets used to determine required capital ratios. The new common equity Tier 1 capital component requires capital of the highest quality – predominantly composed of retained earnings and common stock instruments. For community banks such as Bank of New Orleans, a common equity Tier 1 capital ratio 4.5% will become effective on January 1, 2015. The new capital rules will also increase the current minimum Tier 1 capital ratio from 4.0% to 6.0% beginning on January 1, 2015. In addition, institutions that seek the freedom to make capital distributions and pay discretionary bonuses to executive officers without restriction must also maintain greater than 2.5% in common equity attributable to a capital conservation buffer to be phased in from January 1, 2016 until January 1, 2019. The new rules also increase the risk weights for several categories of assets, including an increase from 100% to 150% for certain acquisition, development and construction loans and more than 90-day past due exposures. The new capital rules maintain the general structure of the prompt corrective action rules, but incorporate the new common equity Tier 1 capital requirement and the increased Tier 1 RWA requirement into the prompt corrective action framework.

Prompt Corrective Action. In addition to the regulatory capital requirements for OCC-regulated savings associations discussed above, each federal banking agency has implemented a system of prompt corrective action. The following table shows the amount of capital associated with the different capital categories set forth in the prompt corrective action regulations of the OCC.

Capital Category	Total Risk-Based Capital	Tier 1 Risk-Based Capital	Tier 1 Leverage Capital

Well capitalized	10% or more	6% or more	5% or more
Adequately capitalized	8% or more	4% or more	4% or more
Undercapitalized	Less than 8%	Less than 4%	Less than 4%
Significantly undercapitalized	Less than 6%	Less than 3%	Less than 3%

In addition, an institution is “critically undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. Under specified circumstances, a federal banking agency may reclassify a well-capitalized institution as adequately capitalized and may require an adequately capitalized institution or an undercapitalized institution to comply with supervisory actions as if it were in the next lower category (except that the Federal Deposit Insurance Corporation may not reclassify a significantly undercapitalized institution as critically undercapitalized).

An institution generally must file a written capital restoration plan which meets specified requirements within 45 days of the date that the institution receives notice or is deemed to have notice that it is undercapitalized, significantly undercapitalized or critically undercapitalized. A federal banking agency must provide the institution with written notice of approval or disapproval within 60 days after receiving a capital restoration plan, subject to extensions by the agency. An institution which is required to submit a capital restoration plan must concurrently submit a performance guaranty by each company that controls the institution. In addition, undercapitalized institutions are subject to various regulatory restrictions, and the appropriate federal banking agency also may take any number of discretionary supervisory actions.

At December 31, 2013, Bank of New Orleans was deemed a well-capitalized institution for purposes of the prompt corrective regulations and as such is not subject to the above mentioned restrictions.

The table below sets forth Bank of New Orleans’ capital position relative to its regulatory capital requirements at December 31, 2013.

	Actual					Required for Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions					Excess Over Well-Capitalized Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in Thousands)

Total risk-based capital	$	48,945		26.58	%	$	14,732		8.00	%	$	18,414		10.00	%	$	30,531		16.58	%
Tier 1 risk-based capital		46,724		25.37			7,366		4.00			11,049		6.00			35,675		19.37
Tier 1 leverage Capital		46,724		14.80			9,471		3.00			15,785		5.00			30,939		9.80

Capital Distributions. OCC regulations govern capital distributions by savings institutions, which include cash dividends, stock repurchases and other transactions charged to the capital account of a savings institution to make capital distributions. A savings institution must file an application for OCC approval of the capital distribution if (1) the total capital distributions for the applicable calendar year exceed the sum of the institution’s net income for that year to date plus the institution’s retained net income for the preceding two years, (2) the institution would not be at least adequately capitalized following the distribution, (3) the distribution would violate any applicable statute, regulation, agreement or OCC-imposed condition, or (4) the institution is not eligible for expedited treatment of its filings. If an application is not required to be filed, savings institutions must still file a notice with the OCC at least 30 days before the board of directors declares a dividend or approves a capital distribution if: (1) the institution would not be well-capitalized following the distribution; or (2) the proposed distribution would reduce the amount or retire any part of our common or preferred stock or retire any part of a debt instrument included in its regulatory capital.

If a savings institution, such as Bank of New Orleans, that is the subsidiary of a stock savings and loan holding company, has filed a notice with the FRB for a cash dividend and it is not required to file an application or notice with the OCC for any of the reasons described above, then the savings institution must provide an informational copy to the OCC of the notice filed with the FRB, at the same time that it is filed with the FRB.

Qualified Thrift Lender Test. All savings institutions are required to meet a qualified thrift lender, or QTL, test to avoid certain restrictions on their operations. A savings institution can comply with the QTL test by either qualifying as a domestic building and loan association as defined in the Internal Revenue Code or meeting the QTL test under the Home Owners’ Loan Act (“HOLA”).

Currently, the QTL test under HOLA requires that 65% of an institution’s “portfolio assets” (as defined) consist of certain housing and consumer-related assets on a monthly average basis in nine out of every 12 months. To be a qualified thrift lender under the IRS test, the savings institution must meet a “business operations test” and a “60 percent assets test,” each defined in the Internal Revenue Code.

If the savings institution fails to maintain its QTL status, the holding company’s activities are restricted. In addition, it must discontinue any non-permissible business, although the FRB may grant a grace period up to three years for good cause. Nonetheless, any company that controls a savings institution that is not a qualified thrift lender must register as a bank holding company within one year of the savings institution’s failure to meet the QTL test.

Statutory penalty provisions require an institution that fails to remain a QTL to either become a national bank or be prohibited from the following:

Making any new investments or engaging in any new activity not allowed for both a national bank and a savings association;

Establishing any new branch office unless allowable for a national bank; and

Paying dividends unless allowable for a national bank and necessary to meet the obligations of its holding company.

Three years from the date a savings association should have become or ceases to be a QTL, by failing to meet either QTL test, the institution must comply with the following restriction:

Dispose of any investment or not engage in any activity unless the investment or activity is allowed for both a national bank and a savings association.

A savings institution not in compliance with the QTL test also is subject to an enforcement action for violation of the Home Owners’ Loan Act, as amended. At December 31, 2013, Bank of New Orleans met the QTL test.

Limitations on Transactions with Affiliates. Transactions between savings institutions and any affiliate are governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a savings institution includes any company or entity which controls the savings institution or that is controlled by a company that controls the savings institution. In a holding company context, the parent holding company of a savings institution (such as Louisiana Bancorp) and any companies which are controlled by such parent holding company are affiliates of the savings institution. Generally, Section 23A limits the extent to which the savings institution or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of such institution’s capital stock and surplus, and contain an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus. Section 23B applies to “covered transactions” as well as certain other transactions and requires that all transactions be on terms substantially the same, or at least as favorable, to the savings institution as those provided to a non-affiliate. The term “covered transaction” includes the making of loans to, purchase of assets from and issuance of a guarantee to an affiliate and similar transactions. Section 23B transactions also include the provision of services and the sale of assets by a savings institution to an affiliate. In addition to the restrictions imposed by Sections 23A and 23B, a savings institution is prohibited from (i) making a loan or other extension of credit to an affiliate, except for any affiliate which engages only in certain activities which are permissible for bank holding companies, or (ii) purchasing or investing in any stocks, bonds, debentures, notes or similar obligations of any affiliate, except for affiliates which are subsidiaries of the savings institution.

In addition, Sections 22(g) and (h) of the Federal Reserve Act placed restrictions on loans to executive officers, directors and principal stockholders. Under Section 22(h), loans to a director, an executive officer and to a greater than 10% stockholder of a savings institution, and certain affiliated interests of either, may not exceed, together with all other outstanding loans to such person and affiliated interests, the savings institution’s loans to one borrower limit (generally equal to 15% of the institution’s unimpaired capital and surplus). Section 22(h) also requires that loans to directors, executive officers and principal stockholders be made on terms substantially the same as offered in comparable transactions to other persons unless the loans are made pursuant to a benefit or compensation program that (i) is widely available to employees of the institution and (ii) does not give preference to any director, executive officer or principal stockholder, or certain affiliated interests of either, over other employees of the savings institution. Section 22(h) also requires prior board approval for certain loans. In addition, the aggregate amount of extensions of credit by a savings institution to all insiders cannot exceed the institution’s unimpaired capital and surplus. Furthermore, Section 22(g) places additional restrictions on loans to executive officers.

Anti-Money Laundering. All financial institutions, including savings associations, are subject to federal laws that are designed to prevent the use of the U.S. financial system to fund terrorist activities. Financial institutions operating in the United States must develop anti-money laundering compliance programs, due diligence policies and controls to ensure the detection and reporting of money laundering. Such compliance programs are intended to supplement compliance requirements, also applicable to financial institutions, under the Bank Secrecy Act and the Office of Foreign Assets Control Regulations. Bank of New Orleans has established policies and procedures to ensure compliance with these provisions.

Federal Home Loan Bank System. Bank of New Orleans is a member of the Federal Home Loan Bank of Dallas, which is one of 12 regional Federal Home Loan Banks that administers the home financing credit function of savings institutions. Each Federal Home Loan Bank serves as a reserve or central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of consolidated obligations of the Federal Home Loan Bank System. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the Board of Directors of the Federal Home Loan Bank. At December 31, 2013, Bank of New Orleans had $51.0 million of Federal Home Loan Bank advances.

As a member, Bank of New Orleans is required to purchase and maintain stock in the Federal Home Loan Bank of Dallas in an amount equal to 0.04% of its total assets, plus an activity based component that is equal to 4.10% of the member institution’s outstanding advances. At December 31, 2013, Bank of New Orleans had $2.3 million in Federal Home Loan Bank stock, which was in compliance with this requirement.

The Federal Home Loan Banks are required to provide funds for the resolution of troubled savings institutions and to contribute to affordable housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. These contributions have adversely affected the level of Federal Home Loan Bank dividends paid in the past and could do so in the future. These contributions also could have an adverse effect on the value of Federal Home Loan Bank stock in the future.

Federal Reserve System. The Federal Reserve Board requires all depository institutions to maintain reserves against their transaction accounts (primarily NOW and Super NOW checking accounts) and non-personal time deposits. Because required reserves must be maintained in the form of vault cash or a noninterest-bearing account at a Federal Reserve Bank, the effect of this reserve requirement is to reduce an institution’s earning assets. At December 31, 2013, Bank of New Orleans met its reserve requirement.

TAXATION

Federal Taxation

General. Louisiana Bancorp and Bank of New Orleans are subject to federal income taxation in the same general manner as other corporations with some exceptions listed below. The following discussion of federal, state and local income taxation is only intended to summarize certain pertinent income tax matters and is not a comprehensive description of the applicable tax rules. Bank of New Orleans’ federal and state income tax returns for taxable years through December 31, 2009 have been closed for purposes of examination by the Internal Revenue Service. As a result, all tax returns through that date may no longer be audited by either tax authority.

Louisiana Bancorp will file consolidated federal income tax returns with Bank of New Orleans. Accordingly, it is anticipated that any cash distributions made by Louisiana Bancorp to its shareholders would be treated as cash dividends and not as a non-taxable return of capital to shareholders for federal and state tax purposes.

Method of Accounting. For federal income tax purposes, Louisiana Bancorp and Bank of New Orleans report income and expenses on the accrual method of accounting and use a December 31 tax year for filing its federal income tax return.

Bad Debt Reserves. The Small Business Job Protection Act of 1996 eliminated the use of the unique reserve method of accounting for bad debt reserves by savings associations, effective for taxable years beginning after 1995. Prior to that time, Bank of New Orleans was permitted to establish a reserve for bad debts and to make additions to the reserve. These additions could, within specified formula limits, be deducted in arriving at taxable income. As a result of the Small Business Job Protection Act of 1996, savings associations must use the same service method as banks in computing their bad debt deduction beginning with their 1996 federal tax return. In addition, federal legislation required the recapture over a six year period of the excess of tax bad debt reserves at December 31, 1995 over those established as of December 31, 1987.

Taxable Distributions and Recapture. Prior to the Small Business Job Protection Act of 1996, bad debt reserves created prior to January 1, 1988 were subject to recapture into taxable income if Bank of New Orleans failed to meet certain thrift asset and definitional tests. New federal legislation eliminated these savings association related recapture rules. However, under current law, pre-1988 reserves remain subject to recapture should Bank of New Orleans make certain non-dividend distributions or cease to maintain a bank charter.

At December 31, 2013, the total federal pre-1988 reserve was approximately $1.3 million. The reserve reflects the cumulative effects of federal tax deductions by Bank of New Orleans for which no federal income tax provisions have been made.

Alternative Minimum Tax. The Internal Revenue Code imposes an alternative minimum tax at a rate of 20% on a base of regular taxable income plus certain tax preferences. The alternative minimum tax is payable to the extent such alternative minimum tax income is in excess of the regular income tax. Net operating losses, of which Bank of New Orleans has none, can offset no more than 90% of alternative minimum taxable income. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. Bank of New Orleans has not been subject to the alternative minimum tax or any such amounts available as credits for carryover.

Net Operating Loss Carryovers. For net operating losses in years beginning after August 5, 1997, net operating losses can be carried back to the two years preceding the loss year and forward to the 20 years following the loss year. At December 31, 2013, Bank of New Orleans had no net operating loss carry forwards for federal income tax purposes.

Corporate Dividends-Received Deduction. Louisiana Bancorp is able to exclude from its income 100% of dividends received from Bank of New Orleans as a member of the same affiliated group of corporations. The corporate dividends received deduction is 80% in the case of dividends received from corporations which a corporate recipient owns less than 80%, but at least 20% of the distribution corporation. Corporations which own less than 20% of the stock of a corporation distributing a dividend may deduct only 70% of dividends received.

State Taxation

Louisiana Bancorp is subject to the Louisiana Corporation Income Tax based on our Louisiana taxable income. The Corporation Income Tax applies at graduated rates from 4% upon the first $25,000 of Louisiana taxable income to 8% on all Louisiana taxable income in excess of $200,000. For these purposes, “Louisiana taxable income” means net income which is earned by us within or derived from sources within the State of Louisiana, after adjustments permitted under Louisiana law, including a federal income tax deduction. In addition, Bank of New Orleans will be subject to the Louisiana Shares Tax which is imposed on the assessed value of a company’s stock. The formula for deriving the assessed value is to calculate 15% of the sum of:

(a)

20% of our capitalized earnings, plus

(b) 80% of our taxable stockholders’ equity, minus

(c)

50% of our real and personal property assessment.

Various items may also be subtracted in calculating a company’s capitalized earnings. For the fiscal year 2013, the Company’s Louisiana Shares Tax expense was $190,000 compared to $218,000 for year ended December 31, 2012.

Item 1A. Risk Factors.

In analyzing whether to make or to continue an investment in our securities, investors should consider, among other factors, the following risk factors.

There are increased risks involved with commercial real estate lending activities.

Our lending activities include loans secured by commercial real estate and multi-family residential mortgage loans. Commercial real estate and multi-family residential lending generally is considered to involve a higher degree of risk than single-family residential lending due to a variety of factors, including generally larger loan balances, the dependency on successful completion or operation of the project for repayment, the difficulties in estimating construction costs and loan terms which often do not require full amortization of the loan over its term and, instead, provide for a balloon payment at stated maturity. As a result of the larger loan balances typically involved in these loans, an adverse development with respect to one loan or one credit relationship can expose us to greater risk of loss compared to an adverse development with respect to a one- to four-family residential mortgage loan. As of December 31, 2013, our 10 largest commercial real estate, multi-family residential and land loans had an aggregate outstanding balance of $24.2 million, or 29.8% of total commercial real estate, multi-family residential and land loans and 9.7% of our total loan portfolio at such date. In addition, our portfolio of these loans is significantly weighted with loans which have been originated relatively recently and are not well seasoned, and thus, are generally perceived to be more susceptible to adverse economic conditions than older loans.

The loss of our Executive Officers could hurt our operations.

We rely heavily on our executive officers. The loss of any of these executive officers could have an adverse effect on us. Mr. LeBon is central to virtually all aspects of our business operations and management. Mr. LeBlanc is critical to our financial reporting function, and he also works closely with Mr. LeBon on virtually all other aspects of our operations. Ms. Callia is critical to our loan origination function. In addition, as a small community bank, we have fewer management-level personnel who are in position to succeed and assume the responsibilities of any of our executive officers. However, we have entered into employment agreements with Messrs. LeBon and LeBlanc and Ms. Callia.

Our business is geographically concentrated in southern Louisiana, which makes us vulnerable to downturns in the local economy.

Most of our loans are to individuals and businesses located generally in southern Louisiana and, more particularly, metropolitan New Orleans. Regional economic conditions affect the demand for our products and services as well as the ability of our customers to repay loans. The concentration of our business operations in southern Louisiana makes us vulnerable to downturns in the local economy. Declines in local real estate values could adversely affect the value of property used as collateral for the loans we make. The region is susceptible to hurricanes and tropical storms. Any new hurricanes or storms could severely test the infrastructure of the markets we operate in, negatively affect the local economy or disrupt our operations, which would have an adverse effect on our business and results of operations.

Changes in interest rates could have a material adverse effect on our operations.

The operations of financial institutions such as us are dependent to a large extent on net interest income, which is the difference between the interest income earned on interest-earning assets such as loans and investment securities and the interest expense paid on interest-bearing liabilities such as deposits and borrowings. Changes in the general level of interest rates can affect our net interest income by affecting the difference between the weighted average yield earned on our interest-earning assets and the weighted average rate paid on our interest-bearing liabilities, or interest rate spread, and the average life of our interest-earning assets and interest-bearing liabilities. Our net interest spread was 3.03% for the year ended December 31, 2013. Changes in interest rates can affect our ability to originate loans; the value of our interest-earning assets and our ability to realize gains from the sale of such assets; our ability to obtain and retain deposits in competition with other available investment alternatives; and the ability of our borrowers to repay adjustable or variable rate loans. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control.

Our results of operations are significantly dependent on economic conditions and related uncertainties.

The operations of savings associations are affected, directly and indirectly, by domestic and international economic and political conditions and by governmental monetary and fiscal policies. Conditions such as inflation, recession, unemployment, volatile interest rates, real estate values, government monetary policy, international conflicts, the actions of terrorists and other factors beyond our control may adversely affect our results of operations. Changes in interest rates, in particular, could adversely affect our net interest income and have a number of other adverse effects on our operations. Adverse economic conditions also could result in an increase in loan delinquencies, foreclosures and nonperforming assets and a decrease in the value of the property or other collateral which secures our loans, all of which could adversely affect our results of operations. We are particularly sensitive to changes in economic conditions and related uncertainties in the metropolitan New Orleans area because we derive the vast majority of our loans, deposits and other business from this area. Accordingly, we remain subject to the risks associated with prolonged declines in our local economy.

Our allowance for losses on loans may not be adequate to cover probable losses.

We have established an allowance for loan losses which we believe is adequate to offset probable losses on our existing loans. There can be no assurance that any future declines in real estate market conditions, general economic conditions or changes in regulatory policies will not require us to increase our allowance for loan losses, which would adversely affect our results of operations.

We face strong competition which may adversely affect our profitability.

We are subject to vigorous competition in all aspects and areas of our business from banks and other financial institutions, including savings and loan associations, savings banks, finance companies, credit unions and other providers of financial services, such as money market mutual funds, brokerage firms, consumer finance companies and insurance companies. We also compete with non-financial institutions, including retail stores that maintain their own credit programs and governmental agencies that make available low cost or guaranteed loans to certain borrowers. Certain of our competitors are larger financial institutions with substantially greater resources, lending limits, larger branch systems and a wider array of commercial banking services. Competition from both bank and non-bank organizations will continue.

We Operate In a Highly Regulated Environment and We May Be Adversely Affected By Changes in Laws and Regulations

We are subject to extensive regulation, supervision and examination by the FRB and the OCC, our primary federal regulators, and by the Federal Deposit Insurance Corporation, as insurer of our deposits. Such regulation and supervision governs the activities in which an institution and its holding company may engage and are intended primarily for the protection of the insurance fund and the depositors and borrowers of the Bank rather than for holders of our common stock. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our operations.

Historically low interest rates may adversely affect our net interest income and profitability

The Federal Reserve Board has continued its efforts to maintain interest rates at historically low levels through its targeted federal funds rate and the purchase of mortgage-backed securities. As a result, market rates on the loans we have originated and the yields on securities we have purchased have been at lower levels than were generally available prior to 2008. As a general matter, our interest-bearing liabilities reprice or mature more quickly than our interest-earning assets, which has been a contributing factor to increases in net interest income in the short term. Our ability to further lower our interest expense is limited as these interest rate levels already are at very low levels, while the average yield on our interest-earning assets may continue to decrease. The Federal Reserve Board has indicated its intention to maintain low interest rates in the future. Accordingly, our net interest income (the difference between interest income earned on assets and interest expense paid on liabilities) may decrease, which may have an adverse affect on our profitability.

Legislative or regulatory responses to perceived financial and market problems could impair our rights against borrowers

Current and future proposals made by members of Congress would reduce the amount distressed borrowers are otherwise contractually obligated to pay under their mortgage loans, and may limit the ability of lenders to foreclose on mortgage collateral. If proposals such as these, or other proposals limiting the Bank’s rights as creditor, were to be implemented, we could experience increased credit losses on our loans and mortgage-backed securities or increased expense in pursuing our remedies as a creditor.

Government responses to economic conditions may adversely affect our operations, financial condition and earnings

The Dodd-Frank Wall Street Reform and Consumer Protection Act has changed the bank regulatory framework, created an independent consumer protection bureau that has assumed the consumer protection responsibilities of the various federal banking agencies, and established more stringent capital as standards for banks and bank holding companies. Bank regulatory agencies also have been responding aggressively to concerns and adverse trends identified in examinations. Ongoing uncertainty and adverse developments in the financial services industry and the domestic and international credit markets, and the effect of the Dodd-Frank Act and regulatory actions, may adversely affect our operations by restricting our business activities, including our ability to originate or sell loans, modify loan terms or foreclose on property securing loans. These risks could affect the performance and value of our loan and investment securities portfolios, which also would negatively affect our financial performance.

Item 1B. Unresolved Staff Comments.

Not applicable.

Item 2. Properties.

As of December 31, 2013, we conducted business from our main office and three full-service banking offices. The following table sets forth the net book value of the land, building and leasehold improvements and certain other information with respect to the our offices at December 31, 2013. We maintain automated teller machines (“ATMs”) at each of our branch offices.

Description/Address	Leased/Owned	Date of Lease Expiration		Net Book Value of Property		Amount of Deposits
Main Office:				(Dollars In Thousands)
1600 Veterans Boulevard Metairie, Louisiana 70005	Owned		n/a	$	1,162	$	122,454	(1)
Branch Offices:
4401 Transcontinental Drive Metairie, Louisiana 70006	Owned(2)	3/31/2016			134		42,258
5435 Magazine Street New Orleans, Louisiana 70115	Owned		n/a		216		27,629
1000 South Tyler Street Covington, Louisiana 70433	Owned(3)		n/a		631		10,167
Total				$	2,143	$	202,508

(1)	All IRA deposits are assigned to the Main office.

(2)	The branch site is located on three lots. The Bank owns two of the lots. The third lot (parking lot) is leased.

(3)	This branch was purchased in January 2012 and placed in service in May 2012.

Item 3. Legal Proceedings.

We are not presently involved in any legal proceedings of a material nature. From time to time, we are a party to legal proceedings incidental to our business to enforce our security interest in collateral pledged to secure loans made by Bank of New Orleans.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

(a) Louisiana Bancorp, Inc.’s common stock is listed on the NASDAQ Global Market under the symbol “LABC”. The common stock was issued at a price of $10.00 per share in connection with the Company’s initial public offering and the Bank’s conversion from mutual to stock form. The common stock commenced trading on the NASDAQ Stock Market on July 10, 2007. As of the close of business on December 31, 2013, there were 2,886,642 shares of common stock outstanding, held by approximately 233 stockholders of record, not including the number of persons or entities whose stock is held in nominee or “street” name through various brokerage firms and banks.

The following table sets forth the high and low prices of the Company’s common stock as reported by the Nasdaq Stock Market and cash dividends declared per share for the periods indicated.

For The Quarter Ended	High		Low		Cash Dividends Declared
December 31, 2013	$	18.25	$	17.53	$	-
September 30, 2013		18.43		16.75		-
June 30, 2013		17.12		16.08		-
March 31, 2013		17.75		16.81		-
December 31, 2012		16.97		16.06		-
September 30, 2012		17.25		15.76		-
June 30, 2012		16.20		15.55		-
March 31, 2012		16.20		15.55		-

On January 27, 2014, the Board of Directors of Louisiana Bancorp, Inc. initiated a cash dividend policy and declared its first cash dividend of $.05 per share of common stock, payable on February 25, 2014 to the shareholders of record at the close of business on February 10, 2014.

The Company did not sell any of its equity securities during 2013 that were not registered under the Securities Act of 1933. For information regarding the Company’s equity compensation plans, see Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

(b) Not applicable.

(c) The Company’s repurchases of its common stock made during the quarter ended December 31, 2013 are set forth in the table below:

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
October 1, 2013 – October 31, 2013		21	$	18.03		21		149,405
November 1, 2013 – November 30, 2013		-		-		-		149,405
December 1, 2013 – December 31, 2013		396		17.89		396		149,009
Total		417		17.90		417

(Footnotes on next page)

(1)

On February 27, 2013, the Company announced a stock repurchase program to acquire 150,000 shares of its common stock over a six month period. On November, 1, 2013, the Company extended the duration of this repurchase plan to May 1, 2014. As of December 31, 2013, there were 149,009 shares remaining to be purchased under this plan.

Item 6. Selected Financial Data.

Set forth below is selected financial and other data of Louisiana Bancorp, Inc. You should read the financial statements and related notes contained in Item 8 hereof which provide more detailed information.

	At December 31,
	2013		2012		2011		2010		2009
	(Dollars in thousands)
Selected Financial and Other Data:
Total assets	$	316,708	$	311,862	$	313,128	$	320,875	$	329,779
Cash and cash equivalents		6,964		10,646		27,589		6,610		4,735
Investment securities:
Available-for-sale		2,303		6,384		12,394		47,106		35,445
Held-to-maturity		-		-		-		1,354		4,352
Mortgage-backed securities & CMOs:
Available-for-sale		3,463		5,755		10,356		15,383		27,079
Held-to-maturity		47,346		67,454		59,581		62,185		90,194
Loans receivable, net		247,479		213,159		195,632		179,110		158,446
Deposits		202,508		196,206		194,326		188,362		188,622
Borrowings		51,040		53,454		57,113		68,248		63,810
Shareholders’ equity		57,939		56,706		57,520		60,278		73,348
Banking offices		4		4		3		4		4

	For the Year Ended December 31,
	2013			2012			2011			2010			2009
	(Dollars in thousands, except per share data)
Selected Operating Data:
Total interest income	$	13,026		$	14,146		$	14,902		$	16,140		$	16,832
Total interest expense		2,904			4,196			5,138			5,864			6,277
Net interest income		10,122			9,950			9,764			10,276			10,555
Provision for loan losses		264			246			53			269			337
Net interest income after provision for loan losses		9,858			9,704			9,711			10,007			10,218
Total non-interest income		2,160			2,148			1,087			990			836
Total non-interest expense		7,876			8,003			7,525			7,272			7,090
Income before income taxes		4,142			3,849			3,273			3,725			3,964
Income taxes		1,434			1,342			1,156			1,167			1,430
Net income	$	2,708		$	2,507		$	2,117		$	2,558		$	2,534
Earnings per share (basic)	$	1.09		$	0.95		$	0.73		$	0.71		$	0.54
Earnings per share (diluted)	$	1.03		$	0.90		$	0.70		$	0.69		$	0.54

Selected Operating Ratios(1):
Average yield on interest-earning assets		4.24	%		4.56	%		4.78	%		5.07	%		5.30	%
Average rate on interest-bearing liabilities		1.21			1.71			2.09			2.37			2.68
Average interest rate spread(2)		3.03			2.85			2.69			2.70			2.62
Net interest margin(2)		3.30			3.21			3.14			3.23			3.32
Average interest-earning assets to average interest-bearing liabilities		127.93			126.67			126.66			128.83			135.63
Net interest income after provision for loan losses to non-interest expense		125.17			121.25			129.05			137.61			144.12
Total non-interest expense to average assets		2.49			2.52			2.36			2.23			2.18
Efficiency ratio(3)		64.13			66.15			69.35			64.55			62.24
Return on average assets		0.86			0.79			0.66			0.78			0.78
Return on average equity		4.81			4.42			3.59			3.78			3.16
Average equity to average assets		17.83	%		17.85	%		18.48	%		20.72	%		24.71	%

(Footnotes on next page)

	At or For the Year Ended December 31,
	2013			2012			2011			2010			2009
Asset Quality Ratios(4):
Non-performing loans as a percent of total loans receivable(5)		0.53	%		0.68	%		0.54	%		0.51	%		0.63	%
Non-performing assets as a percent of total assets(5)		0.60			0.67			0.51			0.81			0.78
Non-performing assets and troubled debt restructurings as a percent of total assets(6)		0.60			0.67			0.51			0.81			0.78
Allowance for loan losses as a percent of non-performing loans		167.24			132.02			168.06			193.72			165.60
Allowance for loan losses as a percent of total loans		0.89			0.89			0.91			0.98			1.04
Net charge-offs (recoveries) to average loans receivable		(0.02	)		0.06			-			0.10			0.47

Capital Ratios(4):
Tier 1 leverage ratio		14.80			14.03			15.00			16.02			18.20
Tier 1 risk-based capital ratio		25.37			25.39			29.32			33.68			40.55
Total risk-based capital ratio		26.58	%		26.50	%		30.38	%		34.70	%		41.47	%

______________

(1)	With the exception of end of period ratios, all ratios are based on average monthly balances during the indicated periods.

(2)	Average interest rate spread represents the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities, and net interest margin represents net interest income as a percentage of average interest-earning assets.

(3)	The efficiency ratio represents the ratio of non-interest expense divided by the sum of net interest income and non-interest income.

(4)	Asset quality ratios and capital ratios are end of period ratios, except for net charge-offs to average loans receivable. Capital ratios are for the Bank only.

(5)	Non-performing assets consist of non-performing loans and other real estate owned. Non-performing loans consist of all loans 90 days or more past due. It is our policy to cease accruing interest on all loans 90 days or more past due.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

Louisiana Bancorp, Inc. is a Louisiana corporation that became the holding company for Bank of New Orleans in connection with the conversion of the Bank in July 2007 from a federally chartered mutual savings bank to a federally chartered stock savings bank. Bank of New Orleans is a community oriented savings bank headquartered in Metairie, Louisiana. We currently operate four banking offices in Jefferson, Orleans and St. Tammany Parishes. Our primary business consists of attracting deposits from the general public and using those funds together with funds we borrow to originate loans to our customers and invest in mortgage-backed and other securities. At December 31, 2013, we had total assets of $316.7 million, including $247.5 million in net loans and $53.1 million of mortgage-backed and other investment securities, total deposits of $202.5 million and shareholders’ equity of $57.9 million.

Historically, we have operated as a traditional thrift relying primarily on long-term, fixed rate single-family residential mortgage loans to generate interest income. During 2013, 2012 and 2011, our originations of single-family residential mortgage loans totaled $98.8 million, $85.1 million, and $59.2 million, respectively. Our originations in the past three years have been heavily reliant upon refinancing activity associated with low mortgage rates.

In order to serve the financial needs of our business community, the Bank offers mortgage products secured by multi-family residential properties, commercial real estate and land. In the aggregate, our originations of these types of loans were $23.7 million, $21.9 million, and $25.2 million, respectively, for the periods ended December 31, 2013, 2012 and 2011. Multi-family residential, commercial real estate and land loans generate higher levels of interest income than single-family residential loans, but are subject to higher levels of risk.

As of December 31, 2013, we had 11 loans with an aggregate principal balance of $437,000 that were 30 to 89 days delinquent, compared to ten loans with an aggregate principal balance of $201,000 at December 31, 2012. Our total non-performing loans were $1.3 million, $1.5 million and $1.1 million, respectively, at December 31, 2013, 2012 and 2011. Total real estate owned was $568,000, $632,000 and $532,000, respectively, at December 31, 2013, 2012 and 2011. At December 31, 2013, real estate owned was comprised of a single family residence secured by a townhome in New Orleans with a fair value of $22,000, a restaurant in Baton Rouge, Louisiana with a fair value of $175,000 and our 0.6% participation interest in a $170 million mixed-use property development in Baton Rouge, Louisiana having a fair value of $370,000. Total non-performing assets were $1.9 million, $2.1 million and $1.6 million, respectively, at December 31, 2013, 2012 and 2011.

Our total mortgage-backed securities and investment securities portfolio was $53.1 million, or 16.8% of our total assets at December 31, 2013. These securities are comprised of US agency issued obligations and do not include “private label” securities. Our mortgage-backed securities are collateralized by conventional mortgage loans and do not include “Alt-A”, “sub-prime”, or other non-conforming collateral. The market value of our securities may decline in the future due to an increase in the level of interest rates. However, our securities are generally purchased as long-term investments, therefore changes in market value during the holding period due to fluctuations in interest rates is expected. We do not purchase securities for speculative or trading purposes.

Our total deposits were $202.5 million and $196.2 million at December 31, 2013 and 2012, respectively. Management anticipates that the FDIC’s permanent increase in their maximum deposit insurance coverage to $250,000, and our efforts to grow corresponding deposits relationships with our new loan customers, will lead to future growth in our deposit base.

Our total shareholders’ equity at December 31, 2013 was $57.9 million. Our average equity to average assets ratio was 17.83% for the year ended December 31, 2013. The Bank’s capital ratios exceed all regulatory guidelines, and the Bank was deemed to be “well-capitalized” as of December 31, 2013.

Our results of operations depend, to a large extent, on net interest income, which is the difference between the income earned on our loan and investment portfolios and interest expense on deposits and borrowings. Our net interest income is largely determined by our net interest spread, which is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities, and the relative amounts of interest-earning assets and interest-bearing liabilities. Results of operations are also affected by our provisions for loan losses, fee income and other non-interest income and non-interest expense. Non-interest expense principally consists of compensation and employee benefits, office occupancy and equipment expense, data processing, advertising and business promotion and other expense. In addition, our salaries and benefits expense have increased in recent years due to the stock benefit plans that we implemented following the Bank’s conversion to the stock form. For the years ended December 31, 2013, 2012 and 2011, the cost of our Employee Stock Ownership Plan was $441,000, $410,000, and $392,000, respectively. Compensation expense related to our 2007 Stock Option Plan and Recognition and Retention Plan were $191,000, 764,000, and $765,000, during 2013, 2012 and 2011, respectively. The initial grants under our 2007 Stock option Plan and 2007 Recognition and Retention Plan, which constituted the substantial bulk of all grants made under such plans, became fully vested in February 2013. As a result, our expense related to these stock benefit plans was substantially lower in 2013 than they were in 2012. Our results of operations are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, government policies and actions of regulatory authorities. Future changes in applicable law, regulations or government policies may materially impact our financial conditions and results of operations.

Business Strategy

Our business strategy is focused on operating a growing and profitable community-oriented financial institution. Below are certain highlights of our business strategy:

Growing Our Loan Portfolio. We intend to grow our loan portfolio by increasing our originations of residential and commercial mortgage loans through referrals from our branch network and existing customers, increased use of media advertising, and recruiting highly qualified, experienced loan originators. We may consider the purchase of additional participation interests in loans that meet our underwriting standards. In addition to facilitating loan growth, such purchases may lessen the geographic concentration of our loans.

Expanding our Market Area. We intend to pursue opportunities to expand our market area by opening additional banking offices, including loan production offices. In January of 2012, the Bank purchased a former branch office of a regional commercial bank in St. Tammany Parish. The acquisition price did not include customer deposits or loans. The Bank opened this facility in the second quarter of 2012.

Maintaining Asset Quality. We remain committed to our prudent and conservative underwriting practices, and we intend to vigorously review our portfolio for potential problem assets in order to mitigate potential losses. Our ratio of non-performing assets to total assets was 0.60% at December 31, 2013 and 0.67% at December 31, 2012.

Continuing to Provide Exceptional Customer Service. As a community oriented savings bank, we take pride in providing exceptional customer service as a means to attract and retain customers. We deliver personalized service to our customers that distinguishes us from the large regional banks operating in our market area. Our management team has strong ties to, and deep roots in, the community. We believe that we know our customers’ banking needs and can respond quickly to address them.

The information contained in this section should be read in conjunction with our financial statements and the accompanying notes to the financial statements and other sections contained in this report.

Critical Accounting Policies

In reviewing and understanding financial information for Louisiana Bancorp, you are encouraged to read and understand the significant accounting policies used in preparing our financial statements. These policies are described in Note 1 of the notes to our financial statements, which are included in Item 8 of this Annual Report on Form 10-K. The accounting and financial reporting policies of Louisiana Bancorp conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. Accordingly, the financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable, based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. The following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods.

Allowance for Loan Losses. The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. Subsequent recoveries are added to the allowance. The allowance is an amount that represents the amount of probable and reasonably estimable known and inherent losses in the loan portfolio, based on evaluations of the collectibility of loans. The evaluations take into consideration such factors as changes in the types and amount of loans in the loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, estimated losses relating to specifically identified loans, and current economic conditions. This evaluation is inherently subjective as it requires material estimates including, among others, exposure at default, the amount and timing of expected future cash flows on impacted loans, value of collateral, estimated losses on our commercial and residential loan portfolios and general amounts for historical loss experience. All of these estimates may be susceptible to significant change.

While management uses the best information available to make loan loss allowance evaluations, adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance. Historically, our estimates of the allowance for loan loss have not required significant adjustments from management’s initial estimates. In addition, the OCC, as an integral part of its examination processes, periodically reviews our allowance for loan losses. The OCC may require the recognition of adjustments to the allowance for loan losses based on their judgment of information available to them at the time of their examinations. To the extent that actual outcomes differ from management’s estimates, additional provisions to the allowance for loan losses may be required that would adversely impact earnings in future periods.

Income Taxes. We make estimates and judgments to calculate some of our tax liabilities and determine the recoverability of some of our deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenues and expenses. We also estimate a reserve for deferred tax assets if, based on the available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. These estimates and judgments are inherently subjective. Historically, our estimates and judgments to calculate our deferred tax accounts have not required significant revision to our initial estimates.

In evaluating our ability to recover deferred tax assets, we consider all available positive and negative evidence, including our past operating results, recent cumulative losses and our forecast of future taxable income. In determining future taxable income, we make assumptions for the amount of taxable income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require us to make judgments about our future taxable income and are consistent with the plans and estimates we use to manage our business. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. An increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on our future earnings.

How We Manage Market Risk

Market risk is the risk of loss from adverse changes in market prices and rates. Our market risk arises primarily from the interest rate risk which is inherent in our lending and deposit taking activities. To that end, management actively monitors and manages interest rate risk exposure. In addition to market risk, our primary risk is credit risk on our loan portfolio. We attempt to manage credit risk through our loan underwriting and oversight policies.

The principal objective of our interest rate risk management function is to evaluate the interest rate risk embedded in certain balance sheet accounts, determine the level of risk appropriate given our business strategy, operating environment, capital and liquidity requirements and performance objectives, and manage the risk consistent with approved guidelines. We seek to manage our exposure to risks from changes in interest rates while at the same time trying to improve our net interest spread. We monitor interest rate risk as such risk relates to our operating strategies. We have established an Asset Liability Committee (“ALCO”)/Investment Committee, which is comprised of our President and Chief Executive Officer, Chief Financial Officer, Controller and two outside directors, and which is responsible for reviewing our asset/liability and investment policies and interest rate risk position. The ALCO/Investment Committee meets on a regular basis. The extent of the movement of interest rates is an uncertainty that could have a negative impact on future earnings.

In recent years, we primarily have utilized the following strategies in our efforts to manage interest rate risk:

we have increased our originations of shorter term loans particularly multi-family residential and commercial real estate loans;

we have attempted to match fund a portion of our loan portfolio with borrowings having similar expected lives;

we generally sell long-term (30-year) fixed-rate mortgage loans which had been classified as held-for-sale;

we have attempted, where possible, to extend the maturities of our deposits and borrowings; and

we have invested in securities with relatively short anticipated lives, generally three to five years, and we hold significant amounts of liquid assets.

Gap Analysis. The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring a bank’s interest rate sensitivity “gap.” An asset and liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest income while a positive gap would tend to result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gap would tend to result in an increase in net interest income while a positive gap would tend to adversely affect net interest income. Our one-year cumulative gap was a negative 2.87% at December 31, 2013.

The following table sets forth the amounts of the Bank’s interest-earning assets and interest-bearing liabilities outstanding at December 31, 2013, which we expect, based upon certain assumptions, to reprice or mature in each of the future time periods shown (the “GAP Table”). Except as stated below, the amount of assets and liabilities shown which reprice or mature during a particular period were determined in accordance with the earlier of term to repricing or the contractual maturity of the asset or liability. The table sets forth an approximation of the projected repricing of assets and liabilities of the Bank at December 31, 2013, on the basis of contractual maturities, anticipated prepayments, and scheduled rate adjustments within a three-month period and subsequent selected time intervals. The loan amounts in the table reflect principal balances expected to be redeployed and/or repriced as a result of contractual amortization and anticipated prepayments of adjustable-rate loans and fixed-rate loans, and as a result of contractual rate adjustments on adjustable-rate loans.

	3 Months or Less			More than 3 Months to 6 Months			More than 6 Months to 1 Year			More than 1 Year to 3 Years			More than 3 Years to 5 Years			More than 5 Years			Total Amount
	(Dollars in Thousands)
Interest-earning assets(1):
Loans receivable(2)	$	35,686		$	11,509		$	22,467		$	82,636		$	60,097		$	37,220		$	249,615
Investment securities		(6	)		1,999			-			-			-			30			2,023
Mortgage-backed securities		3,536			4,066			8,047			15,114			8,843			10,835			50,441
Other interest-earning assets		6,781			200			100			99			-			-			7,180
Total interest-earning assets		45,997			17,774			30,614			97,849			68,940			48,085			309,259
Interest-bearing liabilities:
Passbook accounts	$	-		$	-		$	32		$	-		$	-		$	25,152		$	25,184
Checking accounts		-			-			-			-			-			24,548			24,548
Money market accounts		11,948			-			-			-			-			-			11,948
Certificate accounts		44,603			18,750			27,456			23,437			11,457			-			125,703
Borrowings		152			198			308			13,851			11,402			29,336			55,247
Total interest-bearing Liabilities		56,703			18,948			27,796			37,288			22,859			79,036			242,630

Interest-earning assets less interest-bearing liabilities	$	(10,706	)	$	(1,174	)	$	2,818		$	60,561		$	46,081		$	(30,951	)	$	66,629

Cumulative interest-rate sensitivity gap(3)	$	(10,706	)	$	(11,880	)	$	( 9,062	)	$	51,499		$	97,580		$	66,629

Cumulative interest-rate gap as a percentage of total assets at December 31, 2013		(3.39	%)		(3.76	%)		(2.87	%)		16.30	%		30.89	%		21.09	%

Cumulative interest-earning assets as a percentage of cumulative interest-bearing liabilities at December 31, 2013		81.12	%		84.30	%		91.24	%		136.59	%		159.65	%		127.46	%

_____________

(1)	Interest-earning assets are included in the period in which the balances are expected to be redeployed and/or repriced as a result of anticipated prepayments, scheduled rate adjustments and contractual maturities.

(2)	For purposes of the gap analysis, loans receivable includes non-performing loans gross of the allowance for loan losses, undisbursed loan funds, unamortized discounts and deferred loan fees.

(3)	Interest-rate sensitivity gap represents the difference between net interest-earning assets and interest-bearing liabilities.

Certain shortcomings are inherent in the method of analysis presented in the foregoing table. 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 loans, have features which restrict changes in interest rates both on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the table. Finally, the ability of many borrowers to service their adjustable-rate loans may decrease in the event of an interest rate increase.

Economic Value of Equity and Net Interest Income Analysis. Our interest rate sensitivity also is monitored by management through the use of models which generate estimates of the change in the economic value of its net portfolio equity (“EVE”) and net interest income (“NII”) over a range of interest rate scenarios. EVE is the present value of expected cash flows from assets, liabilities, and off-balance sheet contracts. The EVE ratio, under any interest rate scenario, is defined as the EVE in that scenario divided by the market value of assets in the same scenario. We prepare these models in collaboration with a third party Asset/Liability Management consultant, and present them to the Board of Directors on a quarterly basis. The following table sets forth the EVE as of December 31, 2013, which reflects the changes to NPV as a result of immediate and sustained changes in interest rates as indicated.

	Economic Value of Equity								NPV as % of Portfolio Value of Assets
Change in Interest Rates In Basis Points (Rate Shock)	Amount		$ Change			% Change			NPV Ratio			Change
	(Dollars in Thousands)
300bp	$	51,210	$	(5,848	)		(10.3	)%		17.28	%		(0.43	)%
200		53,375		(3,683	)		(6.5	)		17.52			(0.19	)
100		55,584		(1,474	)		(2.6	)		17.73			0.02
Static		57,058		-			-			17.71			-
(100)		55,859		(1,199	)		(2.1	)		17.02			(0.69	)

In addition to modeling changes in NPV, we also analyze potential changes to NII for a twelve-month period under rising and falling interest rate scenarios. The following table shows the results of our NII model as of December 31, 2013.

Change in Interest Rates in Basis Points (Rate Shock)	Net Interest Income		$ Change			% Change
	(Dollars in Thousands)
200bp	$	9,560	$	(123	)		(1.26	)%
Static		9,683		-			-
(100)		9,593		(90	)		(0.92	)

The above table indicates that as of December 31, 2013, in the event of an immediate and sustained 200 basis point increases in interest rates, our net interest income for the 12 months ending December 31, 2014 would be expected to decrease by $123,000, or 1.26%, to $9.6 million.

As is the case with the GAP Table, certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in NPV and NII require the making of certain assumptions which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the models presented assume that the composition of our interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. Accordingly, although the NPV measurements and net interest income models provide an indication of interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on net interest income and will differ from actual results.

Average Balances, Net Interest Income, and Yields Earned and Rates Paid. The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. Tax-exempt income and yields have not been adjusted to a tax-equivalent basis. All average balances are based on monthly balances. Management does not believe that the monthly averages differ significantly from what the daily averages would be.

	Year Ended December 31,
	2013							2012							2011
	Average Balance		Interest		Average Yield/ Rate(1)			Average Balance		Interest		Average Yield/ Rate			Average Balance		Interest		Average Yield/ Rate
	(Dollars in Thousands)
Interest-earning assets:
Loans receivable(1)	$	233,400	$	11,015		4.72	%	$	210,227	$	11,158		5.31	%	$	187,709	$	10,972		5.85	%
Mortgage-backed securities		60,384		1,854		3.07			84,543		2,816		3.33			68,465		3,203		4.68
Investment securities		5,114		137		2.68			6,845		151		2.21			43,735		694		1.59
Other interest-earning assets		8,248		20		0.24			8,426		21		0.25			11,534		33		0.29
Total interest-earning assets		307,146		13,026		4.24	%		310,041		14,146		4.56	%		311,443		14,902		4.78	%
Non-interest-earning assets		8,576							7,832							7,662
Total assets	$	315,722						$	317,873						$	319,105
Interest-bearing liabilities:
Passbook, checking and money market accounts		58,073		125		0.22			51,285		120		0.23			46,634		140		0.30
Certificate accounts		126,199		1,541		1.22			131,734		1,951		1.48			135,030		2,506		1.86
Total deposits		184,272		1,666		0.90			183,019		2,071		1.13			181,664		2,646		1.46
Borrowings		55,824		1,238		2.22			61,745		2,125		3.44			64,230		2,492		3.88
Total interest-bearing liabilities		240,096		2,904		1.21	%		244,764		4,196		1.71	%		245,894		5,138		2.09	%
Non-interest-bearing liabilities		19,339							16,362							14,228
Total liabilities		259,435							261,126							260,122
Stockholders’ Equity		56,287							56,747							58,983
Total liabilities and Stockholders’ Equity	$	315,722						$	317,873						$	319,105
Net interest-earning assets	$	67,050						$	65,277						$	65,549
Net interest income; average interest rate spread			$	10,122		3.03	%			$	9,950		2.85	%			$	9,764		2.69	%
Net interest margin(2)						3.30	%						3.21	%						3.14	%
Average interest-earning assets to average interest-bearing liabilities						127,93	%						126.67	%						126.66	%

___________

(1)	Includes nonaccrual loans during the respective periods. Calculated net of deferred fees and discounts and allowance for loan losses.

(2)	Equals net interest income divided by average interest-earning assets.

Rate/Volume Analysis. The following table shows the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities affected our interest income and expense during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate, which is the change in rate multiplied by prior year volume, and (2) changes in volume, which is the change in volume multiplied by prior year rate. The combined effect of changes in both rate and volume has been allocated proportionately to the change due to rate and the change due to volume.

	2013 vs. 2012									2012 vs. 2011
	Increase (Decrease) Due to									Increase (Decrease) Due to
	Rate			Volume			Total Increase (Decrease)			Rate			Volume			Total Increase (Decrease)
	(In Thousands)									(In Thousands)
Interest income:
Loans receivable	$	(1,373	)	$	1,230		$	(143	)	$	(1,130	)	$	1,316		$	186
Mortgage-backed securities		(157	)		(805	)		(962	)		(1,139	)		752			(387	)
Investment securities		24			(38	)		(14	)		42			(585	)		(543	)
Other interest-earning assets		(1	)		--			(1	)		(3	)		(9	)		(12	)
Total interest income		(1,507	)		387			(1,120	)		(2,230	)		1,474			(756	)
Interest expense:
Passbook, NOW and money market accounts		(11	)		16			5			(34	)		14			(20	)
Certificate accounts		(328	)		(82	)		(410	)		(494	)		(61	)		(555	)
Total deposits		(339	)		(66	)		(405	)		(528	)		(47	)		(575	)
Borrowings		(683	)		(204	)		(887	)		(271	)		(96	)		(367	)
Total interest expense		(1,022	)		(270	)		(1,292	)		(799	)		(143	)		(942	)
Decrease in net interest income	$	(485	)	$	657		$	172		$	(1,431	)	$	1,617		$	186

Comparison of Financial Condition at December 31, 2013 and December 31, 2012

Total assets were $316.7 million at December 31, 2013, an increase of $4.8 million compared to December 31, 2012. During the twelve months ended December 31, 2013, cash and cash equivalents decreased by $3.7 million to $7.0 million. Total securities available-for-sale were $5.8 million at December 31, 2013, a decrease of $6.4 million compared to December 31, 2012. Total securities held-to-maturity decreased by $20.1 million during 2013, to $47.3 million, at December 31, 2013. The decreases in securities available-for-sale and securities held-to-maturity were due to the contractual and early repayments of principal on mortgage-backed securities and CMOs. Net loans receivable were $247.5 million at December 31, 2013, an increase of $34.3 million, or 16.1%, compared to December 31, 2012. During 2013, our first mortgage loans secured by single family residential loans increased by $31.5 million, our funded home equity loans and lines increased by $2.0 million, and our loans secured by multifamily residential collateral increased by $4.1 million. Our first mortgage loans secured by non-residential commercial real estate decreased by $3.6 million, to $59.2 million, during the year ended December 31, 2013.

Total non-performing loans were $1.3 million at December 31, 2013, a decrease of $124,000 compared to December 31, 2012. Non-performing loans represented 0.53% and 0.68%, respectively, of our total loan portfolio at December 31, 2013 and 2012. At year- end 2013, our non-performing loans were comprised of $20,000 in single-family residential mortgage loans, $32,000 in home equity loans and lines of credit, and $1.3 million in commercial real estate loans. Other real estate owned was $568,000 at December 31, 2013, a decrease of $64,000 compared to December 31, 2012. Total non-performing assets were $1.9 million at December 31, 2013, or 0.60% of total assets.

Total deposits were $202.5 million at December 31, 2013 compared to $196.2 million at December 31, 2012. At December 31, 2013, non-interest bearing deposits were $15.1 million, and interest-bearing deposits were $187.4 million. Total Federal Home Loan Bank advances and other borrowings were $51.0 million and $53.5 million, respectively, at December 31, 2013, and December 31, 2012.

Total shareholders’ equity was $57.9 million at December 31, 2013, an increase of $1.2 million from December 31, 2012. During 2013, the Company acquired 149,804 shares of its common stock at a total cost of $2.6 million pursuant to its repurchase plans. Additionally, the Company reissued 19,035 shares of treasury stock upon the exercise of stock options by several directors, which exercises resulted in an aggregate net increase of $219,000 to shareholders’ equity. The net effect on our treasury stock of the stock repurchases and the exercise of stock options was an increase of $2.3 million. The increase in our treasury stock account was partially offset by net income of $2.7 million, and the release of 46,034 shares held by the Company’s Recognition and Retention Plan Trust which became vested and were released to plan participants during 2013. The release of these shares from the Recognition and Retention Plan Trust increased shareholders’ equity by $544,000. On December 31, 2013, the Company released 25,383 shares of stock to participants in the ESOP, which resulted in an increase in shareholders’ equity of $441,000. The Bank’s Tier 1 leverage ratio, Tier 1 risk-based capital ratio, and total risk-based capital were 14.80%, 25.37%, and 26.58%, respectively, at December 31, 2013.

Comparison of Operating Results for the Years Ended December 31, 2013 and December 31, 2012

Net interest income was $10.1 million during 2013 compared to net interest income of $10.0 million during 2012. Interest income decreased by $1.1 million, to $13.0 million, during 2013 compared to 2012. During 2013, our average interest-earning assets decreased by $2.9 million, to $307.1 million, and the average yield earned on our interest-earning assets decreased by 32 basis points, to 4.24%. Interest income on loans receivable was $11.0 million, with an average yield of 4.72%, for the year ended December 31, 2013 compared to $11.2 million, with an average yield of 5.31%, for the year ended December 31, 2012. The average balance of our mortgage-backed securities and CMOs was $60.4 million during 2013, resulting in interest income of $1.9 million compared to an average balance of $84.5 million during 2012, which generated interest income of $2.8 million. The average yield on our mortgage-backed securities and CMOs was 3.07% and 3.33%, respectively, for the years ended December 31, 2013 and 2012. Interest income on investment securities was $137,000 and interest income on other interest-earning assets was $20,000 during 2013.

During 2013, total interest expense was $2.9 million, a decrease of $1.3 million compared to the year ended December 31, 2012. Average interest bearing liabilities were $240.1 million for 2013 with an average cost of 1.21% compared to average interest-bearing liabilities of $244.8 million with an average cost of 1.71% during 2012.

For the year ended December 31, 2013, our provision for loan losses was $264,000 compared to $246,000 during the year ended December 31, 2012. At December 31, 2013, total non-performing loans were $1.3 million, or 0.53% of total loans, and total non-performing assets were $1.9 million, or 0.60% of total assets. Stated as a percentage of non-performing loans, our allowance for loan losses at December 31, 2013 was 167.24%.

Total non-interest income was $2.2 million during the year ended December 31, 2013; an increase of $12,000 compared to the year ended December 31, 2012. During 2013, the Company recorded an $83,000 increase in customer service fees and a $339,000 decrease in gains on the sale of loans. In addition, during 2013, the Company recognized gains on its SBIC investment of $298,000, an increase of $261,000 compared to 2012.

Non-interest expense for the year ended December 31, 2013 was $7.9 million, a decrease of $127,000 compared to the year ended December 31, 2012. Salaries and employee benefits expense was $4.6 million during 2013, a decrease of $455,000 compared to 2012. A decrease of $552,000 in our equity compensation plan expenses was partially offset by increases in salaries, health insurance premiums and payroll taxes associated with increased staffing levels. Occupancy expense was $1.4 million and $1.3 million, respectively, for the years ended December 31, 2013 and 2012. This increase was primarily due to the opening of the new branch office during the second quarter of 2012 and increased data processing costs. Our Louisiana bank shares tax was $190,000 and our FDIC insurance premium expense was $152,000 for the year ended December 31, 2013. The net cost of REO operations during 2013 was $98,000, a decrease of $5,000 compared to 2012. Advertising expenses increased by $110,000, to $366,000, during 2013 compared to 2012 due primarily to our new checking account campaigns. Legal expenses were $205,000 and other non-interest expenses were $841,000 during the year ended December 31, 2013.

For the year ended December 31, 2013, income tax expense was $1.4 million based on pre-tax income of $4.1 million compared to income tax expense of $1.3 million on pre-tax income of $3.8 million during the year ended December 31, 2012.

Comparison of Operating Results for the Years Ended December 31, 2012 and December 31, 2011

During the twelve months ended December 31, 2012, net interest income was $10.0 million, an increase of $186,000 compared to the twelve months ended December 31, 2011. Interest income was $14.1 million and $14.9 million, respectively, for the annual periods ended December 31, 2012 and December 31, 2011. This decrease in interest income was due to a $1.4 million decrease in the average balance of our interest-earning assets, and a 22 basis point decrease in the average yield earned on interest-earning assets. Interest income on our loans receivable was $11.2 million for the year ended December 31, 2012 compared to $11.0 million for the year ended December 31, 2011. The average balance of our loans receivable increased by $22.5 million during the twelve months ended December 31, 2012 compared to the twelve months ended December 31, 2011. The benefit derived by this increase in the average balance of our loans was largely offset by a 54 basis point decrease in the average yield earned on our loans receivable. During 2012, the average balance of our mortgage-backed securities and CMOs increased by $16.1 million compared to 2011, while the average yield of our mortgage-backed securities and CMOs decreased by 135 basis points, resulting in a decrease in interest income of $387,000. The Company earned $151,000 on an average investment securities portfolio of $6.8 million during 2012 compared to $694,000 on an average investment securities portfolio $43.7 million during 2011.

Total interest expense for the year ended December 31, 2012 was $4.2 million, a decrease of $942,000 compared to the year ended December 31, 2011. Average interest-bearing liabilities were $244.8 million during 2012, compared to $245.9 million during 2011. The average cost of our interest-bearing liabilities was 1.71% for the twelve months ended December 31, 2012, compared to 2.09% for the twelve months ended December 31, 2011. The net interest rate spread between our interest-earning assets and interest-bearing liabilities was 2.85% for 2012, an increase of 16 basis points compared to 2011. Our net interest margin increased by seven basis points to 3.21% for the year ended December 31, 2012 compared to 3.14% for the year ended December 31, 2011.

For the years ended December 31, 2012 and December 31, 2011, our provisions for loan losses were $246,000 and $53,000, respectively. At December 31, 2012, total non-performing loans were $1.5 million, or 0.68% of total loans, and total non-performing assets were $2.1 million, or 0.67% of total assets. Stated as a percentage of total loans receivable, our allowance for loan losses was 0.89% and 0.91%, respectively, at December 31, 2012 and 2011.

For the years ended December 31, 2012 and 2011, total non-interest income was $2.1 million and $1.1 million, respectively. During 2012, customer service fees increased by $253,000, and gains on the sale of loans increased by $845,000 compared to the 2011 period. There were no securities sold during the year ended December 31, 2012, compared to the sale of $1.1 million in mortgage-backed securities which resulted in gains of $72,000 during the year ended December 31, 2011. Other non-interest income was $123,000 during 2012 and $88,000 during 2011.

Total non-interest expense for the year ended December 31, 2012 and 2011 was $8.0 million and $7.5 million, respectively. Salaries and employee benefits expense was $5.1 million and $4.6 million, respectively, for the twelve month periods ended December 31, 2012 and 2011. Occupancy expenses were $1.3 million and $1.1 million, and our Louisiana bank shares tax was $218,000 and $230,000 for the respective annual periods ended December 31, 2012 and 2011. Staffing and operating costs increased primarily as a result of the opening of the new full-service branch in the second quarter of 2012. The Bank’s FDIC deposit insurance premiums were $152,000 for 2012, a decrease of $14,000 compared to 2011. The net cost of OREO operations during 2012 was $103,000, a $210,000 reduction compared to 2011. Total OREO charge-offs were $80,000 in 2012 compared to $279,000 in 2011. Advertising expenses increased by $98,000 during 2012 compared to 2011 due primarily to our marketing campaigns associated with our new branch opening and promotional efforts related to the development of our checking account products. Other non-interest expenses were $914,000 for 2012, a decrease of $10,000 compared to the 2011.

For the year ended December 31, 2012, the Company recorded income tax expense of $1.3 million, an increase of $186,000 from the year ended December 31, 2011. This increase in income tax expense was primarily due to an increase in pre-tax income of $576,000 between the respective annual periods.

Liquidity and Capital Resources

Our primary sources of funds are from deposits, amortization of loans, loan prepayments and the maturity of loans, mortgage-backed securities and other investments, and other funds provided from operations. While scheduled payments from the amortization of loans and mortgage-backed securities and maturing investment securities are relatively predictable sources of funds, deposit flows and loan prepayments can be greatly influenced by general interest rates, economic conditions and competition. We also maintain excess funds in short-term, interest-bearing assets that provide additional liquidity. At December 31, 2013, our cash and cash equivalents amounted to $7.0 million. In addition, at such date our available for sale investment and mortgage-backed securities amounted to an aggregate of $5.8 million.

We use our liquidity to fund existing and future loan commitments, to fund maturing certificates of deposit and demand deposit withdrawals, to invest in other interest-earning assets, and to meet operating expenses. At December 31, 2013, we had certificates of deposit maturing within the next 12 months amounting to $90.6 million. Based upon historical experience, we anticipate that a significant portion of the maturing certificates of deposit will be redeposited with us. For the year ended December 31, 2013, the average balance of our outstanding FHLB advances and other borrowings was $55.8 million. At December 31, 2013, we had $51.0 million in outstanding FHLB advances and we had $104.0 million in additional FHLB advances available to us.

In addition to cash flow from loan and securities payments and prepayments as well as from sales of available for sale securities, we have significant borrowing capacity available to fund liquidity needs. In recent years we have utilized borrowings as a cost efficient addition to deposits as a source of funds. Our borrowings consist primarily of advances from the Federal Home Loan Bank of Dallas, of which we are a member. Under terms of the collateral agreement with the Federal Home Loan Bank, we pledge residential mortgage loans and mortgage-backed securities as well as our stock in the Federal Home Loan Bank as collateral for such advances. We also access funds through reverse repurchase agreements with commercial banks. These borrowings are typically used to fund purchases of mortgage-backed securities at terms more favorable than those available through the Federal Home Loan Bank. At December 31, 2013, we had no such borrowings. At December 31, 2012, our borrowings from reverse repurchase agreements amounted to $16.0 million. Furthermore, we have the ability to borrow from the Federal Reserve Bank discount window on an overnight or other short-term basis. Borrowings from the Federal Reserve discount window are typically collateralized U.S. government or agency issued investment or mortgage-backed securities.

Commitments

The following table summarizes our outstanding commitments to originate loans and to advance additional amounts pursuant to outstanding letters of credit, lines of credit and undisbursed construction loans at December 31, 2013.

			Amount of Commitment Expiration - Per Period
	Total Amounts Committed		To One Year		More Than One Year to Three Years		More than Three Years to Five Years		More Than Five Years
	(In Thousands)
Letters of credit	$	350	$	350	$	-	$	-	$	-
Lines of credit		20,970		548		2,183		2,816		15,423
Undisbursed portion of loans in process		-		-		-		-		-
Commitments to originate loans		12,010		8,796		3,214		-		-
Total commitments	$	33,330	$	9,694	$	5,397	$	2,816	$	15,423

Contractual Cash Obligations

The following table summarizes our contractual cash obligations at December 31, 2013.

			Payments Due By Period
	Total		To One Year		More Than One Year to Three Years		More than Three Years to Five Years		More Than Five Years
	(In Thousands)
Certificates of deposit	$	125,704	$	90,626	$	23,620	$	11,458	$	-
FHLB advances and other borrowings		51,040		49		13,410		10,988		26,593
Total long-term debt		176,744		90,675		37,030		22,446		26,593
Operating lease obligations		104		44		60		-		-
Total contractual obligations	$	176,848	$	90,719	$	37,090	$	22,446	$	26,593

We anticipate that we will continue to have sufficient funds and alternative funding sources to meet our current commitments.

Impact of Inflation and Changing Prices

The financial statements, accompanying notes, and related financial data of Louisiana Bancorp presented herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of operations. Most of our assets and liabilities are monetary in nature; therefore, the impact of interest rates has a greater impact on its performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Recent Accounting Pronouncements

In July 2013, the FASB issued Accounting Standards Update (ASU) 2013-10, Inclusion of the Fed Funds Effective Swap Rate as a Benchmark Interest Rate for Hedge Accounting Purposes, in order to permit the Fed Funds Effective Swap Rate to be used as a U.S. benchmark interest rate for hedge accounting purposes under ASC Topic 815, in addition to the U.S. Treasury rates and the London Interbank Offered Rate (LIBOR). ASU 2013-10 also removes the restriction on using different benchmark rates for similar hedges. The amendments were effective for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. The adoption of this guidance had no impact on the Company’s financial statements.

In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryfowrard Exists. This guidance requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. If a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date, the unrecognized tax benefit should be presented in the financial statements as a liability and not combined with deferred tax assets. This guidance is effective for public entities for fiscal years beginning after December 15, 2013. For nonpublic entities, the amendments are effective for fiscal years beginning after December 15, 2014. The adoption of this guidance is not expected to have a material effect on the Company’s financial statements.

In January 2014, the FASB issued ASU 2014-01, Investments-Equity Method and Joint Ventures – Accounting for Investments in Qualified Affordable Housing Projects. This guidance permits reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). For those investments in qualified affordable housing projects not accounted for using the proportional amortization method, the investment should be accounted for as an equity method investment or a cost method investment. This guidance is effective for annual periods beginning after December 15, 2014. The adoption of this guidance is not expected to have a material effect on the Company’s financial statements.

In January 2014, the FASB issued ASU 2014-04, Reclassification of Residential Real Estate - Collateralized Consumer Mortgage Loans upon Foreclosure. The guidance within ASU 2014-04 clarifies that an in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (a) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure, or (b) the borrower conveying all interest in the residential real estate property to the creditor to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (a) the amount of foreclosed residential real estate property held by the creditor and (b) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. ASU 2014-04 is effective for public business entities for annual periods beginning after December 15, 2014. For entities other than public business entities, the amendments of ASU 2014-04 are effective for annual periods beginning after December 15, 2014. The adoption of this of this guidance is not expected to have a material effect on the Company’s financial statements.

In September 2013, the Internal Revenue Service released the final tangible property regulations for Sections 162(a) and 263(a) of the Internal Revenue Code, regarding the deduction and capitalization of amounts paid to acquire, produce, or improve tangible property. The final regulations replace temporary regulations that were issued in December 2011 and are effective for tax years beginning January 1, 2014. The application of the final regulations is not expected to have a material impact on the Company’s financial statements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

The information contained in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations – How We Manage Market Risk” in Item 7 hereof is incorporated herein by reference.

Item 8. Financial Statements and Supplementary Data

Contents


Report of Independent Registered Public Accounting Firm	59


Basic Financial Statements


Consolidated Balance Sheets	60

Consolidated Statements of Income	61

Consolidated Statements of Comprehensive Income	62

Consolidated Statements of Changes in Shareholders’ Equity	63

Consolidated Statements of Cash Flows	64 - 65

Notes to Consolidated Financial Statements	66 - 105

Report of Independent Registered Public Accounting Firm

To the Board of Directors

Louisiana Bancorp, Inc.

Metairie, Louisiana

We have audited the accompanying consolidated balance sheets of Louisiana Bancorp, Inc. (the Company) and its wholly owned subsidiary, Bank of New Orleans (the Bank), as of December 31, 2013 and 2012, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2013. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Louisiana Bancorp, Inc. as of December 31, 2013 and 2012, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.

A Professional Accounting Corporation

Metairie, Louisiana

March 5, 2014

LOUISIANA BANCORP, INC.

Consolidated Balance Sheets

December 31, 2013 and 2012

	2013			2012
	(In Thousands)
Assets
Cash and Cash Equivalents
Cash and Due from Banks	$	2,500		$	2,123
Short-Term Interest-Bearing Deposits		4,464			8,523
Total Cash and Cash Equivalents		6,964			10,646

Certificates of Deposit		481			481
Securities Available-for-Sale, at Fair Value (Amortized Cost of $5,404 in 2013 and $11,486 in 2012)		5,766			12,139
Securities Held-to-Maturity, at Amortized Cost (Estimated Fair Value of $48,383 in 2013 and $70,315 in 2012)		47,346			67,454
Loans, Net of Allowance for Loan Losses of $2,221 in 2013 and $1,917 in 2012		247,073			211,322
Loans Held-for-Sale		406			1,837
Total Loans Receivable, Net		247,479			213,159

Accrued Interest Receivable		893			970
Other Real Estate Owned		568			632
Stock in Federal Home Loan Bank		2,317			1,832
Premises and Equipment, Net		2,143			2,252
Other Assets		2,751			2,297
Total Assets	$	316,708		$	311,862

Liabilities and Shareholders' Equity
Deposits
Non-Interest-Bearing	$	15,125		$	14,322
Interest-Bearing		187,383			181,884
Total Deposits		202,508			196,206

Borrowings		51,040			53,454
Advance Payments by Borrowers for Taxes and Insurance		3,765			3,055
Accrued Interest Payable		130			181
Other Liabilities		1,326			2,260
Total Liabilities		258,769			255,156

Commitments and Contigencies		-			-

Shareholders' Equity
Common Stock, $.01 Par Value, 40,000,000 Shares Authorized; 6,345,732 Shares Issued; 2,886,642 and 3,017,411 Shares Outstanding in 2013 and 2012, Respectively		63			63
Additional Paid-in-Capital		63,533			63,363
Unearned ESOP Shares		(3,427	)		(3,681	)
Unearned Recognition and Retention Plan Shares		(368	)		(949	)
Treasury Stock, at Cost (3,459,090 and 3,328,321 Shares in 2013 and 2012, Respectively)		(49,651	)		(47,364	)
Retained Earnings		47,550			44,842
Accumulated Other Comprehensive Income		239			432
Total Shareholders' Equity		57,939			56,706

Total Liabilities and Shareholders' Equity	$	316,708		$	311,862

The accompanying notes are an integral part of these consolidated financial statements.

LOUISIANA BANCORP, INC.

Consolidated Statements of Income

For the Years Ended December 31, 2013, 2012 and 2011

	2013		2012		2011
	(In Thousands, Except per Share Data)
Interest and Dividend Income
Loans, Including Fees	$	11,015	$	11,158	$	10,972
Mortgage-Backed Securities		1,854		2,816		3,203
Investment Securities		137		151		694
Other Interest-Bearing Deposits		20		21		33
Total Interest and Dividend Income		13,026		14,146		14,902

Interest Expense
Deposits		1,666		2,071		2,646
Borrowings		1,238		2,125		2,492
Total Interest Expense		2,904		4,196		5,138

Net Interest Income		10,122		9,950		9,764

Provision for Loan Losses		264		246		53

Net Interest Income after Provision for Loan Losses		9,858		9,704		9,711

Non-Interest Income
Customer Service Fees		832		749		496
Gain on Sale of Loans		937		1,276		431
Gain on Sale of Securities		-		-		72
Gain on Investment in Small Business Investment Company		298		37		5
Other Income		93		86		83
Total Non-Interest Income		2,160		2,148		1,087

Non-Interest Expense
Salaries and Employee Benefits		4,642		5,097		4,637
Occupancy Expense		1,382		1,263		1,097
Louisiana Bank Shares Tax		190		218		230
FDIC Insurance Premium		152		152		166
Net Cost of OREO Operations		98		103		313
Advertising Expense		366		256		158
Legal Expense		205		125		128
Other Expenses		841		789		796
Total Non-Interest Expense		7,876		8,003		7,525

Income Before Income Tax Expense		4,142		3,849		3,273

Income Tax Expense		1,434		1,342		1,156

Net Income	$	2,708	$	2,507	$	2,117

Earnings Per Share
Basic	$	1.09	$	0.95	$	0.73
Diluted	$	1.03	$	0.90	$	0.70

The accompanying notes are an integral part of these consolidated financial statements.

LOUISIANA BANCORP, INC.

Consolidated Statements of Comprehensive Income

For the Years Ended December 31, 2013, 2012 and 2011

	2013			2012			2011
	(In Thousands)

Net Income	$	2,708		$	2,507		$	2,117

Other Comprehensive Loss, Net of Tax
Unrealized Holding (Losses) Arising During the Period		(193	)		(208	)		(12	)

Reclassification Adjustment for Gains Included in Net Income		-			-			(48	)

Total Other Comprehensive Loss		(193	)		(208	)		(60	)

Comprehensive Income	$	2,515		$	2,299		$	2,057

The accompanying notes are an integral part of these consolidated financial statements.

LOUISIANA BANCORP, INC.

Consolidated Statements of Changes in Shareholders’ Equity

For the Years Ended December 31, 2013, 2012 and 2011

	Common Stock		Additional Paid-in Capital			Unearned ESOP Stock			Unearned RRP Stock			Treasury Stock			Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total Shareholders' Equity
	(In Thousands)
Balances at December 31, 2010	$	63	$	62,880		$	(4,188	)	$	(2,074	)	$	(37,321	)	$	40,218	$	700		$	60,278
Net Income - Year Ended December 31, 2011		-		-			-			-			-			2,117		-			2,117
Other Comprehensive Loss, Net of Applicable Deferred Income Taxes		-		-			-			-			-			-		(60	)		(60	)
Stock Purchased for Treasury		-		-			-			-			(5,965	)		-		-			(5,965	)
ESOP Shares Released for Allocation (25,383 Shares)		-		138			254			-			-			-		-			392
RRP Shares Earned		-		(44	)		-			558			-			-		-			514
Stock Option Expense		-		244			-			-			-			-		-			244

Balances at December 31, 2011		63		63,218			(3,934	)		(1,516	)		(43,286	)		42,335		640			57,520
Net Income - Year Ended December 31, 2012		-		-			-			-			-			2,507		-			2,507
Other Comprehensive Loss, Net of Applicable Deferred Income Taxes		-		-			-			-			-			-		(208	)		(208	)
Stock Purchased for Treasury		-		-			-			-			(5,217	)		-		-			(5,217	)
ESOP Shares Released for Allocation (25,383 Shares)		-		157			253			-			-			-		-			410
RRP Shares Earned		-		(42	)		-			567			-			-		-			525
Stock Options Exercised		-		(208	)		-			-			1,139			-		-			931
Stock Option Expense		-		238			-			-			-			-		-			238

Balances at December 31, 2012		63		63,363			(3,681	)		(949	)		(47,364	)		44,842		432			56,706
Net Income - Year Ended December 31, 2013		-		-			-			-			-			2,708		-			2,708
Other Comprehensive Loss, Net of Applicable Deferred Income Taxes		-		-			-			-			-			-		(193	)		(193	)
Stock Purchased for Treasury		-		-			-			-			(2,560	)		-		-			(2,560	)
ESOP Shares Released for Allocation (25,383 Shares)		-		187			254			-			-			-		-			441
RRP Shares Earned		-		(37	)		-			581			-			-		-			544
Stock Options Exercised		-		(54	)		-			-			273			-		-			219
Stock Option Expense		-		74			-			-			-			-		-			74

Balances at December 31, 2013	$	63	$	63,533		$	(3,427	)	$	(368	)	$	(49,651	)	$	47,550	$	239		$	57,939

The accompanying notes are an integral part of these consolidated financial statements.

LOUISIANA BANCORP, INC.

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2013, 2012 and 2011

	2013			2012			2011
	(In Thousands)
Cash Flows from Operating Activities
Net Income	$	2,708		$	2,507		$	2,117
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation		264			228			189
Provision for Loan Losses		264			246			53
Net Increase in ESOP Shares Earned		441			410			392
Net Increase in RRP Shares Earned		544			525			514
Stock Option Plan Expense		74			238			244
Net Premium Amortization (Discount Accretion)		130			190			(77	)
Deferred Income Tax Expense (Benefit)		5			(87	)		(242	)
Gain on Sale of Securities		-			-			(72	)
Gain on Sale of Loans		(937	)		(1,276	)		(431	)
Gain on Sale of Property and Equipment		(2	)		(5	)		(4	)
Gain on Other Real Estate Owned		-			(3	)		-
Originations of Loans Held-for-Sale		(38,572	)		(59,169	)		(30,715	)
Proceeds from Sales of Loans Held-for-Sale		41,433			58,204			29,344
Net Decrease (Increase) in Loans Held-for-Sale		1,431			(1,837	)		-
Decrease in Accrued Interest Receivable		77			111			115
Impairment of Other Real Estate Owned		75			80			287
Recovery of Other Real Estate Owned		11			-			-
(Increase) Decrease in Other Assets		(360	)		(59	)		140
Decrease in Accrued Interest Payable		(51	)		(116	)		(124	)
(Decrease) Increase in Other Liabilities		(934	)		783			(92	)
Net Cash Provided by Operating Activities		6,601			970			1,638

Cash Flows from Investing Activities
Investment in Certificates of Deposit		-			-			(566	)
Purchase of Securities Available-for-Sale		-			-			(25,683	)
Purchase of Securities Held-to-Maturity		-			(31,353	)		(18,279	)
Proceeds from Maturities of Certificates of Deposit		-			261			459
Proceeds from Maturities of Securities Available-for-Sale		6,105			10,317			63,238
Proceeds from Maturities of Securities Held-to-Maturity		19,954			23,267			23,278
Proceeds from Sales of Securities Available-for-Sale		-			-			1,202
Net Increase in Loans Receivable		(37,961	)		(14,025	)		(14,931	)
Purchase of Property and Equipment		(278	)		(861	)		(137	)
Proceeds from Sale of Property and Equipment		125			22			5
Proceeds from Sale of Foreclosed Assets		-			153			1,035
Net (Increase) Decrease in Investment in Federal Home Loan Bank Stock		(485	)		(289	)		459
Net Cash (Used in) Provided by Investing Activities		(12,540	)		(12,508	)		30,080

The accompanying notes are an integral part of these consolidated financial statements.

LOUISIANA BANCORP, INC.

Consolidated Statements of Cash Flows (Continued)

For the Years Ended December 31, 2013, 2012 and 2011

	2013			2012			2011
	(In Thousands)
Cash Flows from Financing Activities
Increase in Deposits		6,302			1,880			5,964
Increase in Advances by Borrowers for
Taxes and Insurance		710			660			398
Decrease in Borrowings		(2,414	)		(3,659	)		(11,136	)
Purchase of Treasury Stock		(2,560	)		(5,217	)		(5,965	)
Proceeds from Exercise of Stock Options		219			931			-

Net Cash Provided by (Used in) Financing Activities		2,257			(5,405	)		(10,739	)

Net (Decrease) Increase in Cash and Cash Equivalents		(3,682	)		(16,943	)		20,979

Cash and Cash Equivalents, Beginning of Year		10,646			27,589			6,610

Cash and Cash Equivalents, End of Year	$	6,964		$	10,646		$	27,589


Supplemental Disclosure of Cash Flow Information
Cash Paid During the Year for:
Interest	$	2,955		$	4,680		$	5,263

Income Taxes	$	2,223		$	526		$	1,315

Loans Transferred to Other Real Estate Owned	$	22		$	330		$	158

The accompanying notes are an integral part of these consolidated financial statements.

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies

Louisiana Bancorp, Inc. (the “Company”) was organized as a Louisiana corporation on March 16, 2007, for the purpose of becoming the holding company of Bank of New Orleans (the “Bank”) in anticipation of converting the Bank from a federally chartered mutual savings and loan association to a federally chartered stock savings and loan association. In July 2007, the Company completed the conversion. The Bank operates in the banking/savings and loan industry and, as such, attracts deposits from the general public and uses such deposits primarily to originate loans secured by first mortgages on owner-occupied, single-family residences and other properties.

The Bank is subject to competition from other financial institutions, and is also subject to the regulations of certain Federal and State agencies and undergoes periodic examinations by those regulatory authorities.

Basis of Presentation and Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Bank of New Orleans. All significant inter-company balances and transactions have been eliminated in consolidation.

Significant Group Concentrations of Credit Risk

Most of the Bank’s activities are with customers located within the greater New Orleans area in Louisiana. Note 2 discusses the types of securities in which the Bank invests. Note 3 discusses the types of lending in which the Bank engages. The Bank does not have any significant concentrations in any one industry or to any one customer.

Cash and Cash Equivalents

For the purposes of the consolidated statements of cash flows, cash and cash equivalents include cash and balances due from banks, federal funds sold and securities purchased under agreements to resell, all of which mature within ninety days.

The Bank is subject to the Board of Governors of the Federal Reserve System (the “Federeal Reserve Board”) reserve requirements as codified in Regulation D. Regulation D defines the institutions that are subject to the reserve requirement; the liabilities that are reservable; and the reporting, reserve calculation and maintenance requirements. For the reserve maintenance period ended December 31, 2013, the Bank’s reserve balance requirement was $-0-.

Investment Securities

Securities are being accounted for in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 320, Investments - Debt and Equity Securities. ASC 320 requires the classification of securities into one of three categories: Trading, Available-for-Sale, or Held-to-Maturity. Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates this classification periodically.

Available-for-sale securities are stated at market value, with unrealized gains and losses, net of income taxes, reported as a separate component of accumulated other comprehensive income until realized. The amortized cost of available-for-sale debt securities is adjusted for amortization of premiums and accretion of discounts to maturity or, in the case of mortgage-backed securities, over the estimated life of the security.

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies (Continued)

Investment Securities (Continued)

Securities designated as held-to-maturity are stated at cost adjusted for amortization of the related premiums and accretion of discounts, using the interest method. The Company has the positive intent and ability to hold these securities to maturity.

The Company held no trading securities as of December 31, 2013 or 2012.

Amortization, accretion and accrued interest are included in interest income on securities. Realized gains and losses, and declines in value judged to be other than temporary, are included in net securities gains or losses. Gains and losses on the sale of securities available-for-sale are determined using the specific-identification method.

Loans

The Bank grants one-to four-family, multi-family residential, commercial, and land mortgage loans, and consumer and construction loans, and lines of credit to customers. Certain first mortgage loans are originated and sold under loan sales agreements. A substantial portion of the loan portfolio is represented by mortgage loans made to customers throughout the greater New Orleans area. The ability of the Bank’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in this area.

Loans are reported at their outstanding unpaid principal balance adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance.

When the payment of principal or interest on a loan is delinquent for more than 90 days, or earlier in some cases, the loan is placed on non-accrual status, unless the loan is in the process of collection and the underlying collateral fully supports the carrying value of the loan. If the decision is made to continue accruing interest on the loan, periodic reviews are made to confirm the accruing status of the loan. All interest accrued but not collected for loans that are placed on non-accrual or loans charged-off is reversed against income. The interest on these loans is accounted for on the cash basis or cost-recovery method, until qualifying for return to accrual basis. Loans are returned to the accrual status when all of the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The Company considers a loan to be impaired when, based upon current information and events, it believes it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Company's impaired loans include troubled debt restructurings, and performing and non-performing loans with respect to which the full payment of principal or interest is not expected. The Company calculates an allowance required for impaired loans based on the present value of expected future cash flows discounted at the loan's effective interest rate, or at the loan's observable market price or the fair value of its collateral.

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies (Continued)

Allowance for Loan Losses

The allowance for loan losses is a valuation allowance available for losses incurred on loans. All losses are charged to the allowance for loan losses when the loss actually occurs or when a determination is made that a loss is likely to occur. Recoveries are credited to the allowance at the time of recovery.

The allowance is an amount that represents the amount of probable and reasonably estimable known and inherent losses in the loan portfolio, based on evaluations of the collectability of loans. The evaluations take into consideration such factors as changes in the types and amount of loans in the loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, estimated losses relating to specifically identified loans, and current economic conditions. This evaluation is inherently subjective as it requires material estimates including, among others, exposure at default, the amount and timing of expected future cash flows on impacted loans, value of collateral, estimated losses on our commercial and residential loan portfolios and general amounts for historical loss experience. All of these estimates may be susceptible to significant change.

It should be understood that estimates of future loan losses involve an exercise of judgment. While it is possible that in particular periods the Company may sustain losses, which are substantial relative to the allowance for loan losses, it is the judgment of management that the allowance for loan losses reflected in the accompanying consolidated balance sheets is adequate to absorb possible losses in the existing loan portfolio.

Loans Held-for-Sale

Loans held-for-sale include originated mortgage loans intended for sale in the secondary market, which are carried at the lower of cost or estimated market value. Loans held-for-sale are identified at the time of origination, in accordance with the Company’s interest rate risk strategy. In addition, the Company occasionally sells loans that it originates, but cannot hold, due to regulatory limitations on loans to one borrower, concentrations of credit in a particular property type or industry.

Loan Fees, Loan Costs, Discounts and Premiums

Loan origination and commitment fees and certain direct loan origination costs are deferred and amortized as an adjustment to the related loan’s yield using the interest method over the contractual life of the loan.

Discounts received in connection with mortgage loans purchased are amortized to income over the term of the loan using the interest method. Premiums on purchased loans are amortized over the term of the loan using the interest method.

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies (Continued)

Premises and Equipment

Premises and equipment are carried at cost, less accumulated depreciation. The Company computes depreciation and amortization generally on the straight-line method for both financial reporting and Federal income tax purposes. Estimated useful lives of premises and equipment range as follows:

Buildings (Years)	20	-	40
Furniture, Fixtures and Equipment (Years)	3	-	10
Automobiles (Years)		5

Real Estate Owned

Real estate acquired through, or in lieu of, loan foreclosure is initially recorded at fair value, less estimated cost to sell, at the date of foreclosure and any related write-down is charged to the allowance for loan losses. Management periodically performs valuations, and an allowance for losses will be established when any significant and permanent decline reduces the fair value to less than the carrying value. The ability of the Company to recover the carrying value of real estate is based upon future sales of the real estate owned. The ability to affect such sales is subject to market conditions and other factors, many of which are beyond the Company’s control. Operating income of such properties, net of related expenses, and gains and losses on their disposition are included in the accompanying consolidated statements of income.

Income Taxes

Deferred income tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any.

Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above would be reflected as a liability for unrecognized tax benefits in the consolidated balance sheets along with any associated interest or penalties that would be payable to the taxing authorities upon examination. Interest and/or penalties associated with unrecognized tax benefits, if any, would be classified as additional income taxes in the consolidated statements of income.

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies (Continued)

Advertising Costs

The Company expenses advertising costs as incurred. Advertising costs were $366,000, $256,000 and $158,000 for the years ended December 31, 2013, 2012 and 2011, respectively.

Comprehensive Earnings

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the consolidated balance sheets, such items, along with net earnings, are components of comprehensive earnings.

Use of Estimates

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheets and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for losses on loans and deferred taxes.

Recent Accounting Pronouncements

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies (Continued)

Recent Accounting Pronouncements (Continued)

In January 2014, the FASB issued ASU 2014-01, Investments-Equity Method and Joint Ventures - Accounting for Investments in Qualified Affordable Housing Projects. This guidance permits reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). For those investments in qualified affordable housing projects not accounted for using the proportional amortization method, the investment should be accounted for as an equity method investment or a cost method investment. This guidance is effective for annual periods beginning after December 15, 2014. The adoption of this guidance is not expected to have a material effect on the Company’s financial statements.

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 2. Securities

A summary of securities classified as available-for-sale at December 31, 2013 and 2012, with gross unrealized gains and losses, is as follows:

	December 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In Thousands)
Securities Available-for-Sale
Mortgage-Backed Securities
GNMA	$	11	$	1	$	-	$	12
FNMA		2,010		151		-		2,161
FHLMC		1,207		83		-		1,290
		3,228		235		-		3,463

U.S. Government and Agency Obligations		1,993		30		-		2,023

Equity Securities		183		97		-		280

Total	$	5,404	$	362	$	-	$	5,766

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In Thousands)
Securities Available-for-Sale
Mortgage-Backed Securities
GNMA	$	65	$	3	$	-	$	68
FNMA		3,379		276		-		3,655
FHLMC		1,889		143		-		2,032
		5,333		422		-		5,755

U.S. Government and Agency Obligations		5,970		156		-		6,126

Equity Securities		183		75		-		258

Total	$	11,486	$	653	$	-	$	12,139

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 2. Securities (Continued)

A summary of securities classified as held-to-maturity at December 31, 2013 and 2012, with gross unrealized gains and losses, is as follows:

	December 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(In Thousands)
Securities Held-to-Maturity
Mortgage-Backed Securities
GNMA	$	3,026	$	107	$	-		$	3,133
FNMA		18,094		749		(68	)		18,775
FHLMC		6,496		544		-			7,040
Total		27,616		1,400		(68	)		28,948

Collateralized Mortgage Obligations
FNMA		8,785		7		(191	)		8,601
FHLMC		10,945		11		(122	)		10,834
		19,730		18		(313	)		19,435

Total	$	47,346	$	1,418	$	(381	)	$	48,383

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In Thousands)
Securities Held-to-Maturity
Mortgage-Backed Securities
GNMA	$	4,174	$	158	$	-	$	4,332
FNMA		27,979		1,549		-		29,528
FHLMC		10,212		825		-		11,037
Total		42,365		2,532		-		44,897

Collateralized Mortgage Obligations
FNMA		11,648		116		-		11,764
FHLMC		13,441		213		-		13,654
		25,089		329		-		25,418

Total	$	67,454	$	2,861	$	-	$	70,315

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 2. Securities (Continued)

The amortized cost and fair value of available-for-sale and held-to-maturity securities by contractual maturity at December 31, 2013, are as follows. Actual maturities will differ from contractual maturities because borrowers may have the right to put or prepay obligations with or without call or prepayment penalties.

	Available-for-Sale Securities				Held-to-Maturity Securities
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(In Thousands)
Amounts Maturing in:
Less than One Year	$	2,006	$	2,036	$	41	$	44
One to Five Years		757		805		2,433		2,587
Five to Ten Years		2,458		2,645		4,836		5,213
Over Ten Years		-		-		40,036		40,539
		5,221		5,486		47,346		48,383

Other Equity Securities		183		280		-		-

Total	$	5,404	$	5,766	$	47,346	$	48,383

Information pertaining to securities with gross unrealized losses at December 31, 2013 and 2012, aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:

There were no available-for-sale securities with gross unrealized losses at December 31, 2013 or 2012.

	Held-to-Maturity
	Losses Less Than 12 Months				Losses Greater Than 12 Months
	Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value
	(In Thousands)
December 31, 2013
Mortgage-Backed Securities
GNMA	$	-	$	-	$	-	$	-
FNMA		68		7,573		-		-
FHLMC		-		-		-		-
		68		7,573		-		-
Collateralized Mortgage Obligations
FNMA		191		8,029		-		-
FHLMC		122		10,121		-		-
		313		18,150		-		-
Total	$	381	$	25,723	$	-	$	-

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

There were no held-to-maturity securities with gross unrealized losses at December 31, 2012.

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 2. Securities (Continued)

At December 31, 2013, securities with a carrying value of $5,959,000 were pledged to secure public deposits held by government entities.

Note 3. Loans

A summary of the balances of loans follows as of December 31, 2013 and 2012:

	2013			2012
	(In Thousands)
Loans Secured by Mortgages on Real Estate
1-4 Family Residential	$	139,069		$	107,556
Home Equity Loans and Lines		28,617			26,305
Multi-Family Residential		21,728			17,644
Commercial Real Estate		59,170			62,771
Land		197			206

Total Loans Secured by Mortgages on Real Estate		248,781			214,482

Consumer and Other Loans
Loans Secured by Deposits		421			458
Other		346			266

Total Consumer and Other Loans		767			724

Less:
Allowance for Loan Losses		(2,221	)		(1,917	)
Net Deferred Loan Origination Costs/(Fees)		152			(130	)

Total Loans, Net	$	247,479		$	213,159

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 3. Loans (Continued)

A summary of our current, past due and non-accrual loans as of December 31, 2013 and 2012, follows:

December 31, 2013	30-89 Days Past Due		90 Days or More Past Due and Accruing		Non-Accrual Loans		Total Past Due		Current Loans		Total Loans
	(in Thousands)
Real Estate Secured Loans
1-4 Family Residential	$	-	$	-	$	20	$	20	$	139,049	$	139,069
Home Equity Loans and Lines		122		-		32		154		28,463		28,617
Multi-Family Residential		-		-		-		-		21,728		21,728
Commercial Real Estate		308		-		1,276		1,584		57,586		59,170
Land		-		-		-		-		197		197
Consumer and Other Loans		7		-		-		7		760		767

Total	$	437	$	-	$	1,328	$	1,765	$	247,783	$	249,548

December 31, 2012	30-89 Days Past Due		90 Days or More Past Due and Accruing		Non-Accrual Loans		Total Past Due		Current Loans		Total Loans
	(in Thousands)
Real Estate Secured Loans
1-4 Family Residential	$	122	$	-	$	50	$	172	$	107,384	$	107,556
Home Equity Loans and Lines		75		-		142		217		26,088		26,305
Multi-Family Residential		-		-		13		13		17,631		17,644
Commercial Real Estate		-		-		1,247		1,247		61,524		62,771
Land		-		-		-		-		206		206
Consumer and Other Loans		4		-		-		4		720		724

Total	$	201	$	-	$	1,452	$	1,653	$	213,553	$	215,206

For the years ended December 31, 2013 and 2012, approximately $16,000 and $59,000, respectively, of interest was foregone on non-accrual loans.

In the ordinary course of business, the Company has granted loans to directors, executive officers and their affiliates. In the opinion of management, such transactions were on substantially the same terms, including interest rates and collateral, as those prevailing at the time of comparable transactions with other persons and did not involve more than a normal risk of collectability or present any other unfavorable features to the Company.

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 3. Loans (Continued)

An analysis of the changes in loans to such borrowers follows:

	2013			2012
	(In Thousands)

Balance, Beginning of Year	$	2,500		$	2,519
Additions		1,135			788
Payments		(1,109	)		(807	)

Balance, End of Year	$	2,526		$	2,500

An analysis of the allowance for loan losses is as follows for the years ended December 31st:

	2013			2012			2011
	(In Thousands)

Balance, Beginning of Year	$	1,917		$	1,805		$	1,759
Provision for Loan Losses		264			246			53
Loan Recoveries		71			74			1
Loans Charged-Off		(31	)		(208	)		(8	)

Balance, End of Year	$	2,221		$	1,917		$	1,805

The following table details the activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2013 and 2012:

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

	Real Estate Secured Mortgage Loans
December 31, 2013	1-4 Family Residential		Home Equity Loans/Lines			Multi-Family Residential		Commercial			Land		Consumer and Other			Total
	(In Thousands)
Balance, Beginning of Year	$	856	$	236		$	160	$	656		$	2	$	7		$	1,917
Provision for (Recovery of) Loan Losses		259		16			30		(14	)		-		(27	)		264
Loans Charged-Off		-		(9	)		-		-			-		(22	)		(31	)
Recoveries of Prior Charge-Offs		11		10			-		-			-		50			71

Balance, End of Year	$	1,126	$	253		$	190	$	642		$	2	$	8		$	2,221

Ending Balance Allocated to:
Loans Individually Evaluated for Impairment	$	-	$	-		$	-	$	99		$	-	$	-		$	99
Loans Collectively Evaluated for Impairment		1,126		253			190		543			2		8			2,122
	$	1,126	$	253		$	190	$	642		$	2	$	8		$	2,221

Ending Loan Balance Disaggregated by Evaluation Method
Loans Individually Evaluated for Impairment	$	20	$	32		$	-	$	1,276		$	-	$	-		$	1,328
Loans Collectively Evaluated for Impairment		139,049		28,585			21,728		57,894			197		767			248,220
	$	139,069	$	28,617		$	21,728	$	59,170		$	197	$	767		$	249,548

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 3. Loans (Continued)

	Real Estate Secured Mortgage Loans
December 31, 2012	1-4 Family Residential			Home Equity Loans/Lines			Multi-Family Residential		Commercial		Land		Consumer and Other			Total
	(In Thousands)
Balance, Beginning of Year	$	889		$	207		$	148	$	485	$	2	$	74		$	1,805
Provision for (Recovery of) Loan Losses		(44	)		76			12		171		-		31			246
Loans Charged-Off		-			(50	)		-		-		-		(158	)		(208	)
Recoveries of Prior Charge-Offs		11			3			-		-		-		60			74

Balance, End of Year	$	856		$	236		$	160	$	656	$	2	$	7		$	1,917

Ending Balance Allocated to:
Loans Individually Evaluated for Impairment	$	-		$	-		$	-	$	91	$	-	$	-		$	91
Loans Collectively Evaluated for Impairment		856			236			160		565		2		7			1,826
	$	856		$	236		$	160	$	656	$	2	$	7		$	1,917

Ending Loan Balance Disaggregated by Evaluation Method
Loans Individually Evaluated for Impairment	$	50		$	142		$	13	$	1,247	$	-	$	-		$	1,452
Loans Collectively Evaluated for Impairment		107,506			26,163			17,631		61,524		206		724			213,754
	$	107,556		$	26,305		$	17,644	$	62,771	$	206	$	724		$	215,206

A summary of the loans evaluated for possible impairment follows:

	2013		2012
	(In Thousands)

Impaired Loans Requiring a Loss Allowance	$	99	$	1,224
Imparied Loans not Requiring a Loss Allowance		1,229		228

Total Impaired Loans	$	1,328	$	1,452

Loss Allowance on Impaired Loans	$	99	$	91

At December 31, 2013 and 2012, all impaired loans were on non-accrual status. As of December 31, 2013 and 2012, the Company did not hold any renegotiated loans.

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 3. Loans (Continued)

The following table provides additional information with respect to impaired loans by portfolio segment and the impairment methodology used to analyze the credit. The recorded investment is presented gross of any specific valuation allowance.

As of December 31, 2013	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment YTD		Interest Income Recognized
	(In Thousands)
Impaired Loans with No Related Allowance:
Loans Secured by Mortgages on Real Estate
1-4 Family Residential	$	20	$	20	$	-	$	37	$	-
Home Equity Loans and Lines		32		32		-		51		2
Multi-Family Residential		-		-		-		2		-
Commercial Real Estate		1,177		1,177		-		500		47
Land		-		-		-		-		-
Consumer and Other Loans		-		-		-		-		-

Total	$	1,229	$	1,229	$	-	$	590	$	49

Impaired Loans with a Related Allowance:
Loans Secured by Mortgages on Real Estate
1-4 Family Residential	$	-	$	-	$	-	$	-	$	-
Home Equity Loans and Lines		-		-		-		-		-
Multi-Family Residential		-		-		-		-		-
Commercial Real Estate		99		99		99		960		4
Land		-		-		-		-		-
Consumer and Other Loans		-		-		-		1		-

Total	$	99	$	99	$	99	$	961	$	4

Total Impaired Loans
Loans Secured by Mortgages on Real Estate
1-4 Family Residential	$	20	$	20	$	-	$	37	$	-
Home Equity Loans and Lines		32		32		-		51		2
Multi-Family Residential		-		-		-		2		-
Commercial Real Estate		1,276		1,276		99		1,460		51
Land		-		-		-		-		-
Consumer and Other Loans		-		-		-		1		-

Total	$	1,328	$	1,328	$	99	$	1,551	$	53

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 3. Loans (Continued)

As of December 31, 2012	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment YTD		Interest Income Recognized
	(In Thousands)
Impaired Loans with No Related Allowance:
Loans Secured by Mortgages on Real Estate
1-4 Family Residential	$	50	$	50	$	-	$	337	$	1
Home Equity Loans and Lines		142		142		-		254		12
Multi-Family Residential		13		13		-		19		4
Commercial Real Estate		23		23		-		99		7
Land		-		-		-		-		-
Consumer and Other Loans		-		-		-		8		5

Total	$	228	$	228	$	-	$	717	$	29

Impaired Loans with a Related Allowance:
Loans Secured by Mortgages on Real Estate
1-4 Family Residential	$	-	$	-	$	-	$	22	$	-
Home Equity Loans and Lines		-		-		-		96		-
Multi-Family Residential		-		-		-		-		-
Commercial Real Estate		1,224		1,224		91		245		43
Land		-		-		-		-		-
Consumer and Other Loans		-		-		-		13		-

Total	$	1,224	$	1,224	$	91	$	376	$	43

Total Impaired Loans
Loans Secured by Mortgages on Real Estate
1-4 Family Residential	$	50	$	50	$	-	$	359	$	1
Home Equity Loans and Lines		142		142		-		350		12
Multi-Family Residential		13		13		-		19		4
Commercial Real Estate		1,247		1,247		91		344		50
Land		-		-		-		-		-
Consumer and Other Loans		-		-		-		21		5

Total	$	1,452	$	1,452	$	91	$	1,093	$	72

The Bank uses the following criteria to assess risk ratings with respect to its loan portfolio, which are consistent with regulatory guidelines:

Special Mention - Loans designated as “special mention” exhibit some weakness or risk that deserves management’s close attention, but do not contain the level of risk associated with an adverse classification. If left unresolved, this weakness may develop into a material deficiency in the credit quality of the loan.

Substandard - Loans classified as “substandard” have a well-defined material weakness or weaknesses based on objective evidence and are further characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Loss - Loans classified as “loss” are considered uncollectible, in whole or in part, and should not be carried on the books as an asset without the establishment of a specific valuation allowance or charge-off. This classification does not mean that an asset has no salvage value, but there is much doubt about how much, or when, the recovery will occur.

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 3. Loans (Continued)

The following table summarizes the credit grades assigned to our loan portfolio as of December 31, 2013 and 2012:

	Real Estate Secured Mortgage Loans
December 31, 2013	1-4 Family Residential		Home Equity Loans/Lines		Multi-Family Residential		Commercial		Land		Consumer and Other		Total
	(In Thousands)
Credit Classification:
Pass	$	138,718	$	28,335	$	21,728	$	57,586	$	197	$	760	$	247,324
Special Mention		331		250		-		-		-		-		581
Substandard		20		32		-		1,485		-		7		1,544
Loss		-		-		-		99		-		-		99
Total	$	139,069	$	28,617	$	21,728	$	59,170	$	197	$	767	$	249,548

	Real Estate Secured Mortgage Loans
December 31, 2012	1-4 Family Residential		Home Equity Loans/Lines		Multi-Family Residential		Commercial		Land		Consumer and Other		Total
	(In Thousands)
Credit Classification:
Pass	$	107,506	$	26,135	$	16,874	$	60,746	$	206	$	724	$	212,191
Special Mention		-		99		757		779		-		-		1,635
Substandard		50		71		13		1,155		-		-		1,289
Loss		-		-		-		91		-		-		91
Total	$	107,556	$	26,305	$	17,644	$	62,771	$	206	$	724	$	215,206

Note 4. Accrued Interest Receivable

Accrued interest receivable at December 31, 2013 and 2012, consisted of the following:

	2013		2012
	(In Thousands)
Loans	$	737	$	727
Investments		18		31
Mortgage-Backed Securities		138		212

Total Accrued Interest	$	893	$	970

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 5. Premises and Equipment

A summary of the cost and accumulated depreciation of premises and equipment as of December 31, 2013 and 2012 follows:

	2013			2012
	(In Thousands)
Land, Buildings and Improvements	$	4,546		$	4,619
Furniture and Fixtures		2,026			1,981
Automobiles		53			99
		6,625			6,699
Accumulated Depreciation and Amortization		(4,482	)		(4,447	)

Total	$	2,143		$	2,252

Depreciation expense for the years ended December 31, 2013, 2012 and 2011, was approximately $264,000, $228,000, and $189,000, respectively.

Note 6. Deposits

Interest bearing deposit account balances at December 31, 2013 and 2012, are summarized as follows:

	Weighted-Average						Account Balances at December 31,
	Rate at December 31,						2013					2012
	2013			2012			Amount		Percent			Amount		Percent
							(In Thousands)

NOW and MMDA		0.26	%		0.22	%	$	36,608		19.54	%	$	29,972		16.48	%
Savings Accounts		0.21	%		0.25	%		25,071		13.38	%		24,532		13.49	%
Certificates of Deposit		1.17	%		1.32	%		125,704		67.08	%		127,380		70.03	%

Total							$	187,383		100.00	%	$	181,884		100.00	%

The aggregate amount of time deposits in denominations of $100,000 or more at December 31, 2013 and 2012, was $58,016,000 and $55,976,000, respectively.

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 6. Deposits (Continued)

Certificates of deposit at December 31, 2013, mature as follows (in thousands):

	Amount		Percent
Certificate Accounts Maturing
One Year or Less	$	90,626		72.09	%
One to Two Years		13,127		10.44	%
Two to Three Years		10,493		8.35	%
Three to Five Years		11,458		9.12	%

Total	$	125,704		100.00	%

Interest expense by deposit type for each of the following years was as follows:

	2013		2012		2011
	(In Thousands)

Certificates of Deposit	$	1,541	$	1,951	$	2,506
Interest Bearing Demand Deposits		72		63		58
Savings Accounts		53		57		82

Total	$	1,666	$	2,071	$	2,646

The Bank held deposits of approximately $12,101,000 and $11,451,000, for related parties at December 31, 2013 and 2012, respectively.

Note 7. Borrowings

Federal Home Loan Bank Advances

Pursuant to collateral agreements with the Federal Home Loan Bank of Dallas (“FHLB”), advances issued by the Federal Home Loan Bank are secured by a blanket floating lien on first mortgage loans. Total interest expense recognized on FHLB advances in 2013, 2012 and 2011, was $1,087,000, $1,160,000, and $1,470,000, respectively.

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 7. Borrowings (Continued)

Federal Home Loan Bank Advances (Continued)

Advances consisted of the following at December 31, 2013 and 2012, respectively.

			FHLB Advance Total
Contract Rate			2013		2012
			(In Thousands)
0%	-	0.99%	$	-	$	-
1%	-	1.99%		33,776		16,000
2%	-	2.99%		570		611
3%	-	3.99%		13,014		13,326
4%	-	4.99%		3,680		7,517
5%	-	5.99%		-		-

	Total		$	51,040	$	37,454

Maturities of FHLB Advances at December 31, 2013, were as follows:

Year Ending December 31,	Amount Maturing
	(In Thousands)
2014	$	49
2015		6,866
2016		6,544
2017		10,988
2018		-
Thereafter		26,593

Total	$	51,040

Reverse Repurchase Agreements

Periodically, the Company accesses other borrowing sources as a source of liquidity and term funding. To date, these other borrowings have been structured as reverse repurchase agreements secured by U.S. Government or U.S. Agency securities. Reverse repurchase agreements totaled $-0- at December 31, 2013 and $16,000,000 at 2012.

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 7. Borrowings (Continued)

Reverse Repurchase Agreements (Continued)

Reverse repurchase agreements consisted of the following at December 31, 2013 and 2012:

			Reverse Repurchase Total
Contract Rate			2013		2012
			(In Thousands)
3%	-	3.99%	$	-	$	16,000
4%	-	4.99%		-		-

	Total		$	-	$	16,000

Interest expense on reverse repurchase agreements totaled $151,000, $965,000 and $1,022,000 for the years ended December 31, 2013, 2012 and 2011, respectively.

Note 8. Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of December 31, 2013 and 2012, were as follows:

	2013			2012
	(In Thousands)
Deferred Tax Assets
Allowance for Loan Losses	$	714		$	609
Deferred Loan Fees		-			44
Deferred Compensation		495			605
OREO Write Down		114			27
Stock Options		134			262
Other		146			-

Total Deferred Tax Assets		1,603			1,547

Deferred Tax Liabilities
Market Value Adjustment to Available-for-Sale Securities		(123	)		(222	)
FHLB Stock Dividends		(59	)		(104	)
Deferred Loan costs		(81	)		-
Other		(52	)		(26	)

Total Deferred Tax Liabilities		(315	)		(352	)

Net Deferred Tax Asset	$	1,288		$	1,195

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 8. Income Taxes (Continued)

Generally accepted accounting principles do not require that deferred income taxes be provided on certain portions of the allowance for loan losses that existed as of December 31, 1987. At December 31, 2013, retained earnings included approximately $1,336,000 representing such bad debt deductions for which the related deferred income taxes of approximately $454,000 have not been provided.

The provision for income taxes for 2013, 2012 and 2011, consisted of the following for the years ended December 31st:

	2013		2012			2011
	(In Thousands)
Current Expense	$	1,355	$	1,535		$	1,346
Deferred Tax Expense (Benefit)		79		(193	)		(190	)

Total	$	1,434	$	1,342		$	1,156

The provision for Federal income taxes differs from that computed by applying Federal statutory rates to income before Federal income tax expense, as indicated in the following analysis:

	2013				2012				2011
	(In Thousands)
Expected Tax Provision	$	1,408	34.0	%	$	1,309	34.0	%	$	1,113		34.0	%
Non-Deductible Expenses		26	0.6			8	0.2			8		0.2
Effect of Tax Exempt Income		-	-			-	-			(1	)	(0.0	)
Other		-	-			25	0.7			36		1.1

Total	$	1,434	34.6	%	$	1,342	34.9	%	$	1,156		35.3	%

The Company had no amount of interest and/or penalties related to tax positions recognized in the consolidated statements of income for the years ended December 31, 2013, 2012 and 2011, nor any amount of interest and/or penalties payable related to tax positions that were recognized in the consolidated balance sheets as of December 31, 2013 and 2012.

As of December 31, 2013 and 2012, the Company had no uncertain tax positions. As of December 31, 2013, the tax years that remain open for examination by tax jurisdictions include 2012, 2011 and 2010.

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 9. Comprehensive Income

Comprehensive income was comprised of changes in the Company’s unrealized holding gains or losses on securities available-for-sale during 2013, 2012 and 2011. The components of comprehensive income and related tax effects were as follows for the years indicated:

	2013			2012			2011
	(In Thousands)
Gross Change in Unrealized Gains Arising During the Period	$	(292	)	$	(315	)	$	(18	)
Tax Benefit		99			107			6

Total		(193	)		(208	)		(12	)

Reclassification Adjustment for Gains Included in Net Income		-			-			(72	)
Tax Expense		-			-			24

Total		-			-			(48	)

Net Change in Unrealized Gains Arising During the Period	$	(193	)	$	(208	)	$	(60	)

Note 10. Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by its primary federal regulator, the Office of the Comptroller of the Currency (“OCC”). Failure to meet the minimum regulatory capital requirements can result in certain mandatory, and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank and the Company’s consolidated financial statements. Under the regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines involving quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification under the prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of: total risk-based capital and Tier I capital to risk-weighted assets (as defined in the regulations), Tier I capital to adjusted total assets (as defined), tangible capital to adjusted total assets (as defined), and tangible equity to adjusted total assets (as defined). As of December 31, 2013, the Bank met all of the capital requirements to which it is subject and was deemed to be well capitalized. There have been no subsequent conditions or events which management believes have changed the Bank’s status.

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 10. Regulatory Matters (Continued)

The actual and required capital amounts and ratios applicable to the Bank for the years ended December 31, 2013 and 2012, are presented in the following tables:

	Actual					Minimum for Adequacy Purposes					Minimum to be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in Thousands)
December 31, 2013
Core/Leverage Capital	$	46,724		14.80	%	$	9,471		3.00	%	$	15,785		5.00	%
Tier 1 Risk-Based Capital		46,724		25.37	%		7,366		4.00	%		11,049		6.00	%
Total Risk-Based Capital		48,945		26.58	%		14,732		8.00	%		18,414		10.00	%

December 31, 2012
Core/Leverage Capital	$	43,570		14.03	%	$	9,313		3.00	%	$	15,522		5.00	%
Tier 1 Risk-Based Capital		43,570		25.39	%		6,865		4.00	%		10,298		6.00	%
Total Risk-Based Capital		45,487		26.50	%		13,731		8.00	%		17,164		10.00	%

In July 2013, the federal banking regulatory agencies issued a final rule which revises the regulatory capital framework for financial institutions. The final rule covers a number of aspects pertaining to capital requirements. These include:

Prompt Corrective Action (PCA) Capital Category Thresholds – The following thresholds have been established for an institution to be deemed adequately capitalized:

Total Risk Based Capital Ratio	8.0%
Tier 1 Risk Based Capital Ratio	6.0%
Common Equity Tier 1 Capital Ratio	4.5%
Tier 1 Leverage Ratio	4.0%

Establishment of a Capital Conservation Buffer – The Capital Conservation Buffer is phased in through 2019

Changes in risk-weighting of assets

Opt-out Election for Accumulated Other Comprehensive Income from Common Equity Tier 1 Capital

Financial institutions become subject to the final rule on January 1, 2015.

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 10. Regulatory Matters (Continued)

The Bank’s capital under generally accepted accounting principles (“GAAP”) is reconciled to its total risk-based regulatory capital as follows:

	2013			2012
	(In Thousands)

Capital Under GAAP	$	46,879		$	43,923
Unrealized Gains on Available-for-Sale Securities		(155	)		(353	)

Tier 1 Capital		46,724			43,570

Allowance for Loan Losses		2,221			1,917
Recourse Obligations		-			-

Total Risk-Based Capital	$	48,945		$	45,487

Note 11. Financial Instruments with Off-Balance Sheet Risk

The Company has entered into certain credit related commitments with off-balance sheet risk in the normal course of business in order to meet the financing needs of its customers. The financial instruments include commitments to extend credit and commitments to sell loans. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. The contract amounts of those instruments reflect the extent of the involvement the Company has in particular classes of financial instruments. The Company’s exposure to credit loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the commitment. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer.

As of December 31, 2013 and 2012, the Company had outstanding commitments to extend credit totaling approximately $33,330,000 and $31,768,000, respectively, and had no commitments to sell loans at a loss. Of the $33,330,000 in outstanding commitments at December 31, 2013, approximately $6,991,000 were for fixed rate loans with interest rates ranging from 3.25% to 5.88%, and approximately $26,339,000 were for variable rate loans with interest ranging from 3.25% to 9.50%. No material losses or gains are anticipated as a result of these outstanding commitments.

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 12. Commitments and Contingencies

Operating Leases

The Company leases facilities and equipment under operating leases expiring in various years through 2016. At December 31, 2013, minimum rental commitments under non-cancelable operating leases were as follows:

Years Ending December 31,	Amount

2014	$	44,186
2015		44,186
2016		15,678

Total	$	104,050

Total rent expense incurred by the Company under leases amounted to $36,000, $34,000 and $53,000 for the years ended December 31, 2013, 2012 and 2011, respectively.

It is expected that in the normal course of business, expiring leases will be renewed or replaced by leases on other property.

The Company is the lessor of office space to a director of the Company, under an operating lease expiring in 2014. Terms of the lease are on current market conditions and rates. Minimum future rentals to be received on non-cancelable leases as of December 31, 2013, are as follows:

Years Ending December 31,	Amount

2014	$	4,922

Total	$	4,922

Total rental income from this lease amounted to $20,000 for each of the years ended December 31, 2013, 2012 and 2011.

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 12. Commitments and Contingencies (Continued)

Employment Contracts

The Company has entered into employment contracts with key employees. These compensation commitments expire as follows:

Years Ending December 31,	Amount

2014	$	439,005
2015		439,005
2016		379,005

Total	$	1,257,015

Note 13. Concentration of Credit Risk

In accordance with industry practices, the Company has deposits in other financial institutions for more than the federally insured limit. These deposits in other institutions do not represent more than the normal industry credit risk.

Note 14. Estimated Fair Value of Financial Instruments

The following disclosure is made in accordance with the requirements of ASC 825, Financial Instruments. Financial instruments are defined as cash and contractual rights and obligations that require settlement, directly or indirectly, in cash. In cases where quoted market prices are not available, fair values have been estimated using the present value of future cash flows or other valuation techniques. The results of these techniques are highly sensitive to the assumptions used, such as those concerning appropriate discount rates and estimates of future cash flows, which require considerable judgment. Accordingly, estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current settlement of the underlying financial instruments. ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. These disclosures should not be interpreted as representing an aggregate measure of the underlying value of the Company.

The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:

Cash and Cash Equivalents

The carrying amount of cash and due from financial institutions, federal funds sold and short-term investments approximates fair value.

Certificates of Deposit

The fair values for certificates of deposit are estimated through discounted cash flow analysis, using current rates at which certificates of deposit with similar terms could be obtained.

Note 14. Estimated Fair Value of Financial Instruments (Continued)

Securities

Fair values for securities, excluding Federal Home Loan Bank stock, are based on quoted market prices. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Loans Receivable, Net

The fair values of loans are estimated through discounted cash flow analysis, using current rates at which loans with similar terms would be made to borrowers with similar credit quality. Appropriate adjustments are made to reflect probable credit losses. The carrying amount of accrued interest on loans approximated its fair value.

Federal Home Loan Bank Stock

The carrying value of Federal Home Loan Bank stock approximates fair value based on the redemption provisions of the Federal Home Loan Bank.

Deposit Liabilities

ASC 825 specifies that the fair value of deposit liabilities with no defined maturity is the amount payable on demand at the reporting date, i.e., their carrying or book value. These deposits include interest and non-interest bearing checking, passbook, and money market accounts. The fair value of fixed rate certificates of deposit is estimated using a discounted cash flow calculation that applies interest rates currently offered on certificates of similar remaining maturities to a schedule of aggregate expected cash flows on time deposits.

Borrowings

The fair value of fixed rate borrowings is estimated using discounted cash flows, based on current incremental borrowing rates for similar types of borrowing arrangements.

Off-Balance Sheet Instruments

Off-balance sheet financial instruments include commitments to extend credit and undisbursed lines of credit. The fair value of such instruments is estimated using fees currently charged for similar arrangements in the marketplace, adjusted for changes in terms and credit risk as appropriate.

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 14. Estimated Fair Value of Financial Instruments (Continued)

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

	December 31, 2013						December 31, 2012
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
	(In Thousands)
Financial Assets
Cash and Cash Equivalents	$	6,964		$	6,964		$	10,646		$	10,646
Certificates of Deposit		481			484			481			485
Securities		53,112			54,149			79,593			82,454

Loans		249,700			254,872			215,076			223,521
Less Allowance for Loan Losses		(2,221	)		(2,221	)		(1,917	)		(1,917	)
Loans, Net of Allowance		247,479			252,651			213,159			221,604

Federal Home Loan Bank Stock		2,317			2,317			1,832			1,832


Financial Liabilities
Deposits	$	202,508		$	209,660		$	196,206		$	209,254
Borrowings		51,040			48,140			53,454			55,769

Unrecognized Financial Instruments Commitments to Extend Credit	$	33,330		$	33,521		$	31,768		$	31,934

The Company adopted ASC 820, Fair Value Measurements, on January 1, 2008 for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized at fair value in the financial statements on a recurring basis (at least annually). ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

ASC 820 defines fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk including the Company’s own credit risk.

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 14. Estimated Fair Value of Financial Instruments (Continued)

In addition to defining fair value, ASC 820 expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels which is determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

Level 1 - Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.

Level 2 - Inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.

The preceding methods described may produce a fair value calculation that may not be indicative of the net realizable value or reflective of future fair values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the methodologies used during the year ended December 31, 2013.

The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2013 and 2012:

	Fair Value Measurements
December 31, 2013	Total		Level 1		Level 2		Level 3
Assets:	(In Thousands)
Available-for-Sale Securities
Mortgage-Backed Securities	$	3,463	$	-	$	3,463	$	-
US Government and Agency Obligations		2,023		-		2,023		-
Equity Securities		280		280		-		-
Loans Held-for-Sale		406		-		406		-

Total	$	6,172	$	280	$	5,892	$	-

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 14. Estimated Fair Value of Financial Instruments (Continued)

	Fair Value Measurements
December 31, 2012	Total		Level 1		Level 2		Level 3
Assets:	(In Thousands)
Available-for-Sale Securities
Mortgage-Backed Securities	$	5,755	$	-	$	5,755	$	-
US Government and Agency Obligations		6,126		-		6,126		-
Equity Securities		258		258		-		-
Loans Held-for-Sale		1,837		-		1,837		-

Total	$	13,976	$	258	$	13,718	$	-

The Company did not record any liabilities at fair market value for which measurement of the fair value was made on a recurring basis at December 31, 2013 and 2012.

The following table presents the Company’s assets and liabilities measured at fair value on a non-recurring basis at December 31, 2013 and 2012:

	Fair Value Measurements
December 31, 2013	Total		Level 1		Level 2		Level 3
Assets:	(In Thousands)
Impaired Loans, Net of Allowance	$	1,229	$	-	$	-	$	1,229
Other Real Estate Owned		568		-		568		-

Total	$	1,797	$	-	$	568	$	1,229

	Fair Value Measurements
December 31, 2012	Total		Level 1		Level 2		Level 3
Assets:	(In Thousands)
Impaired Loans, Net of Allowance	$	1,361	$	-	$	-	$	1,361
Other Real Estate Owned		632		-		632		-

Total	$	1,993	$	-	$	632	$	1,361

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 15. Employee Benefits

The Bank has a 401(k) plan covering all employees who meet certain age and service requirements. Contributions to the plan are made at the discretion of the Board of Directors. The 401(k) expense amounted to approximately $22,000, $18,000 and $13,000 for the years ended December 31, 2013, 2012 and 2011, respectively. The plan contains profit sharing provisions, with employer contributions to the plan based on a percentage of wages, net of forfeitures. There was no profit sharing contribution during 2013, 2012 or 2011.

The Bank adopted a Supplemental Executive Retirement Plan (“SERP”) during 2006 for its Chief Executive Officer. The agreement requires the Bank’s Chief Executive Officer to remain employed by the Bank through January 15, 2013 in exchange for retirement benefits payable in equal quarterly installments of $25,000 for ten consecutive years. In the event of disability, the Bank’s Chief Executive Officer is entitled to receive equal quarterly installments of $25,000 for ten consecutive years. In the event of termination, other than for disability, the Bank’s Chief Executive Officer is entitled to benefits accrued through that period. In the event of death, benefits will be payable to the Chief Executive Officer’s designated beneficiary. For the years ended December 31, 2013, 2012 and 2011, the Bank accrued $91,000, $100,000 and $95,000, respectively, in accordance with this agreement. The Bank’s future compensation expense for 2014 under this plan is $38,000.

Effective January 15, 2013, the Board of Directors adopted an amendment to the SERP agreement for its Chief Executive Officer which was intended to serve as an inducement to continue his service beyond the age of 65. This amendment increases the annual benefit payable to the Bank’s Chief Executive Officer by $5,000 per annum, beginning January 15, 2014 and ending January 15, 2018. The maximum annual benefit payable to the Chief Executive Officer as a result of this amendment is $125,000, paid in quarterly installments. The Bank’s estimated future compensation expense as a result of this amendment is $50,000 per year.

In March 2007, the Bank implemented a SERP for the benefit of the Bank’s Chief Financial Officer. The Plan provides for annual credits to an accumulation account at the rate of 10% of the Executive’s annual base pay. The account is credited with earnings on an annual basis at a rate determined by the Board of Directors. The Executive will be fully vested (100%) in his Accumulation Account at age 65. The Plan provides for partial vesting when the Executive reaches the “Early Retirement Age” of 55 and remains in the employ of the Bank. Upon reaching the Early Retirement Age, the Executive will be vested 75% in the Accumulation Account. Additional vesting will be credited at the rate of 2.5% per annum for years of service after attaining the Early Retirement Age. Notwithstanding the other provisions of the agreement, the Executive will be 100% vested in the Accumulation Account in the event of death, permanent disability, termination without cause, or termination following a change of control. For the years ended December 31, 2013, 2012 and 2011, the Bank accrued $12,700, $12,000 and $11,600, respectively, in accordance with this agreement in the respective periods.

Note 16. Related Party Transactions

The Bank purchased insurance policies through an insurance agency of which one of its directors is an executive officer. Premiums for such policies totaled $597,000, $517,000 and $427,000 for the years ended December 31, 2013, 2012 and 2011, respectively.

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 17. Employee Stock Ownership Plan

During 2007, Louisiana Bancorp, Inc. instituted an employee stock ownership plan. The Louisiana Bancorp Employee Stock Ownership Plan (“ESOP”) enables all eligible employees of the Bank to share in the growth of the Company through the acquisition of stock. Employees are generally eligible to participate in the ESOP after completion of one year of service and attaining age 21.

The ESOP purchased eight percent of the shares offered in the initial public offering of the Company (507,659 shares). This purchase was facilitated by a loan from the Company to the ESOP in the amount of $5,077,000. The loan is secured by a pledge of the ESOP shares. The shares pledged as collateral are reported as unearned ESOP shares in the consolidated balance sheets. The corresponding note is being paid back in 80 equal quarterly payments of $130,000 on the last business day of each quarter, beginning September 30, 2007, at the rate of 8.25%. The note payable and the corresponding note receivable have been eliminated for consolidation purposes.

The Company may contribute to the plan, in the form of debt service, at the discretion of its Board of Directors. Dividends received on the ESOP shares are utilized to service the debt. Shares are released for allocation to plan participants based on principal and interest payments of the note. Compensation expense is recognized based on the number of shares allocated to plan participants each year and the average market price of the stock for the current year. Released ESOP shares become outstanding for earnings per share computations.

As compensation expense is incurred, the unearned ESOP shares account is reduced based on the original cost of the stock. The difference between the cost and average market price of shares released for allocation is applied to additional paid-in capital. ESOP compensation expense was approximately $441,000, $410,000, and $392,000 for the years ended December 31, 2013, 2012 and 2011, respectively.

The ESOP shares as of December 31, 2013 and 2012, were as follows:

	2013			2012
Shares Allocated, Beginning Balance		133,706			113,158
Shares Allocated During the Year		25,383			25,383
Shares Distributed During the Year		(375	)		(4,835	)
Unallocated Shares		342,672			368,055

Total ESOP Shares		501,386			501,761

Fair Value of Unallocated Shares	$	6,243,484		$	6,245,893

Stock Price at December 31	$	18.22		$	16.97

The total number of ESOP shares in the preceding table represents the number of shares outstanding at the end of the respective periods. The number of shares outstanding differs from the number of shares originally acquired by the Plan due to withdrawals associated with the distribution of vested shares to former plan participants.

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 18. Recognition and Retention Plan

On February 14, 2008, the shareholders of Louisiana Bancorp approved the Company’s 2007 Recognition and Retention Plan. The 2007 Recognition and Retention Plan provides the Company’s directors and key employees with an equity interest in the Company as compensation for their contributions to the success of the Company, and as an incentive for future such contributions. The Compensation Committee of the Company makes grants under the 2007 Recognition and Retention Plan to eligible participants based on these factors. Plan participants vest in their share awards at a rate of 20% per year over a five year period, beginning on the date of the plan share award. If service to the Company is terminated for any reason other than death, disability or change in control, the unvested shares awards shall be forfeited.

The Recognition and Retention Plan Trust (the “Trust”) has been established to acquire, hold, administer, invest, and make distributions from the Trust in accordance with provisions of the Plan and Trust. The Trust acquired 4%, or 253,829 shares, of the then issued and outstanding shares of the Company, which are held pursuant to the plan’s vesting requirements. The Recognition and Retention Plan provides that grants to each officer or employee and non-employee director shall not exceed 25% and 5%, respectively. Shares awarded to non-employee directors in the aggregate shall not exceed 30% of the shares available under the plan. As of December 31, 2013, 243,677 shares had been awarded under the provisions of the plan to directors, officers and employees of the Company.

The Company recognized compensation expense during 2013 at a weighted-average per-share grant date fair value of $12.96. Compensation expense related to the Recognition and Retention Plan was $117,000, $526,000 and $521,000 for the years ended December 31, 2013, 2012 and 2011, respectively. At December 31, 2013, there were 16,902 shares available for future grants under the plan, which includes 6,750 shares that were forfeited by former participants in the plan.

A summary of the changes in the Company’s granted, but nonvested shares, as of December 31, 2013, follows:

	Nonvested Shares
	Shares			Weighted-Average Grant Date Fair Value

Balance - December 31, 2012		55,584		$	12.44
Granted		3,000			18.19
Vested		(46,034	)		11.80
Forfeited		(150	)		11.52

Balance - December 31, 2013		12,400		$	16.22

100

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 19. Stock Option Plan

On February 14, 2008, the shareholders of Louisiana Bancorp, Inc. also approved the Company’s 2007 Stock Option Plan. The 2007 Stock Option Plan provides the Company’s directors and key employees with an equity interest in the Company as compensation for their contributions to the success of the Company, and as an incentive for future such contributions. The Compensation Committee of the Company grants options to eligible participants based on these factors. Plan participants vest in their options at a rate of 20% per year over a five year period, beginning on the grant date of the option. Vested options have an exercise period of ten years commencing on the date of grant. If service to the Company is terminated for any reason other than death, disability or change in control, the unvested options shall be forfeited.

Pursuant to the terms of the Stock Option Plan, 634,573 shares, or 10%, of common stock of the Company at the time of the plan’s adoption have been reserved for future issuance. The Stock Option Plan provides that grants to each officer or employee and non-employee director shall not exceed 25% and 5%, respectively. Options granted to non-employee directors in the aggregate shall not exceed 30% of the shares available under the plan.

As of December 31, 2013, options to acquire 596,697 shares of common stock had been granted under the provisions of the plan to directors, officers and employees of the Company, at a weighted-average exercise price of $12.03. At December 31, 2013, there were 70,876 stock options available for future grants under the plan, which includes 33,000 options that were forfeited by former participants in the plan.

The Company recognizes compensation expense during the vesting period based on the fair value of the option on the date of grant. The Company awarded 8,500 options to directors, officers, or employees during the year ended December 31, 2013 having an estimated fair value on their grant date of $2.75, as determined by use of the Black-Scholes Option Pricing Model with the following assumptions:

For Options Granted During 2013
Expected Dividend Yield		0.88	%
Expected Volatility		10.41	%
Risk-Free Interest Rate		2.21	%
Expected Life of Option (Years)	7.5
Weighted-Average Grant Date Fair Value	$	2.75

The dividend yield is reflective of the Company’s expectations regarding future periods. Actual dividend yields may vary from this assumption. The risk-free interest rate reflects the interpolated rate for a U.S. Treasury security with a term equivalent to the expected life of the options.

101

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 19. Stock Option Plan (Continued)

A summary of the activity in the Stock Option Plan is as follows:

	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contract Term (Years)		Remaining Contract Term (Years)		Aggregate Intrinsic Value

Outstanding, December 31, 2012		467,048		$	12.01
Options Granted		8,500			18.19
Options Exercised		(19,035	)		11.52
Options Forfeited		-			-

Outstanding, December 31, 2013		456,513		$	12.15		4.68		4.68	$	2,771,982

Options Exercisable at December 31, 2013		423,013		$	11.81		4.37		4.37	$	2,709,599

A summary of the status of the Company’s nonvested options as of December 31, 2013, and changes during the year ended December 31, 2013, is as follows:

	Shares			Weighted- Average Grant Date Fair Value
Nonvested at December 31, 2012		133,636		$	12.65
Options Granted		8,500			18.19
Options Vested		(108,636	)		11.94
Options Forfeited		-			-

Nonvested at December 31, 2013		33,500		$	16.36

As of December 31, 2013, there was $73,000 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 3.62 years. The Company recognizes compensation expense during the vesting period based on the fair value of the option on the date of grant. Compensation expense related to the Stock Option Plan was $74,000, $238,000 and $244,000, respectively, for the years ended December 31, 2013, 2012 and 2011.

102

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 20. Earnings per Common Share

The Company computes earnings per share in accordance with FASB ASC 260-10, Earnings per Share. Net income is divided by the weighted-average number of shares outstanding during the year to calculate basic net earnings per common share. Diluted earnings per common share are calculated to give effect to stock options.

	2013		2012		2011
	(Dollars in Thousands, Except per Share Data)
Numerator
Net Income	$	2,708	$	2,507	$	2,117
Effect of Dilutive Securities		-		-		-

Numerator for Diluted Earnings Per Share	$	2,708	$	2,507	$	2,117

Denominator
Weighted-Average Shares Outstanding		2,480,894		2,633,316		2,902,747
Effect of Potentially Dilutive Securities		139,535		141,522		125,286

Denominator for Diluted Earnings Per Share		2,620,429		2,774,838		3,028,033

Earnings Per Share
Basic	$	1.09	$	0.95	$	0.73
Diluted	$	1.03	$	0.90	$	0.70

Cash Dividends Per Share	$	-	$	-	$	-

The following table presents the components of average outstanding shares for purposes of calculating earnings per share:

	2013			2012			2011
Average Common Shares Issued		6,345,732			6,345,732			6,345,732
Average Unearned ESOP Shares		(367,985	)		(393,369	)		(418,713	)
Average Unearned RRP Shares		(37,638	)		(82,519	)		(127,228	)
Average Treasury Shares		(3,459,215	)		(3,236,528	)		(2,897,044	)

		2,480,894			2,633,316			2,902,747

103

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 21. Condensed Financial Information - Parent Company Only

Financial information pertaining only to Louisiana Bancorp, Inc. is as follows:

LOUISIANA BANCORP, INC. Condensed Balance Sheets As of December 31, 2013 and 2012 (Dollars in Thousands)

	2013		2012
Assets
Cash and Cash Equivalents	$	6,112	$	7,469
Certificates of Deposits		82		82
Securities Available-for-Sale, at Fair Value		648		834
Investment in Subsidiary		50,306		47,604
Loan to ESOP		4,207		4,371
Accrued Interest Receivable		1		3
Other Assets		70		56

Total Assets	$	61,426	$	60,419


Liabilities and Shareholders' Equity
Liabilities
Other Liabilities	$	60	$	32

Total Liabilities		60		32

Total Shareholders' Equity		61,366		60,387

Total Liabilities and Shareholders' Equity	$	61,426	$	60,419

104

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 21. Condensed Financial Information - Parent Company Only (Continued)

LOUISIANA BANCORP, INC. Statements of Operations For the Years Ended December 31, 2013, 2012 and 2011 (Dollars in Thousands)

	2013			2012			2011
Income
Interest Income ESOP Loan	$	355		$	369		$	380
Interest Income Investment Securities		24			37			66
Dividend Income from Subsidiary		-			6,000			6,800
Other Interest Income		-			-			1

Total Income		379			6,406			7,247

Operating Expenses		388			371			313

(Loss) Income Before Income Taxes and Undistributed Earnings of Subsidiary		(9	)		6,035			6,934

Federal Income Tax Benefit (Expense)		5			(4	)		(49	)

Equity in Undistributed Earnings of Subsidiary		2,712			(3,524	)		(4,768	)

Net Income	$	2,708		$	2,507		$	2,117

105

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 21. Condensed Financial Information - Parent Company Only (Continued)

LOUISIANA BANCORP, INC. Statements of Cash Flows For the Years Ended December 31, 2013, 2012 and 2011 (Dollars in Thousands)

	2013			2012			2011
Cash Flows from Operating Activities
Net Income	$	2,708		$	2,507		$	2,117
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Equity in Undistributed Income of Subsidiaries		(2,712	)		3,524			4,768
Net Increase in Recognition and Retention Plan Shares Earned		544			525			514
Stock Option Plan Expense		74			238			244
Net Discount Accretion		(1	)		(1	)		(2	)
Deferred Income Tax Benefit		(18	)		(31	)		(30	)
Decrease in Accrued Interest Receivable		1			2			2
Decrease (Increase) in Other Assets		1			20			(300	)
Increase (Decrease) in Due to Subsidiary		31			361			(101	)
(Decrease) Increase in Other Liabilities		(3	)		6			3

Net Cash Provided by Operating Activities		625			7,151			7,215

Cash Flows from Investing Activities
Purchases of Certificates of Deposit		-			-			(16	)
Purchases of Investment Securities - Available-for-Sale		-			-			(1,683	)
Proceeds from Maturities of Certificates of Deposit		-			11			110
Proceeds from Maturities of Securities Available-for-Sale		195			298			1,914
Repayments of ESOP Loan by Subsidiary		164			151			139

Net Cash Provided by Investing Activities		359			460			464

Cash Flows from Financing Activities
Purchase of Treasury Stock		(2,560	)		(5,217	)		(5,965	)
Proceeds from Exercise of Stock Options		219			931			-

Net Cash Used in Financing Activities		(2,341	)		(4,286	)		(5,965	)

Net (Decrease) Increase in Cash and Cash Equivalents		(1,357	)		3,325			1,714

Cash and Cash Equivalents, Beginning of Year		7,469			4,144			2,430

Cash and Cash Equivalents, End of Year	$	6,112		$	7,469		$	4,144

106

LOUISIANA BANCORP, INC.

Notes to Consolidated Financial Statements

Note 22. Subsequent Events

In accordance with FASB ASC 855, Subsequent Events, the Company evaluates events and transactions that occur after the balance sheet date for potential recognition in the financial statements. The effect of all subsequent events that provide additional evidence of conditions that existed at the balance sheet date are recognized in the financial statements as of December 31, 2013. In preparing these financial statements, the Company evaluated the events and transactions that occurred through the date these financial statements were issued. There were no material subsequent events that required recognition or additional disclosure in these financial statements.

107

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Not Applicable.

Item 9A. Controls and Procedures.

Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of December 31, 2013. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations and are operating in an effective manner.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) occurred during the fourth fiscal quarter of 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management’s Annual Report on Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities and Exchange Act of 1934 Rules 13(a)-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (“GAAP”). An adequate system of internal control encompasses the processes and procedures that have been established by management to, among other things:

Maintain records that accurately reflect the Company’s transactions;

Prepare financial statements and footnote disclosures in accordance with GAAP that can be relied upon by external users;

Prevent and detect unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect of the financial statements.

Management, including the chief executive officer and chief financial officer, conducted an evaluation of the effectiveness of the Company’s controls over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our evaluation under the framework in Internal Control – Integrated Framework, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2013.

This annual report on Form 10-K does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report is not required to be subject to attestation by the Company’s registered public accounting firm.

108

Item 9B. Other Information.

Not applicable.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The information required herein is incorporated by reference from the information to be contained in the sections captioned “Information with Respect to Nominees for Director, Continuing Directors and Executive Officers” and “Beneficial Ownership of Common Stock by Certain Beneficial Owners and Management – Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s definitive proxy statement for the 2014 Annual Meeting of Stockholders to be held on May 6, 2014 (the “Proxy Statement”).

The Company has adopted a Code of Conduct and Ethics that applies to its principal executive officer and principal financial officer, as well as other officers and employees of the Company and the Bank. A copy of the Code of Ethics is available on the Company's website at www.bankofneworleans.com.

Item 11. Executive Compensation.

The information required herein is incorporated by reference from the information to be contained in the sections captioned “Management Compensation” in the Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required herein regarding the Security Ownership of Certain Beneficial Owners and Management is incorporated by reference from the information to be contained in the section captioned “Beneficial Ownership of Common Stock by Certain Beneficial Owners and Management” in the Proxy Statement.

Equity Compensation Plan Information. The following table provides information as of December 31, 2013 with respect to shares of common stock that may be issued under our existing equity compensation plans, which consist of the 2007 Stock Option Plan and 2007 Recognition and Retention Plan, both of which were approved by our shareholders.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)			Weighted-average exercise price of outstanding options, warrants and rights (b)			Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders		468,913	(1)	$	12.15	(2)		87,778
Equity compensation plans not approved by security holders		-			-			-
Total		468,913		$	12.15			87,778

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________________

(Footnotes from preceding page)

(1)

Includes 12,400 shares subject to restricted stock grants which were not vested as of December 31, 2013.

(2)

The weighted-average exercise price excludes such restricted stock grants.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required herein is incorporated by reference from the information to be contained in the sections captioned “Management Compensation – Related Party Transactions” and “Information with Respect to Nominees for Director, Continuing Directors and Executive Officers” in the Proxy Statement.

Item 14. Principal Accounting Fees and Services.

The information required herein is incorporated by reference from the information to be contained in the section captioned “Ratification of Appointment of Independent Registered Public Accounting Firm (Proposal Two) – Audit Fees” in the Proxy Statement.

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PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a) (1) The following financial statements are incorporated by reference from Item 8 hereof:

Consolidated Statements of Financial Condition as of December 31, 2013 and 2012

Consolidated Statements of Income for the Years Ended December 31, 2013, 2012 and 2011

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2013, 2012 and 2011

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2013, 2012 and 2011

Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2012 and 2011

Notes to Consolidated Financial Statements

(2) All schedules are omitted because they are not required or applicable, or the required information is shown in the consolidated financial statements or the notes thereto.

(3) Exhibits

The following exhibits are filed as part of this Form 10-K and this list includes the Exhibit Index.

No.	Description	Location
3.1	Articles of Incorporation of Louisiana Bancorp, Inc.	(1)
3.2	Bylaws of Louisiana Bancorp, Inc.	(1)
4.0	Form of Common Stock Certificate of Louisiana Bancorp, Inc.	(1)
10.1	Amended and Restated Supplemental Executive Retirement Plan with Lawrence J. LeBon, III*	(2)
10.2	Amended and Restated Supplement Executive Retirement Plan with John LeBlanc*	(3)
10.3	Amended and Restated Directors Deferred Compensation Plan*	(3)
10.4	Amended and Restated Employment Agreement between Louisiana Bancorp, Inc. and Lawrence J. LeBon, III*	(3)
10.5	Amended and Restated Employment Agreement between Bank of New Orleans and Lawrence J. LeBon, III*	(3)
10.6	Amended and Restated Employment Agreement between Louisiana Bancorp, Inc. and John LeBlanc*	(3)
10.7	Amended and Restated Employment Agreement between Bank of New Orleans and John LeBlanc*	(3)
10.8	Employment Agreement between Bank of New Orleans and C. Holly Callia	(4)
10.8	2007 Stock Option Plan*	(5)
10.9	2007 Recognition and Retention Plan and Trust Agreement*	(5)
22.0	Subsidiaries of the Registrant – Reference is made to “Item 1. Business - Subsidiaries” of this Form 10-K for the required information	-
23.1	Consent of LaPorte, A Professional Accounting Corporation	Filed herewith
31.1	Certification of Chief Executive Officer	Filed herewith
31.2	Certification of Chief Financial Officer	Filed herewith
32.0	Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer	Filed herewith
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definitions Linkbase Document
101.INS	XBRL Instance Document

_______________________

*	Denotes management compensation plan or arrangement.

(1)	Incorporated by reference from the Company’s Registration Statement on Form S-1, filed with the SEC on March 21, 2007, as amended, and declared effective on May 14, 2007 (File No. 333-141465).

(2)	Incorporated by reference from the Company’s Current Report on Form 8-K, dated as of January 29, 2013.

(3)	Incorporated by reference from the Company’s Current Report on Form 8-K, dated as of October 28, 2008.

(4)	Incorporated by reference from the Company’s Current Report on Form 8-K, date as of October 25, 2011.

(5)	Incorporated by reference from the Company’s definitive proxy statement for the special meeting of stockholders to be held on February 14, 2008, filed with the SEC on December 28, 2007.

(b)

Exhibits

The exhibits listed under (a)(3) of this Item 15 are filed herewith.

(c)	Reference is made to (a)(2) of this Item 15.

111

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

		LOUISIANA BANCORP, INC.



March 25, 2014	By:	/s/ Lawrence J. LeBon, III
			Lawrence J. LeBon, III
			Chairman of the Board, President and
			Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

Name	Title	Date

/s/ Lawrence J. LeBon, III	Chairman of the Board, President	March 25, 2014
Lawrence J. LeBon, III	and Chief Executive Officer (principal executive officer)

/s/ John LeBlanc	Executive Vice President and	March 25, 2014
John LeBlanc	Chief Financial Officer (principal financial and principal accounting officer)

/s/ Maurice F. Eagan, Jr.	Director	March 25, 2014
Maurice F. Eagan, Jr.

/s/ Michael E. Guarisco	Director	March 25, 2014
Michael E. Guarisco

/s/ Gordon K. Konrad	Director	March 25, 2014
Gordon K. Konrad

/s/ Brian G. LeBon, Sr.	Director	March 25, 2014
Brian G. LeBon, Sr.

/s/ Ivan J. Miestchovich	Director	March 25, 2014
Ivan J. Miestchovich

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Louisiana Bancorp (LABC) Inactive 10-K2013 FY Annual report

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