Peoples Federal Bancshares 10-Q 2014 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended December 31, 2013

Commission File No. 001-34801

Peoples Federal Bancshares, Inc.

(Exact name of registrant as specified in its charter)

Maryland	27-2814821
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
435 Market Street, Brighton, Massachusetts	02135
(Address of principal executive offices)	(Zip Code)

(617) 254-0707

(Registrant’s telephone number,
including area code)

N/A

(Former name or former address,
if changed since last report)

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

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 filerx
Non-accelerated filero	Smaller reporting companyo

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

The number of shares outstanding of registrant’s common stock; $0.01 par value, at January 31, 2014: 6,406,310

PEOPLES FEDERAL BANCSHARES, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements
	Consolidated Balance Sheets as of December 31, 2013 (Unaudited) and September 30, 2013	3
	Consolidated Statements of Income for the Three Months Ended December 31, 2013 and 2012 (Unaudited)	4
	Consolidated Statements of Comprehensive Income for the Three Months Ended December 31, 2013 and 2012 (Unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended December 31, 2013 and 2012 (Unaudited)	6
	Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2013 and 2012 (Unaudited)	7
	Notes to Unaudited Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	45
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3.	Defaults Upon Senior Securities	47
Item 4.	Mine Safety Disclosures	47
Item 5.	Other Information	47
Item 6.	Exhibits	47
	Signature Page	48

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Part I.  FINANCIAL INFORMATION

Item 1.   Consolidated Financial Statements

PEOPLES FEDERAL BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,			September 30,
	2013			2013
	(Unaudited)
	(In thousands, except share data)
ASSETS
Cash and due from banks	$	4,438		$	4,047
Interest-bearing demand deposits with other banks	24,363			30,906
Federal funds sold	239			79
Federal Home Loan Bank - overnight deposit	2,102			2,102
Total cash and cash equivalents	31,142			37,134
Securities available-for-sale	13,246			14,225
Securities held-to-maturity (fair values of $37,524 and $32,105)	37,871			32,054
Federal Home Loan Bank stock (at cost)	3,775			3,775
Loans	474,438			470,086
Allowance for loan losses	(4,019		)	(4,037		)
Loans, net	470,419			466,049
Premises and equipment, net	3,431			3,465
Cash surrender value of life insurance policies	20,175			20,007
Accrued interest receivable	1,327			1,448
Deferred income tax asset, net	5,329			5,432
Other assets	1,636			1,657
Total assets	$	588,351		$	585,246
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing	$	54,703		$	57,891
Interest-bearing	367,764			367,202
Total deposits	422,467			425,093
Short-term borrowings	8,000			6,000
Long-term debt	44,000			38,000
Accrued expenses and other liabilities	8,701			9,801
Total liabilities	483,168			478,894
Stockholders’ equity:
Preferred stock, $0.01 par value; 50,000,000 shares authorized; none issued	—			—
Common stock, $0.01 par value; 100,000,000 shares authorized; 6,431,327 and 6,465,934 shares issued and outstanding at December 31, 2013 and September 30, 2013, respectively	64			65
Additional paid-in capital	59,619			60,039
Retained earnings	53,923			55,103
Accumulated other comprehensive loss	(61		)	(30		)
Unearned restricted shares; 233,387 and 256,894 shares at December 31, 2013 and September 30, 2013, respectively	(3,791		)	(4,183		)
Unearned compensation - ESOP	(4,571		)	(4,642		)
Total stockholders’ equity	105,183			106,352
Total liabilities and stockholders’ equity	$	588,351		$	585,246

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

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PEOPLES FEDERAL BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended
	December 31,
	2013		2012
	(Unaudited)
	(Dollars in thousands, except share data)
Interest and dividend income:
Interest and fees on loans	$	4,673	$	4,853
Interest on debt securities:
Taxable	233		150
Other interest	15		18
Dividends on equity securities	4		5
Total interest and dividend income	4,925		5,026
Interest expense:
Interest on deposits	454		612
Interest on Federal Home Loan Bank advances	168		150
Total interest expense	622		762
Net interest and dividend income	4,303		4,264
Provision for loan losses	—		120
Net interest and dividend income, after provision for loan losses	4,303		4,144
Non-interest income:
Customer service fees	196		210
Loan servicing fees	13		8
Net gain on sales of mortgage loans	—		101
Increase in cash surrender value of life insurance	168		162
Other income	22		11
Total non-interest income	399		492
Non-interest expense:
Salaries and employee benefits	2,610		2,326
Occupancy expense	228		229
Equipment expense	99		106
Professional fees	157		117
Advertising expense	133		129
Data processing expense	219		208
Deposit insurance expense	61		69
Other expense	253		257
Total non-interest expense	3,760		3,441
Income before income taxes	942		1,195
Provision for income taxes	388		514
Net income	$	554	$	681
Weighted-average shares outstanding:
Basic	5,746,458		5,975,422
Diluted	5,810,294		6,031,289
Earnings per common share:
Basic	$	0.09	$	0.11
Diluted	$	0.09	$	0.11

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

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PEOPLES FEDERAL BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended December 31,
	2013			2012
	(Unaudited)
	(In thousands)
Net income	$	554		$	681
Net unrealized loss on securities available-for-sale	(52		)	(38		)
Reclassification adjustment for net securities gains realized	—			—
Net unrealized losses	(52		)	(38		)
Income tax benefit	21			15
Other comprehensive loss, net of tax	(31		)	(23		)
Total comprehensive income	$	523		$	658

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

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PEOPLES FEDERAL BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Three Months Ended December 31, 2013 and 2012

												Accumulated
						Additional						Other			Unearned			Unearned			Total
	Common Stock					Paid-In			Retained			Comprehensive			Restricted			Compensation -			Stockholders’
	Shares		Amount			Capital			Earnings			Income (Loss)			Shares			ESOP			Equity
	(Unaudited)
	(Dollars in thousands, except share amounts)
Balance at September 30, 2012	6,726,904		$	67		$	63,909		$	55,153		$	113		$	(3,777	)	$	(4,927	)	$	110,538
Net income	—		—			—			681			—			—			—			681
Other comprehensive loss	—		—			—			—			(23		)	—			—			(23		)
Purchase and retirement of shares for stock repurchase plan	(67,300	)	(1		)	(1,140		)	—			—			—			—			(1,141		)
Restricted stock awards earned (14,085 shares)	—		—			—			—			—			218			—			218
Stock options expense	—		—			115			—			—			—			—			115
Common stock released by ESOP (7,141 shares)	—		—			50			—			—			—			71			121
Dividends paid ($0.28 per share)	—		—			—			(1,675		)	—			—			—			(1,675		)
Balance at December 31, 2012	6,659,604		$	66		$	62,934		$	54,159		$	90		$	(3,559	)	$	(4,856	)	$	108,834
Balance at September 30, 2013	6,465,934		$	65		$	60,039		$	55,103		$	(30	)	$	(4,183	)	$	(4,642	)	$	106,352
Net income	—		—			—			554			—			—			—			554
Other comprehensive loss	—		—			—			—			(31		)	—			—			(31		)
Purchase and retirement of shares for stock repurchase plan	(34,607	)	(1		)	(606		)	—			—			—			—			(607		)
Restricted stock awards earned (23,507 shares)	—		—			—			—			—			392			—			392
Stock options expense	—		—			133			—			—			—			—			133
Common stock released by ESOP (7,141 shares)	—		—			53			—			—			—			71			124
Dividends paid ($0.29 per share)	—		—			—			(1,734		)	—			—			—			(1,734		)
Balance at December 31, 2013	6,431,327		$	64		$	59,619		$	53,923		$	(61	)	$	(3,791	)	$	(4,571	)	$	105,183

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

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PEOPLES FEDERAL BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended
	December 31,
	2013			2012
	(Unaudited)
	(In thousands)
Cash flows from operating activities:
Net income	$	554		$	681
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Amortization of securities, net	36			97
Provision for loan losses	—			120
Change in net deferred loan fees	(63		)	(30		)
Depreciation and amortization	101			104
Decrease in accrued interest receivable	121			222
Income on cash surrender value of life insurance	(168		)	(162		)
Decrease (increase) in other assets	369			(63		)
Decrease in accrued expenses and other liabilities	(1,092		)	(1,618		)
Increase in prepaid income taxes	(348		)	(50		)
(Decrease) increase in income taxes payable	(8		)	54
Deferred income tax expense	124			—
Stock based compensation expense	525			333
ESOP expense	124			121
Net cash provided by (used in) operating activities	275			(191		)
Cash flows from investing activities:
Activity in securities available-for-sale:
Purchases	(1,330		)	—
Maturities, prepayments and calls	2,251			8,268
Activity in securities held-to-maturity:
Purchases	(6,857		)	—
Maturities, prepayments and calls	1,010			2,653
Loan originations and principal collections, net	6,738			2,132
Purchased loans	(11,052		)	(3,708		)
Recoveries of loans previously charged off	7			3
Capital expenditures	(67		)	(19		)
Net cash (used in) provided by investing activities	(9,300		)	9,329

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

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PEOPLES FEDERAL BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)

	Three Months Ended
	December 31,
	2013			2012
	(Unaudited)
	(In thousands)
Cash flows from financing activities:
Net increase (decrease) in:
Demand deposits, NOW and savings accounts	1,848			7,462
Term certificates	(4,474		)	2,418
Short-term borrowings	2,000			(2,000		)
Activity in long-term debt:
Proceeds from advances	10,000			4,000
Payment of advances	(4,000		)	(2,000		)
Common stock repurchased	(607		)	(1,141		)
Dividends paid	(1,734		)	(1,675		)
Net cash provided by financing activities	3,033			7,064
Net (decrease) increase in cash and cash equivalents	(5,992		)	16,202
Cash and cash equivalents at beginning of period	37,134			36,241
Cash and cash equivalents at end of period	$	31,142		$	52,443
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	633		$	772
Income taxes	620			510

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

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — BASIS OF PRESENTATION

The consolidated interim financial statements include the accounts of Peoples Federal Bancshares, Inc. (the “Company”), and its wholly-owned subsidiaries, Peoples Federal Savings Bank (the “Bank”) and Peoples Funding Corporation (“PFC”), as of December 31, 2013 (unaudited) and September 30, 2013.  All significant intercompany accounts and transactions have been eliminated in the consolidation.

In the opinion of management, the unaudited consolidated interim financial statements include all significant adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position of the Company and the statements of income, comprehensive income, changes in stockholders’ equity and cash flows for the interim periods presented.

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  In preparing the financial statements, management is required to make extensive use of estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period.  Actual results could differ significantly from those estimates.  Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and income taxes.

Certain financial information, which is normally included in financial statements prepared in accordance with GAAP, but which is not required for interim reporting purposes, has been condensed or omitted.  The net income reported for the three months ended December 31, 2013 (unaudited) is not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2014 or any interim periods.  The accompanying condensed interim financial statements should be read in conjunction with the financial statements and notes thereto included in Peoples Federal Bancshares, Inc.’s Form 10-K for the fiscal year ended September 30, 2013 filed with the Securities and Exchange Commission (“SEC”) on December 13, 2013.

The allowance for loan losses is a significant accounting policy and is presented in the Company’s Form 10-K for the fiscal year ended September 30, 2013, which provides information on how significant assets are valued in the financial statements and how those values are determined.  Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions and estimates underlying those amounts, management has identified the determination of the allowance for loan losses to be the accounting area that requires the most subjective judgments, and as such could be most subject to revision as new information becomes available.

NOTE 2 — NATURE OF OPERATIONS

The Company is headquartered in Brighton, Massachusetts and operates its business from seven banking offices located in Brighton, Allston, West Roxbury, Jamaica Plain, Brookline, West Newton and Norwood.  The Company is engaged principally in the business of providing a variety of financial services to individuals and small businesses primarily in the form of various deposit products and residential and commercial mortgage lending products.

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NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05, “Comprehensive Income (Topic 220) - Presentation of Comprehensive Income (Topic 220).”  The objective of this ASU is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income.  Under this ASU, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  An entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income.  An entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented.

In December 2011, the FASB issued ASU 2011-12, “Comprehensive Income (Topic 220) - Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05,” which defers changes in ASU 2011-05 that relate to the presentation of reclassification adjustments.  This ASU will allow the FASB to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented.  All other requirements of ASU 2011-05 are not affected by this ASU.

The amendments in both ASU 2011-05 and 2011-12 should be applied retrospectively.  The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.  The required disclosures to the Company’s financial statements have been reflected in the accompanying financial statements and footnotes.

In July 2013, the FASB issued ASU 2013-11, “Income Taxes (Topic 740) — Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.”  The amendments in this ASU provide guidance for the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists.  The amendments in this ASU are expected to reduce diversity in practice by providing guidance on the presentation of unrecognized tax benefits and will better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist.  The amendments apply to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013.  The adoption of this guidance is not expected to have an impact on the Company’s results of operations or financial position.

In January 2014, the FASB issued ASU 2014-01, “Investments - Equity Method and Joint Ventures (Topic 323):  Accounting for Investments in Qualified Affordable Housing Projects.”  The amendments in this ASU apply to all reporting entities that invest in qualified affordable housing projects through limited liability entities that are flow-through entities for tax purposes that meet the conditions for and that elect to use the proportional amortization method to account for investments in qualified affordable housing projects.  For reporting entities that do not meet the conditions for or that do not elect the proportional amortization method, only the amendments in this ASU that are related to disclosures apply.  The amendments in this ASU permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met.  Under the proportional amortization method, an entity amortizes the initial

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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 in accordance with Subtopic 970-323.  The amendments in this ASU should be applied retrospectively to all periods presented.  A reporting entity that uses the effective yield method to account for its investments in qualified affordable housing projects before the date of adoption may continue to apply the effective yield method for those preexisting investments.  The amendments in this ASU are effective for public business entities for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014.  Early adoption is permitted.  The Company does not expect that the adoption of this ASU will have an impact on the Company’s results of operations or financial position.

In January 2014, the FASB issued ASU 2014-02, “Intangibles-Goodwill and Other (Topic 350):  Accounting for Goodwill.”  The amendments in this ASU apply to all entities except for public business entities and not-for-profit entities as defined in the Master Glossary of the Accounting Standards Codification and employee benefit plans within the scope of Topics 960 through 965 on plan accounting.  An entity within the scope of the amendments that elects to apply the accounting alternative in this ASU is subject to all of the related subsequent measurement, derecognition, other presentation matters, and disclosure requirements within the accounting alternative.  The amendments in this ASU allow an accounting alternative for the subsequent measurement of goodwill.  An entity within the scope of the amendments that elects the accounting alternative in this ASU should amortize goodwill on a straight-line basis over 10 years, or less than 10 years if the entity demonstrates that another useful life is more appropriate.  An entity that elects the accounting alternative is further required to make an accounting policy election to test goodwill for impairment at either the entity level or the reporting unit level.  The accounting alternative, if elected, should be applied prospectively to goodwill existing as of the beginning of the period of adoption and new goodwill recognized in annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015.  Early application is permitted, including application to any period for which the entity’s annual or interim financial statements have not yet been made available for issuance.  The Company does not expect that the adoption of this ASU will have an impact on the Company’s results of operations or financial position.

In January 2014, the FASB issued ASU 2014-04, “Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40):  Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.”  The amendments in this ASU reduce diversity in practice by clarifying when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized.  The amendments in this ASU clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement.  Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction.  The amendments in this ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014.  An entity can elect to adopt the amendments in this ASU using either a modified retrospective transition method or a prospective transition method.  The Company is reviewing this ASU to determine if there will be a material impact on the Company’s results of operations or financial position.

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NOTE 4 - SECURITIES

Debt securities have been classified in the consolidated balance sheets according to management’s intent.  The amortized cost and fair value of securities with gross unrealized gains and losses follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
	(Unaudited)
	(In thousands)
December 31, 2013:
Securities Available-for-Sale
Debt securities issued by U.S. Government corporations and agencies	$	6,000	$	10	$	2	$	6,008
Mortgage-backed securities	7,348		35		145		7,238
Total securities available-for-sale	$	13,348	$	45	$	147	$	13,246
Securities Held-to-Maturity
Debt securities issued by U.S. Government corporations and agencies	$	5,000	$	—	$	105	$	4,895
Mortgage-backed securities	32,871		128		370		32,629
Total securities held-to-maturity	$	37,871	$	128	$	475	$	37,524

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
	(In thousands)
Sepember 30, 2013:
Securities Available-for-Sale
Debt securities issued by U.S. Government corporations and agencies	$	8,000	$	12	$	25	$	7,987
Mortgage-backed securities	6,275		40		77		6,238
Total securities available-for-sale	$	14,275	$	52	$	102	$	14,225
Securities Held-to-Maturity
Debt securities issued by U.S. Government corporations and agencies	$	5,000	$	—	$	90	$	4,910
Mortgage-backed securities	27,054		287		146		27,195
Total securities held-to-maturity	$	32,054	$	287	$	236	$	32,105

As of December 31, 2013 and September 30, 2013, all mortgage-backed securities held by the Company were issued by FHLMC, GNMA or FNMA.

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The scheduled maturities of debt securities were as follows as of December 31, 2013. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(Unaudited)
	(In thousands)
Due in 1 year or less	$	—	$	—	$	—	$	—
Due after 1 year through 5 years	6,000		6,008		5,000		4,895
	6,000		6,008		5,000		4,895
Mortgage-backed securities	7,348		7,238		32,871		32,629
	$	13,348	$	13,246	$	37,871	$	37,524

During the three months ended December 31, 2013 and 2012, respectively, there were no sales of available-for-sale or held-to-maturity securities.

There were no securities of issuers with an amortized cost basis or fair value that exceeded 10% of stockholders’ equity as of December 31, 2013 and September 30, 2013.

As of December 31, 2013 and September 30, 2013, securities with carrying amounts totaling $13,245,000 and $14,226,000, respectively, were pledged to secure FHLB advances.

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The aggregate fair value and unrealized losses of securities that have been in a continuous loss position for less than twelve months and for twelve months or longer, and are not other than temporarily impaired, are as follows:

	Less Than Twelve Months				Twelve Months or Longer
	Gross				Gross
	Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value
	(Unaudited)
	(In thousands)
December 31, 2013:
Securities Available-for-Sale
Debt securities issued by U.S. Government corporations and agencies	$	2	$	1,998	$	—	$	—
Mortgage-backed securities	145		5,984		—		—
	$	147	$	7,982	$	—	$	—
Securities Held-to-Maturity
Debt securities issued by U.S. Government corporations and agencies	$	105	$	4,895	$	—	$	—
Mortgage-backed securities	370		21,824		—		—
	$	475	$	26,719	$	—	$	—

	Less Than Twelve Months				Twelve Months or Longer
	Gross				Gross
	Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value
	(In thousands)
September 30, 2013:
Securities Available-for-Sale
Debt securities issued by U.S. Government corporations and agencies	$	25	$	3,976	$	—	$	—
Mortgage-backed securities	77		4,929		—		—
	$	102	$	8,905	$	—	$	—
Securities Held-to-Maturity
Debt securities issued by U.S. Government corporations and agencies	$	90	$	4,910	$	—	$	—
Mortgage-backed securities	146		8,388		—		—
	$	236	$	13,298	$	—	$	—

At December 31, 2013, 30 debt securities had unrealized losses for less than twelve months with aggregate depreciation of 1.8% from the amortized cost of these securities.

At September 30, 2013, 18 debt securities had unrealized losses for less than twelve months with aggregate depreciation of 1.5% from the amortized cost of these securities.

Each reporting period the Company evaluates all securities with a decline in fair value below the amortized cost of the investment to determine whether or not the impairment is deemed to be other-than-temporary (“OTTI”).  OTTI is required to be recognized if (1) the Company intends to sell the security or (2) it is “more likely than not” that the Company will be required to sell the security before recovery of its

14

amortized cost basis.  For impaired debt securities that the Company intends to sell, or more likely than not will be required to sell, the full amount of the impairment is recognized as OTTI through earnings.  For all other impaired debt securities, credit-related OTTI is recognized through earnings and non-credit related OTTI is recognized in other comprehensive income, net of applicable taxes.

At December 31, 2013, the unrealized losses on the Company’s debt securities issued by U.S. Government corporations and agencies and mortgage-backed securities were attributable to changes in market interest rates.  These securities are guaranteed or issued by government-sponsored enterprises with strong credit ratings.  The Company does not anticipate selling any of these securities and it is more likely than not that the Company will not be required to sell the securities before recovery of their amortized cost basis or maturity.  Based on the review of the investment portfolio, the Company did not consider these securities to be other-than-temporarily impaired at December 31, 2013.

At September 30, 2013, the unrealized losses on the Company’s debt securities issued by U.S. Government corporations and agencies and mortgage-backed securities were attributable to changes in market interest rates.  These securities are guaranteed or issued by government-sponsored enterprises with strong credit ratings.  The Company does not anticipate selling any of these securities and it is more likely than not that the Company will not be required to sell the securities before recovery of their amortized cost basis or maturity.  Based on the review of the investment portfolio, the Company did not consider these securities to be other-than-temporarily impaired at September 30, 2013.

NOTE 5 — LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans

Loans receivable that management has the intent and ability to hold until maturity or payoff are reported at their outstanding principal balances adjusted for amounts due to borrowers on unadvanced loans, any charge-offs, the allowance for loan losses and any deferred fees or costs on originated loans, or unamortized premiums or discounts on purchased loans.  Interest on loans is recognized on a simple interest basis.  Loan origination and commitment fees and certain direct origination costs are deferred and the net amount amortized as an adjustment of the related loan’s yield.  The Company is amortizing these amounts over the contractual lives of the related loans.

15

The following table sets forth the composition of the Company’s loan portfolio at the dates indicated:

	December 31, 2013					September 30, 2013
	Amount			Percent		Amount			Percent
	(Unaudited)
	(Dollars in thousands)					(Dollars in thousands)
Mortgage loans:
Residential loans:
One-to four-family	$	316,128		66.8	%	$	308,917		65.8	%
Multi-family	71,744			15.1		68,021			14.5
Commercial real estate	52,978			11.2		60,467			12.9
Construction loans	18,587			3.9		17,148			3.7
Total mortgage loans	459,437			97.0		454,553			96.9
Consumer loans	4,999			1.1		5,359			1.1
Commercial loans	9,184			1.9		9,419			2.0
Total loans	473,620			100.0	%	469,331			100.0	%
Deferred loan origination costs, net	818					755
Allowance for loan losses	(4,019		)			(4,037		)
Loans, net	$	470,419				$	466,049

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings.  Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions.  This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

General Component

The general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by the following loan segments: residential loans, commercial real estate, construction, consumer and commercial.  Management uses a rolling average of historical losses based on a time frame appropriate to capture relevant loss data for each loan segment.  This historical loss factor is adjusted for the following qualitative factors: levels/trends in delinquencies; trends in volume and terms of loans; effects of changes in risk selection and underwriting standards and other changes in lending policies, procedures and practices; experience/ability/depth of lending management and staff; and national and local economic trends and conditions.

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The qualitative factors are determined based on the various risk characteristics of each loan segment.  Risk characteristics relevant to each portfolio segment are as follows:

Residential loans:   The Company generally does not originate loans with a loan-to-value ratio greater than 80 percent.  All loans in this segment are collateralized by residential real estate and repayment is dependent on the credit quality of the individual borrower.  The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment.

Commercial real estate:  Loans in this segment are primarily income-producing properties throughout Eastern Massachusetts.  The underlying cash flows generated by the properties are adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, will have an effect on the credit quality in this segment.  Management periodically obtains rent rolls and continually monitors the cash flows of these loans.

Construction loans:  Loans in this segment primarily include speculative real estate development loans for which payment is derived from sale of the property.  Credit risk is affected by cost overruns, time to sell at an adequate price and market conditions.

Consumer loans:  Loans in this segment are generally unsecured and repayment is dependent on the credit quality of the individual borrower.

Commercial loans:  Loans in this segment are made to businesses and are generally secured by assets of the business.  Repayment is expected from the cash flows of the business.  A weakened economy, and resultant decreased consumer spending, will have an effect on the credit quality in this segment.

Allocated Component

The allocated component relates to loans that are classified as impaired.  Impairment is measured on a loan by loan basis for commercial, commercial real estate and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, except that as a practical expedient, based on the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent.  An allowance is established when the discounted cash flows (observable market price or collateral value) of the impaired loan is lower than the recorded investment of that loan.  Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.  Accordingly, the Company does not separately identify individual consumer and residential real estate loans for impairment evaluation, unless such loans are subject to a troubled debt restructuring agreement or have been identified as impaired as part of a larger customer relationship.

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

17

Unallocated Component

An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses.  The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio.

The following tables set forth information pertaining to the allowance for loan losses and principal balance of loans by portfolio segment:

	Three Months Ended December 31, 2013
	Mortgage Loans									Other
	Residential Loans
	One-to Four- family		Multi-family		Commercial Real Estate			Construction Loans		Consumer Loans			Commercial Loans			Unallocated			Total
	(Unaudited)
	(In thousands)
Allowance for loan losses:
Three months ended December 31, 2013:
Balance at beginning of period	$	1,930	$	728	$	719		$	249	$	86		$	135		$	190		$	4,037
Provision (benefit) for loan losses	49		39		(87		)	20		(10		)	(6		)	(5		)	—
Recoveries of loans previously charged-off	—		—		—			—		6			1			—			7
	1,979		767		632			269		82			130			185			4,044
Loans charged-off	—		—		(21		)	—		(4		)	—			—			(25		)
Balance at end of period	$	1,979	$	767	$	611		$	269	$	78		$	130		$	185		$	4,019
As of December 31, 2013:
Individually evaluated for impairment	$	—	$	—	$	—		$	—	$	—		$	—		$	—		$	—
Collectively evaluated for impairment	1,979		767		611			269		78			130			185			4,019
	$	1,979	$	767	$	611		$	269	$	78		$	130		$	185		$	4,019
Loans ending balances:
Individually evaluated for impairment	$	—	$	—	$	303		$	—	$	—		$	—					$	303
Collectively evaluated for impairment	316,128		71,744		52,675			18,587		4,999			9,184						473,317
	$	316,128	$	71,744	$	52,978		$	18,587	$	4,999		$	9,184					$	473,620

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	Three Months Ended December 31, 2012
	Mortgage Loans										Other
	Residential Loans
	One-to Four- family		Multi-family			Commercial Real Estate			Construction Loans		Consumer Loans			Commercial Loans			Unallocated		Total
	(Unaudited)
	(In thousands)
Allowance for loan losses:
Three months ended December 31, 2012:
Balance at beginning of period	$	1,847	$	759		$	768		$	134	$	157		$	93		$	133	$	3,891
Provision (benefit) for loan losses	110		(19		)	(122		)	45		(8		)	25			89		120
Recoveries of loans previously charged-off	—		—			—			—		3			—			—		3
	1,957		740			646			179		152			118			222		4,014
Loans charged-off	—		—			—			—		(6		)	(1		)	—		(7		)
Balance at end of period	$	1,957	$	740		$	646		$	179	$	146		$	117		$	222	$	4,007
As of December 31, 2012:
Individually evaluated for impairment	$	—	$	—		$	—		$	—	$	—		$	—		$	—	$	—
Collectively evaluated for impairment	1,957		740			646			179		146			117			222		4,007
	$	1,957	$	740		$	646		$	179	$	146		$	117		$	222	$	4,007
Loans ending balances:
Individually evaluated for impairment	$	—	$	685		$	1,331		$	79	$	—		$	12				$	2,107
Collectively evaluated for impairment	300,470		64,321			56,695			14,940		6,581			10,813					453,820
	$	300,470	$	65,006		$	58,026		$	15,019	$	6,581		$	10,825				$	455,927

	Year Ended September 30, 2013
	Mortgage Loans											Other
	Residential Loans
	One-to Four- family			Multi-family			Commercial Real Estate			Construction Loans		Consumer Loans			Commercial Loans			Unallocated		Total
	(In thousands)
Allowance for loan losses:
Balance at beginning of year	$	1,847		$	759		$	768		$	134	$	157		$	93		$	133	$	3,891
Provision (benefit) for loan losses	107			(31		)	(49		)	115		(57		)	58			57		200
Recoveries of loans previously charged-off	1			—			—			—		8			12			—		21
	1,955			728			719			249		108			163			190		4,112
Loans charged-off	(25		)	—			—			—		(22		)	(28		)	—		(75		)
Balance at end of year	$	1,930		$	728		$	719		$	249	$	86		$	135		$	190	$	4,037
Individually evaluated for impairment	$	—		$	—		$	—		$	—	$	—		$	—		$	—	$	—
Collectively evaluated for impairment	1,930			728			719			249		86			135			190		4,037
	$	1,930		$	728		$	719		$	249	$	86		$	135		$	190	$	4,037
Loans ending balances:
Individually evaluated for impairment	$	—		$	—		$	303		$	—	$	—		$	9				$	312
Collectively evaluated for impairment	308,917			68,021			60,164			17,148		5,359			9,410					469,019
	$	308,917		$	68,021		$	60,467		$	17,148	$	5,359		$	9,419				$	469,331

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Non-accrual and Past-due Loans

Residential loans are generally placed on non-accrual when reaching 90 days past due or in process of foreclosure.  All closed-end consumer loans 90 days or more past due and any equity line reaching 90 days past due or in the process of foreclosure are placed on non-accrual status.  Secured consumer loans are written down to realizable value and unsecured consumer loans are charged off upon reaching 120 or 180 days past due depending on the type of loan.  Commercial real estate loans and commercial business loans which are 90 days or more past due are generally placed on non-accrual status, unless adequately secured and in the process of collection.  When a loan has been placed on non-accrual status, previously accrued and uncollected interest is reversed against interest on loans.  A loan can be returned to accrual status when collectibility of all contractual principal and interest is reasonably assured and the loan has performed for a period of time, generally six months.

The following tables set forth information regarding non-accrual and past-due loans:

	Age Analysis of Past Due Loans
	December 31, 2013
					90 Days								Total
	30-59 Days		60-89 Days		or More		Total				Total		Non-Accrual
	Past Due		Past Due		Past Due		Past Due		Current		Loans		Loans
	(Unaudited)
	(In thousands)
Mortgage loans:
Residential loans:
One-to four-family	$	—	$	779	$	2,457	$	3,236	$	312,892	$	316,128	$	2,457
Multi-family	—		—		—		—		71,744		71,744		—
Commercial real estate	—		—		—		—		52,978		52,978		—
Construction loans	—		—		—		—		18,587		18,587		—
Total mortgage loans	—		779		2,457		3,236		456,201		459,437		2,457
Consumer loans	21		1		13		35		4,964		4,999		13
Commercial loans	45		—		—		45		9,139		9,184		—
Total	$	66	$	780	$	2,470	$	3,316	$	470,304	$	473,620	$	2,470

	Age Analysis of Past Due Loans
	September 30, 2013
					90 Days								Total
	30-59 Days		60-89 Days		or More		Total				Total		Non-Accrual
	Past Due		Past Due		Past Due		Past Due		Current		Loans		Loans
	(In thousands)
Mortgage loans:
Residential loans:
One-to four-family	$	—	$	629	$	1,846	$	2,475	$	306,442	$	308,917	$	1,846
Multi-family	—		—		—		—		68,021		68,021		—
Commercial real estate	—		—		—		—		60,467		60,467		—
Construction loans	—		—		—		—		17,148		17,148		—
Total mortgage loans	—		629		1,846		2,475		452,078		454,553		1,846
Consumer loans	26		5		—		31		5,328		5,359		—
Commercial loans	1		—		—		1		9,418		9,419		—
Total	$	27	$	634	$	1,846	$	2,507	$	466,824	$	469,331	$	1,846

20

There were no loans greater than 90 days past due and still accruing at December 31, 2013 (unaudited) and September 30, 2013.

Impaired Loans

Cash receipts of interest income on impaired loans are credited to principal to the extent necessary to eliminate doubt as to the collectability of the net carrying amount of the loan.  Some or all of the cash receipts of interest income on impaired loans is recognized as interest income if the remaining net carrying amount of the loan is deemed to be fully collectible.  When recognition of interest income on an impaired loan on a cash basis is appropriate, the amount of income that is recognized is limited to that which would have been accrued on the net carrying amount of the loan at the contractual interest rate.  Any cash interest payments received in excess of the limit and not applied to reduce the net carrying amount of the loan are recorded as recoveries of charge-offs until the charge-offs are fully recovered.

Information about loans that meet the definition of an impaired loan in ASC 310-10-35 is as follows:

	December 31, 2013						September 30, 2013
			Unpaid		Related				Unpaid		Related
	Recorded		Principal		Valuation		Recorded		Principal		Valuation
	Investment		Balance		Allowance		Investment		Balance		Allowance
	(Unaudited)
	(In thousands)						(In thousands)
Impaired loans without a valuation allowance:
Mortgage loans:
Residential loans:
One-to four-family	$	—	$	—	$	—	$	—	$	—	$	—
Multi-family	—		—		—		—		—		—
Commercial real estate	303		303		—		303		303		—
Construction loans	—		—		—		—		—		—
Consumer loans	—		—		—		—		—		—
Commercial loans	—		—		—		9		9		—
	$	303	$	303	$	—	$	312	$	312	$	—

21

													Year Ended
	Three Months Ended December 31,												September 30,
	2013						2012						2013
	Average						Average						Average
	Recorded		Interest Income Recognized				Recorded		Interest Income Recognized				Recorded
	Investment		Total		Cash Basis		Investment		Total		Cash Basis		Investment
	(Unaudited)
	(In thousands)												(In thousands)
Impaired loans without a valuation allowance:
Mortgage loans:
Residential loans:
One-to four-family	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Multi-family	—		—		—		1,645		30		—		635
Commercial real estate	303		5		—		1,559		—		—		941
Construction loans	—		—		—		20		—		—		12
Consumer loans	—		—		—		—		—		—		—
Commercial loans	2		—		—		13		1		—		12
	$	305	$	5	$	—	$	3,237	$	31	$	—	$	1,600

At December 31, 2013 and 2012 and September 30, 2013, there were no impaired loans with a valuation allowance.  As of December 31, 2013 and 2012 and September 30, 2013, no additional funds were committed to be advanced to borrowers with impaired loans.

Troubled Debt Restructurings

The Company periodically may agree to modify the contractual terms of loans.  When a loan is modified and a concession is made to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring (“TDR”).  Such concessions typically include a reduction of an interest rate to a below market rate, taking into account the credit quality of the borrower, a significant reduction or deferral of payments of principal and/or interest or an extension of the maturity date.  All TDRs are initially classified as impaired.

The following table sets forth information pertaining to TDRs entered into during the periods indicated:

	Three Months Ended December 31,
	2013					2012
	Number of  Contracts	Pre-modification  Outstanding  Recorded  Investment		Post-modification  Outstanding  Recorded  Investment		Number of  Contracts	Pre-modification  Outstanding  Recorded  Investment		Post-modification  Outstanding  Recorded  Investment
	(Unaudited)
	(Dollars in thousands)
Troubled Debt Restructurings:
Multi-family	—	$	—	$	—	1	$	522	$	522
Construction	—	—		—		1	79		79
	—	$	—	$	—	2	$	601	$	601

There were no loans modified as part of a TDR during the three months ended December 31, 2013.  There were no loans modified as a TDR within the previous 12 months that subsequently defaulted, during the three months ended December 31, 2013.

22

During the three months ended December 31, 2012, the Company advanced $79,000 in additional funds to complete construction on three remaining units on an existing multi-family condominium loan with an outstanding balance of $522,000.  At December 31, 2012, both loans were accruing and performing in accordance with their modified terms and conditions.  There were no loans modified as a TDR within the previous 12 months that subsequently defaulted, during the three months ended December 31, 2012.

At December 31, 2013, TDRs amounted to $303,000 and consisted of an existing commercial real estate TDR loan that was modified prior to September 30, 2013.  In this case, the Company capitalized all past due interest and provided for interest only for four months.  As of December 31, 2013, the loan was accruing and performing in accordance with its modified terms and conditions.

At September 30, 2013, TDRs amounted to $303,000 and consisted of one commercial real estate loan, noted above, that was accruing and performing in accordance with its modified terms and conditions.

At December 31, 2013 and September 30, 2013, none of the allowance for loan losses was allocated to TDRs and the identification of these loans as TDRs did not have a material impact on the allowance for loan losses.  There were no commitments to lend additional funds to borrowers with troubled debt restructured loans at December 31, 2013 and September 30, 2013.

Credit Quality Indicators

The Company utilizes an eight grade internal loan rating system for loans as follows:

Loans rated 1-4:  Loans in these categories are considered “pass” rated loans with low to average risk.

Loans rated 5:  Loans in this category are considered “special mention.”  These loans are starting to show signs of potential weakness and are being closely monitored by management.

Loans rated 6:  Loans in this category are considered “substandard.”  Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged.  There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.

Loans rated 7:  Loans in this category are considered “doubtful.”  Loans classified as doubtful have all the weakness inherent in those classified substandard with the added characteristic that the weakness makes collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

Loans rated 8:  Loans in this category are considered “loss” and of such little value that their continuance as loans is not warranted.

On an annual basis, or more often if needed, the Company formally reviews the loan risk rating on all multi-family, commercial real estate, construction and commercial loans.  At least annually, the Company engages an independent third-party to review a significant portion of loans within these loan segments.  Management uses the results of the independent review as part of its annual review process.  For all one-to four-family residential loans and consumer loans, the Company initially assesses credit quality based upon the borrower’s ability to service the debt and subsequently monitors these loans based upon the borrower’s payment activity.

23

The following is a summary of the Company’s loan portfolio by risk rating:

	Credit Risk Profile by Credit Worthiness Category
	December 31, 2013
	One-to Four-family		Multi- family		Commercial  Real Estate		Construction  Loans		Consumer  Loans		Commercial  Loans		Total
	(Unaudited)
	(In thousands)
Pass	$	313,116	$	71,744	$	50,761	$	18,587	$	4,999	$	8,526	$	467,733
Special Mention	—		—		1,618		—		—		650		2,268
Substandard	3,012		—		599		—		—		8		3,619
Doubtful	—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—
Total	$	316,128	$	71,744	$	52,978	$	18,587	$	4,999	$	9,184	$	473,620

	Credit Risk Profile by Credit Worthiness Category
	September 30, 2013
	One-to Four-family		Multi- family		Commercial  Real Estate		Construction  Loans		Consumer  Loans		Commercial  Loans		Total
	(In thousands)
Pass	$	306,055	$	68,021	$	57,581	$	17,148	$	5,359	$	8,710	$	462,874
Special Mention	—		—		1,657		—		—		700		2,357
Substandard	2,862		—		1,229		—		—		9		4,100
Doubtful	—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—
Total	$	308,917	$	68,021	$	60,467	$	17,148	$	5,359	$	9,419	$	469,331

NOTE 6 - FAIR VALUE MEASUREMENTS

ASC 820-10, “Fair Value Measurements and Disclosures,” provides a framework for measuring fair value under generally accepted accounting principles.  This guidance also allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis.

In accordance with ASC 820-10, the Company groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 - Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange.  Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 - Valuations for assets and liabilities traded in less active dealer or broker markets.  Valuations are obtained from third party pricing services for identical or comparable assets or liabilities.

Level 3 - Valuations for assets and liabilities that are derived from other methodologies, including option pricing models, discounted cash flow models and similar techniques, and are not based on market exchange, dealer, or broker traded transactions.  Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets and liabilities.

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A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.  These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value for December 31, 2013 and September 30, 2013.

The Company’s trading securities are generally classified within level 1 or level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.

The Company’s investment in securities available-for-sale is generally classified within level 2 of the fair value hierarchy.  For these securities, we obtain fair value measurements from independent pricing services.  The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. treasury yield curve, trading levels, market consensus prepayment speeds, credit information and the instrument’s terms and conditions.

Level 3 is for positions that are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence.  In the absence of such evidence, management’s best estimate is used.  Subsequent to inception, management only changes level 3 inputs and assumptions when corroborated by evidence such as transactions in similar instruments, completed or pending third-party transactions in the underlying investment or comparable entities, subsequent rounds of financing, recapitalization and other transactions across the capital structure, offerings in the equity or debt markets, and changes in financial ratios or cash flows.

The Company’s impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral.  Collateral values are estimated using level 2 inputs based upon appraisals of similar properties obtained from a third party.

The Company’s other real estate owned values are estimated using level 2 inputs based upon appraisals of similar properties from a third party.  For level 3 inputs fair values are based on management’s estimates.

The following summarizes assets measured at fair value at December 31, 2013 and September 30, 2013:

Assets Measured at Fair Value on a Recurring Basis

	December 31, 2013
	Level 1		Level 2		Level 3		Fair Value
	(Unaudited)
	(In thousands)
Trading securities	$	480	$	—	$	—	$	480
Securities available-for-sale:
Debt securities issued by U.S. Government corporations and agencies	—		6,008		—		6,008
Mortgage-backed securities	—		7,238		—		7,238
Total assets	$	480	$	13,246	$	—	$	13,726

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	September 30, 2013
	Level 1		Level 2		Level 3		Fair Value
	(In thousands)
Trading securities	$	1,048	$	—	$	—	$	1,048
Securities available-for-sale:
Debt securities issued by U.S. Government corporations and agencies	—		7,987		—		7,987
Mortgage-backed securities	—		6,238		—		6,238
Total assets	$	1,048	$	14,225	$	—	$	15,273

Assets Measured at Fair Value on a Nonrecurring Basis

Under certain circumstances we make adjustments to fair value for our assets and liabilities although they are not measured at fair value on an ongoing basis.  There were no financial instruments carried on the consolidated balance sheet by caption and by level in the fair value hierarchy at December 31, 2013 and September 30, 2013, for which a nonrecurring change in fair value has been recorded.

There were no significant transfers in and out of Level 1 and 2 during the three months ended December 31, 2013 and 2012 and fiscal year ended September 30, 2013.

Summary of Fair Value of Financial Instruments

The estimated fair values, and related carrying amounts, of the Company’s financial instruments are as follows:

	December 31, 2013
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Total
	(Unaudited)
	(In thousands)
Financial assets:
Cash and cash equivalents	$	31,142	$	31,142	$	—	$	—	$	31,142
Trading securities	480		480		—		—		480
Securities available-for-sale	13,246		—		13,246		—		13,246
Securities held-to-maturity	37,871		—		37,524		—		37,524
Federal Home Loan Bank stock	3,775		—		—		3,775		3,775
Loans, net	470,419		—		—		471,087		471,087
Accrued interest receivable	1,327		—		—		1,327		1,327
Financial liabilities:
Deposits	422,467		—		—		422,846		422,846
Short-term borrowings	8,000		—		—		8,000		8,000
Long-term debt	44,000		—		—		44,071		44,071

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	September 30, 2013
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Total
	(In thousands)
Financial assets:
Cash and cash equivalents	$	37,134	$	37,134	$	—	$	—	$	37,134
Trading securities	1,048		1,048		—		—		1,048
Securities available-for-sale	14,225		—		14,225		—		14,225
Securities held-to-maturity	32,054		—		32,105		—		32,105
Federal Home Loan Bank stock	3,775		—		—		3,775		3,775
Loans, net	466,049		—		—		466,899		466,899
Accrued interest receivable	1,448		—		—		1,448		1,448
Financial liabilities:
Deposits	425,093		—		—		425,536		425,536
Short-term borrowings	6,000		—		—		6,000		6,000
Long-term debt	38,000		—		—		38,168		38,168

NOTE 7 — EARNINGS PER SHARE

The Company defines unvested share-based payment awards that contain nonforfeitable rights to dividends as participating securities that are included in computing Earnings Per Share (“EPS”) using the two-class method.  The two-class method is an earnings allocation formula that determines earnings per share for each share of common stock and participating securities according to dividends declared and participation rights in undistributed earnings.  Under this method, all earnings (distributed and undistributed) are allocated to common shares and participating securities based on their respective rights to receive dividends.  Earnings per common share is calculated by dividing earnings allocated to common stockholders by the weighted-average number of common shares outstanding during the period.  Basic EPS excludes dilution and is computed by dividing income allocated to common stockholders by the weighted-average number of common shares outstanding for the period.  Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

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The following table sets forth the computation of earnings per share (basic and diluted) for the periods indicated:

	Three Months Ended
	December 31,
	2013			2012
	(Unaudited)
	(Dollars in thousands,
	except per share data)
Net income applicable to common stock	$	554		$	681
Less: Undistributed earnings allocated to participating securities	(23		)	(26		)
Net income allocated to common stock	$	531		$	655
Average number of common shares issued	6,459,381			6,707,400
Less: Average unallocated ESOP shares	(464,120		)	(492,686		)
Less: Average unvested restricted stock awards	(248,803		)	(239,292		)
Average number of common shares outstanding used to calculate basic earnings per common share	5,746,458			5,975,422
Add: Dilutive effect of unvested restricted stock awards	63,836			55,867
Average number of common shares outstanding used to calculate diluted earnings per common share	5,810,294			6,031,289
Earnings per common share (basic and diluted)	$	0.09		$	0.11

For the three months ended December 31, 2013 and 2012, stock options to purchase 642,735 and 584,480 shares, respectively, were not included in the computation of diluted earnings per share because to do so would have been antidilutive.

NOTE 8 — EMPLOYEE BENEFIT PLANS

Employee Stock Ownership Plan

The Bank established an ESOP to provide eligible employees the opportunity to own Company stock.  As part of the Bank’s mutual to stock conversion, the Company invested in a subsidiary, PFC.  PFC used the proceeds from the investment to fund a loan to the Peoples Federal Savings Bank Employee Stock Ownership Plan Trust (the “Trust”) in the amount of $5,713,000, which was used to purchase 571,320 shares of the Company’s common stock at a price of $10.00 per share.  The loan bears an interest rate equal to the Wall Street Journal Prime Rate, adjusted annually, and provides for annual payments of interest and principal over the 20 year term of the loan.  The interest rate is 3.25%.

The Bank has committed to make contributions to the ESOP sufficient to support the debt service of the loan.  The loan is secured by the shares purchased, which are held in a suspense account until released for allocation to the participants, as principal and interest payments are made by the ESOP to the Company.

Shares released are allocated to each eligible participant based on the ratio of each such participant’s compensation, as defined in the ESOP, to the total compensation of all eligible plan participants.  Forfeited shares shall be reallocated among other participants in the Plan.  Cash dividends paid on allocated shares will be distributed, at the direction of the Bank, to participants’ accounts or used to repay the principal and interest on the ESOP loan used to acquire Company stock on which dividends were paid.  Cash dividends on unallocated shares will be used to repay the outstanding debt of the ESOP.

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As ESOP shares are earned by the participants, the company recognizes compensation expense equal to the fair value of the earned ESOP shares during the period in which they become committed to be released.  Compensation expense recognized in connection with the ESOP for the three months ended December 31, 2013 and 2012 was $124,000 and $121,000, respectively,

Shares held by the ESOP trust were as follows:

	December 31,	September 30,
	2013	2013
	(Unaudited)
Allocated	111,887	83,321
Committed to be released	—	21,425
Unallocated	457,056	464,197
	568,943	568,943

The fair value of the unallocated shares was $8,108,000 and $8,460,000 at December 31, 2013 and September 30, 2013, respectively.

Stock Option Plan

Under the Company’s 2011 Equity Incentive Plan (the “Stock Plan”), the Company may grant stock options to its directors and employees for up to 999,810 shares of its common stock, reduced by the number of restricted stock awards and restricted stock unit awards granted.  Both incentive stock options and non-qualified stock options may be granted under the Stock Plan.  The exercise price of each stock option shall not be less than the fair market value of the Company’s common stock on the date of the grant and the maximum term of each option is ten years (or five years with respect to incentive stock options granted to an employee who is a 10% stockholder).  There are no further shares available for grant under the Stock Plan.

On August 20, 2013, in accordance with the Stock Plan, the Company granted 58,255 stock options to its directors and certain employees of the Company.  The fair value of the stock options granted on August 20, 2013 was $2.37 per share.  The stock options vest 50% per year from the date of grant over a two-year period.

On February 21, 2012, in accordance with the Stock Plan, the Company granted 584,480 stock options to its directors and certain employees of the Company.  The fair value of the stock options granted on February 21, 2012 was $3.95 per share.  The stock options vest 20% per year from the date of grant over a five-year period.

The fair value of each stock option granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	August 20,		February 21,
	2013		2012
Expected dividends	0.90	%	—	%
Expected term	5.75 years		10 years
Expected volatility	11.51	%	13.01	%
Risk-free interest rate	1.84	%	1.99	%
Forfeiture rate	—	%	—	%

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The dividend yield assumption is based upon the Company’s history of dividend payouts.  The expected term is based upon the expected life or the contractual term of the stock option.  The expected volatility is based upon historic volatility.  The risk-free interest rate is estimated using the U.S. Treasury yield curve in effect at the time of the grant based upon the expected option term.

The following is a summary of stock options and activity under the Stock Plan for the three months ended December 31, 2013:

				Weighted
				Average
		Weighted		Remaining
		Average		Contractual	Aggregate
		Exercise		Term	Intrinsic
Stock Options	Shares	Price		(In Years)	Value
		(Unaudited)
					(In thousands)
Outstanding at beginning of period	642,735	$	15.74	8.5	$	2,213
Granted	—	—
Exercised	—	—
Forfeited	—	—
Expired	—	—
Outstanding at end of period	642,735	$	15.74	8.2	$	2,213
Exercisable at end of period	116,896	$	15.47	8.1	$	228

For the three months ended December 31, 2013 and 2012, the share-based compensation expense applicable to the stock options was $133,000 and $115,000, respectively, and the recognized tax benefit related to this expense was $34,000 and $20,000, respectively.

As of December 31, 2013 and September 30, 2013, the unrecognized share-based compensation expense related to the non-vested stock options was $1.5 million and $1.7 million, respectively.  As of December 31, 2013, this amount is expected to be recognized over a weighted-average period of 3.0 years.

Restricted Stock Awards and Restricted Stock Unit Awards

Under the Company’s Stock Plan, the Company may issue shares of its common stock as restricted stock awards or restricted stock unit awards to its directors and employees.  The maximum number of shares that may be issued under the Stock Plan as restricted stock awards or restricted stock unit awards is 357,075 shares.  A restricted stock award is a grant of shares of Company common stock for no consideration, subject to a vesting schedule or the satisfaction of market conditions or performance conditions.  A restricted stock unit award is similar, except no shares are actually granted on the grant date.  The Company may issue the shares or purchase the shares of its common stock through open market transactions or negotiated block transactions.  Shares issued upon vesting may be either authorized but unissued or reacquired shares held by the Company.  Any shares not issued because vesting requirements are not met will again be available for issuance under Stock Plan.  The fair market value of shares awarded is based on market price at the date of grant and is recorded as unearned compensation and amortized over the applicable vesting period.  There are no further shares available for grant under the Stock Plan.

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Restricted Stock Awards

On August 20, 2013 and February 21, 2012, in accordance with the Stock Plan, the Company granted 75,375 and 281,700 restricted stock awards, respectively, to its directors and certain employees.  The shares awarded in August 2013 vest 50% per year over a two-year period and the shares awarded in February 2012 vest 20% per year over a five-year period.  The fair value of the restricted stock awards granted on August 20, 2013 and February 21, 2012 was $18.49 and $15.47 per share, respectively.

The following table presents the status of non-vested restricted stock awards under the Stock Plan for the three months ended December 31, 2013:

		Weighted
		Average
	Number	Grant-date
	of Shares	Fair Value
	(Unaudited)
Non-vested restricted stock awards at beginning of period	300,735	$	16.23
Restricted shares granted	—	—
Shares vested	—	—
Forfeited	—	—
Non-vested restricted stock awards at end of period	300,735	$	16.23

For the three months ended December 31, 2013 and 2012, the share-based compensation expense applicable to the non-vested restricted stock awards was $392,000 and $218,000, respectively, and the recognized tax benefit related to this expense was $157,000 and $87,000, respectively.

As of December 31, 2013 and September 30, 2013, the unrecognized share-based compensation expense related to the non-vested restricted stock awards was $3.8 million and $4.2 million, respectively.  As of December 31, 2013, this amount is expected to be recognized over a weighted-average period of 3.0 years.

Restricted Stock Unit Awards

As of December 31, 2013, there were no restricted stock unit awards granted under the Stock Plan.

NOTE 9 — DIVIDEND DECLARED

On January 22, 2014, the Company announced that its Board of Directors declared a quarterly cash dividend of $0.04 per share on the Company’s common stock.  The dividend is payable to stockholders of record as of February 4, 2014 and is expected to be paid on February 21, 2014.

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

General

Management’s discussion and analysis of the financial condition at December 31, 2013 (unaudited) and September 30, 2013 and results of operations for the three months ended December 31, 2013 and 2012 (unaudited) is intended to assist in understanding the financial condition and results of operations of the Company.  The results of operations for the three months ended December 31, 2013 are not necessarily indicative of results for the fiscal year ending September 30, 2014.  The information contained in this section should be read in conjunction with the unaudited consolidated financial statements and the notes thereto, appearing on Part I, Item 1 of this quarterly report on Form 10-Q.

Overview of Income and Expense

Income

The Company has two primary sources of pre-tax income.  The first is net interest income.  Net interest income is the difference between interest income, which is the income the Company earns on its loans and investments, and interest expense, which is the interest the Company pays on its deposits and borrowings.

The second source of pre-tax income is non-interest income, the compensation received from providing products and services.  The majority of non-interest income comes from service charges on deposit accounts, bank owned life insurance income and loan servicing fees.  The Company also earns income from the sale of residential mortgage loans and other fees and charges.

The Company recognizes gains and losses as a result of sales of investment securities, foreclosed property, and premises and equipment.  In addition, the Company recognizes losses on its investment securities that are considered other-than-temporarily impaired.  Gains and losses are not a regular part of the Company’s primary source of income.

Expenses

In addition to the interest expense we pay on our deposits and borrowings, the expenses the Company incurs in operating its business consist of salaries and employee benefits, occupancy, equipment expense, external processing fees, FDIC assessments, director fees and other non-interest expense.

Salaries and employee benefits consist primarily of the salaries and wages paid to employees, payroll taxes, and expenses for health care, retirement and other employee benefits.

Occupancy expenses, which are fixed or variable costs associated with premises and equipment, consist primarily of lease payments, real estate taxes, depreciation charges, maintenance, and cost of utilities.

Equipment expenses include expenses and depreciation charges related to office and banking equipment.

External processing fees are paid to third parties mainly for data processing services.

Other expenses include expenses for attorneys, accountants and consultants, advertising and marketing, franchise taxes, charitable contributions, insurance, office supplies, postage, telephone and other miscellaneous operating expenses.

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Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “may” and words of similar meaning.  These forward-looking statements include, but are not limited to:

·statements of our goals, intentions and expectations;

·statements regarding our business plans, prospects, growth and operating strategies;

·statements regarding the asset quality of our loan and investment portfolios; and

·estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control.  In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.  We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this document.

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:

·general economic conditions, either nationally or in our market areas, that are worse than expected;

·competition among depository and other financial institutions;

·inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;

·adverse changes in the securities markets;

·changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

·our ability to enter new markets successfully and capitalize on growth opportunities;

·our ability to successfully integrate acquired entities, if any;

·changes in consumer spending, borrowing and savings habits;

·changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board;

·changes in our organization, compensation and benefit plans;

·changes in our financial condition or results of operations that reduce capital available to pay dividends; and

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·changes in the financial condition or future prospects of issuers of securities that we own.

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

Critical Accounting Policies

Critical accounting policies are those which involve significant judgments and assessments by management and which could potentially result in materially different results under different assumptions and conditions.  As discussed in the Company’s 2013 Annual Report on Form 10-K, the Company considers the allowance for loan losses and income taxes to be our critical accounting policies.  The Company’s critical accounting policies have not changed from September 30, 2013.

Comparison of Financial Condition at December 31, 2013 (Unaudited) and September 30, 2013

At December 31, 2013, our total assets were $588.4 million, an increase of $3.2 million, or 0.5%, from our total assets of $585.2 million at September 30, 2013.  Loans, net increased $4.4 million, or 0.9%, to $470.4 million at December 31, 2013 from $466.0 million at September 30, 2013.  Securities increased to $51.1 million at December 31, 2013 from $46.3 million at September 30, 2013, due primarily to purchases of $8.2 million, offset primarily by maturities/calls and principal pay-downs of $3.3 million.  At December 31, 2013, cash and cash equivalents totaled $31.1 million as compared to $37.1 million at September 30, 2013, representing a $6.0 million decrease, or 16.1%.  The decrease was mainly due to the purchase of loans and securities, maturities of Federal Home Loan Bank (“FHLB”) advances and the decrease in deposits, offset by security maturities/calls, FHLB advances and loan payments in excess of loan originations.

Deposits decreased $2.6 million, or 0.6%, to $422.5 million at December 31, 2013 from $425.1 million at September 30, 2013.  The decrease resulted from decreases in term certificates to $116.3 million from $120.8 million, demand deposits to $54.7 million from $57.9 million and savings to $57.1 million from $57.3 million at December 31, 2013 and September 30, 2013, respectively.  The decreases were offset by increases in NOW deposits to $42.8 million from $38.6 million and money market deposits to $151.5 million from $150.4 million at December 31, 2013 and September 30, 2013, respectively.

The following table sets forth the Company’s deposit accounts at the dates indicated:

	December 31, 2013				September 30, 2013
	Amount		Percent		Amount		Percent
	(Unaudited)
	(Dollars in thousands)				(Dollars in thousands)
Demand deposits	$	54,703	13.0	%	$	57,891	13.6	%
NOW deposits	42,798		10.1		38,625		9.1
Money market deposits	151,520		35.9		150,439		35.4
Savings	57,092		13.5		57,310		13.5
Total non-certificate accounts	306,113		72.5		304,265		71.6
Term certificates	116,354		27.5		120,828		28.4
Total deposits	$	422,467	100.0	%	$	425,093	100.0	%

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The following table sets forth the maturities of the Company’s term certificates for each of the fiscal years ending after the dates indicated:

	December 31, 2013				September 30, 2013
	Amount		Weighted Average Rate		Amount		Weighted Average Rate
	(Unaudited)
	(Dollars in thousands)				(Dollars in thousands)
Within 1 year	$	88,393	0.81	%	$	88,385	0.82	%
Over 1 year to 2 years	16,459		1.16		20,458		1.17
Over 2 years to 3 years	3,635		1.09		3,743		1.13
Over 3 years to 4 years	5,831		1.70		6,036		1.67
Over 4 years to 5 years	2,036		1.35		2,206		1.37
	$	116,354	0.92	%	$	120,828	0.94	%

Borrowings, consisting of short-term and long-term FHLB advances, increased to $52.0 million at December 31, 2013 as compared to $44.0 million as of September 30, 2013.  During the three months ended December 31, 2013, the Company repaid maturing short-term and long-term advances totaling $8.0 million with a weighted average rate of 1.62% and borrowed $16.0 million of short-term and long-term advances with a weighted average rate of 0.85% to maintain liquidity and extend the average maturity of the portfolio of borrowed funds.

The following table sets forth the weighted average rate by type for the Company’s FHLB advances at the dates indicated:

	December 31, 2013				September 30, 2013
	Amount		Weighted Average Rate		Amount			Weighted Average Rate
	(Unaudited)
	(Dollars in thousands)				(Dollars in thousands)
Federal Home Loan Bank advances:
Short-term	$	8,000	0.33	%	$	6,000		0.36	%
Long-term	44,000		1.50		38,000		(1)	1.73
	$	52,000	1.32	%	$	44,000		1.54	%

(1)  Includes a $1,000,000 advance, callable quarterly, with a rate of 5.49% that matured August 19, 2013.

Total equity decreased to $105.2 million at December 31, 2013 from $106.4 million at September 30, 2013.  The decrease resulted primarily due to dividends paid on the Company’s common stock of $1.7 million and the purchase and retirement of 34,607 shares of the Company’s common stock totaling $607,000, in the open market at an average price of $17.54 per share, as part of the stock repurchase plan.  The decrease was offset in part by net income of $554,000, stock based compensation expense of $525,000 and ESOP expense of $124,000 for the three months ended December 31, 2013.

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Comparison of Operating Results for the Three Months Ended December 31, 2013 and 2012 (Unaudited)

General.  We recorded net income of $554,000 for the three months ended December 31, 2013 compared to net income of $681,000 for the three months ended December 31, 2012.  Net interest and dividend income remained at $4.3 million for the three months ended December 31, 2013 and 2012.  No provisions for loan losses were made for the three months ended December 31, 2013 compared to $120,000 for the same period ended December 31, 2012.  Non-interest income decreased to $399,000 for the quarter ended December 31, 2013 from $492,000 for the comparable 2012 period.  Non-interest expense increased to $3.8 million for the three month period ended December 31, 2013 compared to $3.4 million for the three months ended December 31, 2012.

Total Interest and Dividend Income.  Total interest and dividend income decreased to $4.9 million for the three months ended December 31, 2013 compared to $5.0 million for the three months ended December 31, 2012.  Average interest-earning assets increased to $547.6 million for the 2013 period compared to $534.3 million for the 2012 period while the average yield on interest-earning assets decreased to 3.60% from 3.76% during the periods.  The decrease in market interest rates contributed to the downward re-pricing of a portion of our existing assets and to lower rates for new assets.

Interest income on loans decreased to $4.7 million for the three months ended December 31, 2013 as compared to $4.9 million for the three months ended December 31, 2012.  The average balance of our loans increased for the three month period ended December 31, 2013 to $467.3 million from $452.6 million for the period ended December 31, 2012.  The average yield on loans decreased to 4.00% from 4.29%, reflecting decreases in interest rates on our adjustable-rate loan products, as well as lower rates on newly originated loans based on lower market interest rates. Interest income on taxable securities increased to $233,000 for the three months ended December 31, 2013 from $150,000 for the three months ended December 31, 2012, reflecting the increase in the average balance of such securities to $49.1 million from $42.1 million.  Additionally, the average yield on such securities increased to 1.90% for the quarter ended December 31, 2013 from 1.43% for the quarter ended December 31, 2012, as current investment purchases carried a higher yield.

Total Interest Expense. Total interest expense decreased $140,000, or 18.4%, to $622,000 for the three months ended December 31, 2013 from $762,000 for the three months ended December 31, 2012.  The decrease reflected a decrease in the average rate paid on deposits and borrowings in the 2013 period to 0.61%, compared to an average rate paid of 0.76% in the 2012 period.  Additionally, the average balance of such deposits decreased to $366.6 million for the 2013 quarter from $368.7 million for the comparable 2012 quarter. These decreases more than offset an increase in average borrowings to $44.3 million for the 2013 quarter from $32.5 million during the 2012 quarter.

Interest expense on term certificates decreased to $278,000 for the three months ended December 31, 2013 from $351,000 for the three months ended December 31, 2012, as the average balance of such certificates decreased to $118.7 million from $127.8 million, and the average rate paid on these certificates decreased to 0.94% for the quarter ended December 31, 2013 from 1.10% for the quarter ended December 31, 2012.  The decrease in the average balance of our term certificates resulted primarily from our customers choosing other more liquid deposit products.  Interest expense on money market accounts decreased to $155,000 for the quarter ended December 31, 2013 from $235,000 for the quarter ended December 31, 2012, a decrease of $80,000, or 34.0%, as the average cost of these accounts decreased to 0.41% for the quarter ended December 31, 2013 from 0.61% for the quarter ended December 31, 2012, reflecting lower market rates.  The average balance of these accounts declined to $150.5 million during the quarter ended December 31, 2013 as compared to $153.0 million during the quarter ended December 31, 2012.  Interest expense on borrowings, which consisted solely of advances from the Federal Home Loan Bank of Boston, was $168,000 for the quarter ended December 31, 2013 and

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$150,000 for the comparable 2012 period.  The increase resulted from an $11.9 million increase in the average balance of these advances, offset in part by a 33 basis points decrease in the average cost of the borrowings to 1.52% from 1.85% for the comparable 2012 quarter.

Net Interest and Dividend Income.  Net interest and dividend income remained at $4.3 million for both the three month periods ended December 31, 2013 and December 31, 2012.  Net interest and dividend income for the quarter ended December 31, 2013 was impacted by lower market interest rates on our loan portfolio, higher market rates on our securities portfolio and the change in the overall mix of our interest-earning assets.  The increase in the average balance of our deposits and borrowings and the increase in loan growth during the period resulted in a neutral impact on net interest and dividend income.  The Company’s net interest rate spread and net interest margin both decreased period to period.  The net interest rate spread and net interest margin were 2.99% and 3.14%, respectively, for the quarter ended December 31, 2013, compared to 3.00% and 3.19%, respectively, for the comparable 2012 quarter.  The ratio of our average interest-earning assets to average interest-bearing liabilities remained at 1.33x for both quarters ended December 31, 2013 and 2012.

Provision for Loan Losses.  We establish a provision for loan losses, which is charged to operations, in order to maintain the allowance for loan losses at a level we consider necessary to absorb credit losses incurred in the loan portfolio that are both probable and reasonably estimable at the balance sheet date.  In determining the level of the allowance for loan losses, we consider past and current loss experience, evaluations of real estate collateral, current economic conditions, volume and type of lending, adverse situations that may affect a borrower’s ability to repay a loan and the levels of non-performing loans.  The amount of the allowance is based on estimates and the ultimate losses may vary from such estimates, as more information becomes available or economic conditions change.  This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as circumstances change or as more information becomes available.  We assess the allowance for loan losses on a quarterly basis and make provisions for loan losses as required in order to maintain the allowance.

Based on the above factors, we did not record a provision for loan losses for the three months ended December 31, 2013, as compared to a $120,000 provision for loan losses for the three months ended December 31, 2012.  The allowance for loan losses was $4.0 million, or 0.9% of total loans, at December 31, 2013, September 30, 2013 and December 31, 2012.  Total non-performing assets were $2.8 million at December 31, 2013 compared to $2.1 million at September 30, 2013.  To the best of our knowledge, we have recorded all losses that are both probable and reasonably estimable for the three months ended December 31, 2013 and 2012.

Non-interest Income.  Non-interest income decreased to $399,000 for the three months ended December 31, 2013 from $492,000 for the three months ended December 31, 2012.  The decrease was due primarily to a decrease in net gain on sales of mortgage loans of $101,000 for the comparable quarters ended December 31, 2013 and 2012 as the Company did not sell any loans during the quarter ended December 31, 2013.  In addition, customer service fees decreased $14,000 to $196,000 for the quarter ended December 31, 2013 from $210,000 for the quarter ended December 31, 2012.  These decreases were slightly offset by increases in other income which increased to $22,000 from $11,000, the increase in income derived from life insurance policies which increased to $168,000 from $162,000 and the increase in loan servicing fees which increased to $13,000 from $8,000 for the 2013 and 2012 comparable quarter end periods.

Non-interest Expense.  Non-interest expense increased to $3.8 million for the three months ended December 31, 2013 compared to $3.4 million for the three months ended December 31, 2012.  Salaries and employee benefits increased to $2.6 million from $2.3 million, respectively, for the comparable three months ended December 31, 2013 and 2012.  The increase was due to additional employees, normal salary increases and increased equity incentive plan expense.  In addition, professional fees increased to

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$157,000 from $117,000, data processing expense increased to $219,000 from $208,000 and advertising expense increased to $133,000 from $129,000 for the 2013 and 2012 comparable quarter end periods.  These increases were offset by decreases in deposit insurance expense to $61,000 from $69,000, equipment expense to $99,000 from $106,000 and other expense to $253,000 from $257,000.

Provision for Income Taxes.  The provision for income taxes was $388,000 for the three months ended December 31, 2013 compared to $514,000 for the three months ended December 31, 2012.  Pre-tax income for the three months ended December 31, 2013 was $942,000 compared to $1.2 million for the comparable period ended December 31, 2012.  Our effective tax rate was 41.2% for the three months ended December 31, 2013 compared to 43.0% for the three months ended December 31, 2012.  The decrease in the effective tax rate was primarily due to the tax effect of the disallowance of the expense related to non-qualified stock options.  Also during the December 2013 quarter, an additional $10,000 was added to the valuation allowance on the deferred tax asset related to the charitable contribution made to Peoples Federal Savings Charitable Foundation in 2010.  A valuation allowance is established against deferred tax assets when, based upon the available evidence, including historical and projected taxable income, management determines that it is more likely than not that some or all of the deferred tax asset will not be realized.

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The following tables set forth average balance sheets, average yields and costs and certain other information for the periods indicated.  No tax-equivalent yield adjustments were made, as the effect thereof was not material.  All average balances are daily average balances.  Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield.  The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

	Three Months Ended December 31,
	2013							2012
	Average			Interest		Average		Average			Interest		Average
	Outstanding			Earned/		Yield/		Outstanding			Earned/		Yield/
	Balance			Paid		Rate (1)		Balance			Paid		Rate (1)
	(Unaudited)
	(Dollars in thousands)
Interest-earning assets:
Loans (2)	$	467,306		$	4,673	4.00	%	$	452,554		$	4,853	4.29	%
Taxable securities (3)	49,126			233		1.90		42,062			150		1.43
Other interest-earning assets	27,414			15		0.22		35,656			18		0.20
FHLB stock	3,775			4		0.42		4,014			5		0.50
Total interest-earning assets	547,621			4,925		3.60		534,286			5,026		3.76
Non-interest-earning assets	35,806							37,373
Total assets	$	583,427						$	571,659
Interest-bearing liabilities:
Deposits:
Savings	$	56,362		14		0.10		$	50,814		20		0.16
Money market accounts	150,495			155		0.41		153,038			235		0.61
NOW accounts	41,054			7		0.07		37,085			6		0.06
Term certificates	118,657			278		0.94		127,764			351		1.10
Total deposits	366,568			454		0.50		368,701			612		0.66
FHLB advances	44,326			168		1.52		32,457			150		1.85
Total interest-bearing liabilities	410,894			622		0.61		401,158			762		0.76
Demand deposits	56,014							50,643
Other non-interest-bearing liabilities	10,564							9,654
Total non-interest-bearing liabilities	66,578							60,297
Total liabilities	477,472							461,455
Stockholders’ equity	105,955							110,204
Total liabilities and stockholders’ equity	$	583,427						$	571,659
Net interest income				$	4,303						$	4,264
Net interest rate spread (4)						2.99	%						3.00	%
Net interest-earning assets (5)	$	136,727						$	133,128
Net interest margin (6)						3.14	%						3.19	%
Ratio of interest-earning assets to total interest-bearing liabilities	1.33		x					1.33		x

(1) Yields are annualized.

(2) Average loans include non-accrual loans and are net of average deferred loan fees/costs.

(3) Average balances are presented at average amortized cost.

(4) Net interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest bearing liabilities.

(5) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(6) Net interest margin represents net interest income divided by average total interest-earning assets.

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The following tables present the effects of changing rates and volumes on our net interest income for the periods indicated.  The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume).  The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate).  The net column represents the sum of the prior columns.  For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume.

	Three Months Ended December 31,
	2013 vs. 2012
	Increase (Decrease)						Total
	Due to						Increase
	Volume			Rate			(Decrease)
	(Unaudited)
	(In thousands)
Interest-earning assets:
Loans (1)	$	158		$	(338	)	$	(180	)
Taxable securities (2)	25			58			83
Other interest-earning assets	(4		)	1			(3		)
FHLB stock	—			(1		)	(1		)
Total interest-earning assets	179			(280		)	(101		)
Interest-bearing liabilities:
Deposits:
Savings	2			(8		)	(6		)
Money market accounts	(4		)	(76		)	(80		)
NOW accounts	1			—			1
Term certificates	(25		)	(48		)	(73		)
Total deposits	(26		)	(132		)	(158		)
FHLB advances	55			(37		)	18
Total interest-bearing liabilities	29			(169		)	(140		)
Increase (decrease) in net interest income	$	150		$	(111	)	$	39

(1) Average loans include non-accrual loans and are net of average deferred loan fees/costs.

(2) Average balances are presented at average amortized cost.

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

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

Our most liquid assets are cash and cash equivalents.  The levels of these assets depend on our operating, financing, lending and investing activities during any given period.  At December 31, 2013, cash and cash equivalents totaled $31.1 million.  Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $13.2 million.  Additionally, at December 31, 2013, the Company had $52.0

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million of borrowings outstanding with the Federal Home Loan Bank of Boston and we had the ability to borrow an additional $73.6 million from the Federal Home Loan Bank of Boston.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations.  At December 31, 2013, we had $50.8 million in loan commitments and standby letters of credit outstanding, which consisted of $13.5 million in commitments to originate loans, $8.7 million of unadvanced construction commitments, $7.4 million of commercial real estate lines of credit commitments, $16.4 million of home equity lines of credit commitments, $620,000 of consumer loan commitments, $4.1 million of commercial loan commitments and $66,000 of outstanding standby letters of credit.  Term certificates due within one year as of December 31, 2013 totaled $88.4 million, or 76.0% of total term certificates.  We believe this percentage of term certificates that mature within one year reflects continued depositor hesitance to invest their funds long-term in the current interest rate environment.  If these maturing term certificates do not remain with us, we will be required to seek other sources of funds, including other term deposits and other borrowing arrangements.  Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay as of December 31, 2013.  We believe, based on past experience that a significant portion of our term certificates will remain with us.  We have the ability to attract and retain deposits by adjusting the interest rates offered.

Loan Commitments.  Loan commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract and generally have fixed expiration dates or other termination clauses.  The following table presents information indicating various loan commitments of the Company as of the date indicated and their respective maturity dates:

	December 31, 2013
			More than		More than
			One Year		Three Years
	One Year		Through		Through		Over
	or Less		Three Years		Five Years		Five Years		Total
	(Unaudited)
	(In thousands)
Commitments to originate loans	$	13,525	$	—	$	—	$	—	$	13,525
Unadvanced portions of loans:
Construction loans	6,303		2,431		—		—		8,734
Commercial real estate lines of credit	—		—		200		7,162		7,362
Home equity lines of credit	149		670		250		15,301		16,370
Consumer	—		—		—		620		620
Commercial	1,473		—		—		2,662		4,135
Standby letters of credit	66		—		—		—		66
Total	$	21,516	$	3,101	$	450	$	25,745	$	50,812

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Contractual Obligations.  The following table presents information indicating various contractual obligations and commitments of the Company as of the date indicated and their respective maturity dates:

	December 31, 2013
			More than		More than
			One Year		Three Years
	One Year		Through		Through		Over
	or Less		Three Years		Five Years		Five Years		Total
	(Unaudited)
	(In thousands)
Federal Home Loan Bank advances	$	16,000	$	24,000	$	12,000	$	—	$	52,000
Operating leases	198		342		262		474		1,276
Total contractual obligations	$	16,198	$	24,342	$	12,262	$	474	$	53,276

Capital Management. The Bank is subject to various regulatory capital requirements administered by the Office of the Comptroller of the Currency (“OCC”), including a risk-based capital measure.  The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories.  At December 31, 2013 and September 30, 2013, the Bank exceeded all of its regulatory capital requirements and was considered “well-capitalized” under regulatory guidelines.

									To Be Well
					For Capital				Capitalized Under
					Adequacy				Prompt Corrective
	Actual				Purposes				Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
December 31, 2013 (Unaudited):
Total Capital (to Risk Weighted Assets)	$	93,202	25.00	%	$	29,923	8.0	%	$	37,404	10.0	%
Tier 1 Capital (to Risk Weighted Assets)	89,183		23.92		14,962		4.0		22,443		6.0
Tier 1 Leverage Capital (to Adjusted Total Assets)	89,183		15.18		23,497		4.0		29,371		5.0
September 30, 2013:
Total Capital (to Risk Weighted Assets)	$	92,122	24.83	%	$	29,677	8.0	%	$	37,097	10.0	%
Tier 1 Capital (to Risk Weighted Assets)	88,085		23.74		14,839		4.0		22,258		6.0
Tier 1 Leverage Capital (to Adjusted Total Assets)	88,085		15.08		23,369		4.0		29,212		5.0

In July 2013, the OCC and the other federal bank regulatory agencies issued a final rule that will revise their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. The final rule applies to all depository institutions, top-tier bank holding companies with total consolidated assets of $500 million or more and top-tier savings and loan holding companies. Among other things, the rule establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increases the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property.  The final rule also requires unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time, permanent election is made to continue to exclude those unrealized gains and losses from regulatory capital.  The rule limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity

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Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. The final rule becomes effective for the Bank on January 1, 2015. The capital conservation buffer requirement will be phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer requirement will be effective.  The final rule also implements consolidated capital requirements for savings and loan holding companies, such as the Company, effective January 1, 2015.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss due to adverse changes in market prices and rates, and typically encompasses exposures such as sensitivity to changes in market interest rates, foreign currency exchange rates, and commodity prices.  The Bank has no exposure to foreign currency exchange or commodity price movements.  Because net interest income is the Bank’s primary source of revenue, interest rate risk is a significant market risk to which the Bank is exposed.

Interest rate risk is the exposure of the Bank’s net interest income in response to movements in interest rates.  Net interest income is affected by changes in interest rates as well as by fluctuations in the level and duration of the Bank’s assets and liabilities.  Over and above the influence that interest rates have on net interest income, changes in rates may also affect the volume of lending activity, the ability of borrowers to repay variable rate loans, the volume of loan prepayments and refinancing, the availability, mix and cost of deposits and other funding alternatives, and the market value of the Bank’s assets and liabilities.

Exposure to interest rate risk is managed by the Bank through periodic evaluations of the current interest rate risk inherent in its rate-sensitive assets and liabilities, primarily deposits, borrowings, loans and investment securities, coupled with determinations of the level of risk considered appropriate given the Bank’s capital and liquidity requirements, business strategy and performance objectives.  Through such management, the Bank seeks to manage the vulnerability of its net interest income to changes in interest rates.

The Asset/Liability Committee (“ALCO”), comprised of several members of senior management and two members of the board of directors, is responsible for managing interest rate risk.  On a quarterly basis, this committee reviews with the board of directors its analysis of our exposure to interest rate risk, the effect subsequent changes in interest rates could have on the Bank’s future net interest income, key interest rate risk strategies and other activities, and the effect of those strategies on the Bank’s operating results.  This committee is also involved in the Bank’s planning and budgeting process as well as in determining pricing strategies for deposits and loans.  Management is aided in these efforts by the use of an independent third party that convenes with management on a quarterly basis for a complete asset/liability analysis and review.

The primary method that ALCO uses for measuring and evaluating interest rate risk is an income simulation analysis.  This analysis considers the maturity and interest rate re-pricing characteristics of all of our interest-earning assets and interest-bearing liabilities, as well as the relative sensitivities of these balance sheet components over a range of interest rate scenarios.  Interest rate scenarios tested generally include parallel and flattening/steepening rate ramps over a one-year period, and static, or flat, rates.  The simulation analysis is used to measure the exposure of net interest income to changes in interest rates over a specified time horizon, usually a two-year period.  The simulations also show the net interest income volatility for up to five years.

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For the quarter ended December 31, 2013, we used a simulation model to project changes for four rate scenarios.  This analysis calculates the difference between net interest income forecasts for these scenarios compared to the net interest income forecast using a flat rate scenario.  In each of these instances, Federal Funds was used as the driving rate.

The table below sets forth, as of December 31, 2013, the estimated changes in the Bank’s net interest income that would result.

		Economic Value of Equity (2)					Net Interest Income
		Estimated Increase (Decrease)							Estimated Increase (Decrease)
Changes in							Estimated
Interest Rates	Estimated						Net Interest
(basis points)(1)	EVE (2)	Amount			Percent		Income		Amount			Percent
	(Unaudited)
	(Dollars in thousands)
+300bp	84,200	$	(28,961	)	(25.6	)%	$	16,177	$	(1,423	)	(8.1	)%
+200bp	97,111	(16,050		)	(14.2	)%	17,176		(424		)	(2.4	)%
+100bp	106,960	(6,201		)	(5.5	)%	17,594		(6		)	(0.0	)%
0bp	113,161	—			—	%	17,600		—			—	%
-100bp	119,013	5,852			5.2	%	16,918		(682		)	(3.9	)%

(1)Assumes an instantaneous uniform change in interest rates at all maturities.

(2)EVE is the discounted present value of expected cash flows from interest-earning assets, interest-bearing bearing liabilities and off-balance sheet contracts.

The income simulation model includes various assumptions regarding the re-pricing relationships for each of our products.  Many of our assets are floating rate loans tied to the Prime rate, which are assumed to re-price immediately and to the same extent as the change in market rates, according to their contracted index.  Many of these credit relationships, however, now have interest rate “floors” at “above market” levels.  Many of these loans may not re-price with the first couple of increases in short-term interest rates.  Conversely, we have various transaction account products that would not increase or decrease in the same increments or at the same speed.  Money market accounts, as an example, are assumed to increase sooner and in larger increments than savings and NOW accounts.  These assumptions are based on our prior experience with the changes in rates paid on these non-maturity deposits coincident with changes in market interest rates.  The model begins by disseminating data into appropriate re-pricing buckets.  Assets and liabilities are then assigned a multiplier to simulate how much that particular balance sheet item will reprice when interest rates change.  The final step is to simulate the timing effect of assets and liabilities with a month-by-month simulation to estimate the change in interest income and expense over the next 12 months.

This analysis indicates the impact of changes in net interest income for the given set of rate changes and assumptions.  It does not incorporate any balance sheet growth, and it assumes that the structure and composition of the balance sheet will remain comparable to the structure at the start of the simulation.  It does not account for other factors that might impact this analysis, including changes by management to mitigate the impact of interest rate changes or secondary impacts such as changes to our credit risk profile as interest rates change.  Furthermore, loan prepayment rate estimates and spread relationships change regularly.  Interest rate changes create changes in actual loan prepayment rates that differ from the market estimates incorporated in this analysis.  Changes that vary significantly from the assumptions may have significant effects on our net interest income.

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For the rising interest rate scenarios, the base market interest rate forecast was increased, on an instantaneous and sustained basis, by 100, 200 and 300 basis points.  For the falling interest rate scenario, the base market interest rate forecast was decreased, on an instantaneous and sustained basis, by 100 basis points.  At December 31, 2013, our net interest income exposure related to these hypothetical changes in market interest rates was within our established guidelines.

There are inherent shortcomings to income simulations, given the number and variety of assumptions that must be made in performing the analysis.  The assumptions relied upon in making these calculations of interest rate sensitivity include the level of market interest rates, the shape of the yield curve, the degree to which certain assets and liabilities with similar attributes react to changes in market interest rates, and the degree to which non-maturity deposits, such as checking accounts, react to changes in market rates.  Although the analysis shown above provides an indication of the Bank’s sensitivity to interest rate changes at a point in time, these estimates are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on the Bank’s net interest income and may differ from actual results.

Item 4.  Controls and Procedures

(a)Evaluation of Disclosure Controls and Procedures.

The Company’s Chief Executive Officer, its President, its Chief Financial Officer and other members of its senior management team have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) or 15d-15(e)), as of December 31, 2013.  Based on such evaluation, the Chief Executive Officer, the President and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this report, were adequate and effective to provide reasonable assurance that information required to be disclosed by the Company, including the Bank, in reports that are filed or submitted under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.

The effectiveness of a system of disclosure controls and procedures is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error and the risk of fraud.  Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in condition and the risk that the degree of compliance with policies or procedures may deteriorate over time.  Due to such inherent limitations, there can be no assurance that any system of disclosure controls and procedures will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.

(b)Changes in Internal Controls Over Financial Reporting.

There have been no changes in the Company’s internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), during the quarter ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II — OTHER INFORMATION

Item 1.  Legal Proceedings

The Company and its subsidiary are subject to various legal actions arising in the normal course of business.  In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s financial condition or results of operations.

Item 1A.  Risk Factors

For the three months ended December 31, 2013, there have been no material changes to the risk factors set forth in Item 1A to Part I of our Annual Report on Form 10-K for the fiscal year ended September 30, 2013, filed December 13, 2013, except to the extent factual information disclosed elsewhere in this Form 10-Q relates to such risk factors.

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

(a)Unregistered Sales of Equity Securities.  Not applicable.

(b)Use of Proceeds.  Not applicable.

(c)Repurchase of Equity Securities.

On December 6, 2013, the Company announced that its Board of Directors authorized an increase in the number of common shares that may be repurchased pursuant to the Company’s stock repurchase plan that was previously announced on July 20, 2011 and subsequently expanded in February 2012 and October 2012.  Under the expanded repurchase plan, the Company is authorized to repurchase up to an additional 5% of its issued and outstanding common shares, or up to an additional 323,296 common shares.  The repurchase program permits shares to be repurchased in open market or private transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission.  The repurchase program may be suspended, terminated or modified at any time for any reason, including market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity, and other factors deemed appropriate.

At December 31, 2013, total repurchases under the repurchase program were 1,067,248 shares at an average price of $15.90.  During the quarter ended December 31, 2013, the Company purchased 34,607 shares at an average price of $17.54 as follows:

				Total Number of	Maximum Number of
	Total			Shares Purchased	Shares That May
	Number	Average		as Part of Publicly	Yet Be Purchased
	of Shares	Price Paid		Announced Plans	Under the Plans
Period	Purchased	per Share		or Programs	or Programs
	(Unaudited)
October 1-31, 2013	—	$	—	—	323,296
November 1-30, 2013	—	$	—	—	323,296
December 1-31, 2013	34,607	$	17.54	34,607	288,689
Total	34,607	$	17.54	34,607

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Item 3.  Defaults Upon Senior Securities

None.

Item 4.  Mine Safety Disclosures

Not applicable.

Item 5.  Other Information

None.

Item 6.  Exhibits

Exhibit No.	Description
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
101.INS	XBRL Instance Document**
101.SCH	XBRL Taxonomy Extension Schema**
101.CAL	XBRL Extension Calculation Linkbase**
101.DEF	XBRL Extension Definition Linkbase**
101.LAB	XBRL Extension Labels Linkbase**
101.PRE	XBRL Extension Presentation Linkbase**

*      Filed herewith.

**     Furnished herewith.

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SIGNATURES

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

	PEOPLES FEDERAL BANCSHARES, INC.
Date:   February 7, 2014		/s/ Maurice H. Sullivan, Jr.
		Maurice H. Sullivan, Jr.
		Chairman and Chief Executive Officer
Date:   February 7, 2014		/s/ Christopher Lake
		Christopher Lake
		Senior Vice President and Chief Financial
		Officer

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