SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2014

OR

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______________ to _______________

Commission File No. 000-55005

Sunnyside Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Maryland	46-3001280
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
56 Main Street, Irvington, New York	10533
(Address of Principal Executive Offices)	Zip Code

(914) 591-8000

(Registrant’s telephone number)

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 x     NO ¨

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

YES x     NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated 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 ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company x
(Do not check if smaller reporting company)

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

YES ¨     NO x

As of May 9, 2014, 793,500 shares of the Registrant’s common stock, par value $0.01 per share, were issued and outstanding.

Sunnyside Bancorp, Inc.

Form 10-Q

Index

		Page
Part I. Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Statements of Financial Condition as of March 31, 2014 (unaudited) and December 31, 2013	1
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2014 and 2013 (unaudited)	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2014  and 2013 (unaudited)	3
	Condensed Consolidated Statement of Changes in Equity for the Three Months Ended March 31, 2014 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2014 and 2013 (unaudited)	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6 – 19
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20 – 23
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	23
Item 4.	Controls and Procedures	23
Part II. Other Information
Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Defaults upon Senior Securities	24
Item 4.	Mine Safety Disclosures	24
Item 5.	Other Information	24
Item 6.	Exhibits	24
	Signature Page	25

Part I. – Financial Information

Item 1.                Financial Statements

SUNNYSIDE BANCORP, INC AND SUBSIDIARY

Condensed CONSOLIDATED Statements of Financial Condition

	March 31,			December 31,
	2014			2013
Assets
Cash and cash equivalents	$	1,044,731		$	2,636,523
Securities held to maturity, net		6,294,568			4,666,508
Securities available for sale		35,465,883			38,240,458
Loans receivable, net		40,320,792			40,040,109
Premises and equipment, net		1,616,724			1,602,451
Federal Home Loan Bank of New York and other stock, at cost		222,420			222,420
Accrued interest receivable		259,225			267,796
Cash surrender value of life insurance		2,024,990			2,008,494
Deferred income taxes		933,274			1,046,964
Other assets		657,472			519,277
Total Assets	$	88,840,079		$	91,251,000
Liabilities and Stockholders' Equity
Liabilities:
Deposits	$	75,684,858		$	78,024,604
Advances from borrowers for taxes and insurance		622,192			693,183
Other liabilities		454,915			597,210
Total Liabilities		76,761,965			79,314,997
Commitments and contingencies		-			-
Stockholders' equity:
Serial prefered stock; par value $0.01, 1,000,000 shares authorized, no shares issued		-			-
Common stock; par value $0.01, 30,000,000 shares authorized and 793,500 shares issued at March 31, 2014 and December 31, 2013, respectively		7,935			7,935
Additional paid in capital		7,082,343			7,082,343
Unallocated common stock held by the Employee Stock Ownership Plan		(527,674	)		(533,229	)
Retained earnings, substantially restricted		6,609,748			6,645,906
Accumulated other comprehensive (loss), net of tax		(1,094,238	)		(1,266,952	)
Total Stockholders' Equity		12,078,114			11,936,003
Total Liabilities and Stockholders' Equity	$	88,840,079		$	91,251,000

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

1

Sunnyside BANCORP, INC AND SUBSIDIARY

Condensed CONSOLIDATED Statements of Operations

	Three Months Ended
	March 31,
	2014			2013
Interest and dividend income:
Loans	$	470,353		$	505,099
Investment securities		29,139			33,763
Mortgage-backed securities		185,105			142,435
Federal funds sold and other earning assets		1,978			1,625
Total interest and dividend income		686,575			682,922
Interest expense on deposits		106,958			151,577
Borrowings		34			35
Total interest expense		106,992			151,612
Net interest income		579,583			531,310
Provision for loan losses		10,000			-
Net interest income after provision for loan losses		569,583			531,310
Non-interest income:
Fees and service charges		19,876			22,233
Net gain on sale of securities		18,078			4,587
Income on bank owned life insurance		16,496			15,939
Total non-interest income		54,450			42,759
Non-Interest Expense:
Compensation and benefits		341,753			343,210
Occupancy and equipment, net		108,010			100,921
Data processing service fees		56,811			40,298
Professional fees		96,718			45,741
Federal deposit insurance premiums		14,978			16,425
Advertising and promotion		15,254			10,325
Other		61,392			43,001
Total non-interest expense		694,916			599,921
Income (loss) before income taxes		(70,883	)		(25,852	)
Income tax expense (benefit)		(34,725	)		(7,449	)
Net income (loss)	$	(36,158	)	$	(18,403	)
Basic loss per share	$	(0.05	)		NM
Weighted average shares outstanding, basic and diluted		740,916			NM

(NM) Not meaningful or not applicable because the Company went public on July 15, 2013.

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

2

Sunnyside BANCORP, INC AND SUBSIDIARY

CONDENSED CONSOLIDATED Statements of Comprehensive Income (Loss)

	Three Months Ended
	March 31,
	2014			2013
Net income (loss)	$	(36,158	)	$	(18,403	)
Other comprehensive income (loss), before tax:
Defined benefit pension plans		-			22,870
Unrealized gains (losses) on securities available for sale:
Unrealized holding gains (losses) arising during the period		300,058			(161,256	)
Reclassification adjustment for (gains) losses included in operations		(13,653	)		(4,587	)
Other comprehensive income (loss), before tax		286,405			(142,973	)
Income tax expense (benefit) related to items of other comprehensive income		113,691			(38,099	)
Other comprehensive income (loss), net of tax		172,714			(104,874	)
Comprehensive income (loss)	$	136,556		$	(123,277	)

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

3

SUNNYSIDE BANCORP, INC AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

					Unallocated						Accumulated
					Common Stock						Other
	Common		Additional		Held By			Retained			Comprehensive			Total
	Stock		Paid-in Capital		ESOP			Earnings			Income (Loss)			Equity
Balance at December 31, 2013	$	7,935	$	7,082,343	$	(533,229	)	$	6,645,906		$	(1,266,952	)	$	11,936,003
Net Loss for the three months ended March 31, 2014		-		-		-			(36,158	)		-			(36,158	)
Amortization of ESOP shares		-		-		5,555			-			-			5,555
Other comprehensive income, net of tax		-		-		-			-			172,714			172,714
Balance at March 31, 2014	$	7,935	$	7,082,343	$	(527,674	)	$	6,609,748		$	(1,094,238	)	$	12,078,114

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

4

Sunnyside BANCORP, INC AND SUBSIDIARY

Condensed cONSOLIDATED StatementS of Cash Flows

	Three Months Ended
	March 31,
	2014			2013
Cash flows from operating activities:
Net income (loss)	$	(36,158	)	$	(18,403	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation expense		37,340			32,579
Amortization of premiums and accretion of discounts, net		51,413			96,433
Amortization of deferred loan fees and costs, net		3,250			795
Net gain on sales of securities available for sale		(13,653	)		(4,587	)
Net gain on sales of securities held to maturity		(4,425	)		-
Provision for loan losses		10,000			-
Decrease (increase) in accrued interest receivable		8,571			(3,453	)
Increase in cash surrender value of life insurance		(16,496	)		(15,939	)
Net increase in other assets		(138,196	)		(134,279	)
Net decrease in other liabilities		(142,295	)		(6,556	)
Amortization of ESOP shares		5,555			-
Net cash used in operating activities		(235,094	)		(53,410	)
Cash flows from investing activities:
Purchases of securities available for sale		-			(2,549,022	)
Purchases of securities held to maturity		(2,000,000	)		-
Repayments and maturities of securities held to maturity		145,500			534,296
Repayments and maturities of securities available for sale		1,145,584			2,625,036
Proceeds from sales of securities held to maturity		230,771			-
Proceeds from sales of securities available for sale		1,877,730			2,123,541
Loans purchased		-			(2,213,826	)
Loan originations, net of principal repayments		(293,933	)		683,528
Purchases of premises and equiment		(51,613	)		-
Net cash provided by investing activities		1,054,039			1,203,553
Cash flows from financing activities:
Net decrease in deposits		(2,339,746	)		(3,198,413	)
Net decrease in advances from borrowers for taxes and insurance		(70,991	)		(107,198	)
Net cash used in financing activities		(2,410,737	)		(3,305,611	)
Net decrease in cash and cash equivalents		(1,591,792	)		(2,155,468	)
Cash and cash equivalents at beginning of period		2,636,523			5,434,472
Cash and cash equivalents at end of period	$	1,044,731		$	3,279,004
Supplemental Information:
Cash paid for:
Interest	$	106,988		$	148,325
Income taxes (refunds received), net	$	15,000		$	-

5

Sunnyside BANCORP, INC AND SUBSIDIARY

Form 10-Q

Notes to Condensed Consolidated Financial Statements

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a description of the more significant policies used in the presentation of the accompanying consolidated financial statements of Sunnyside Bancorp, Inc. and Subsidiary, (collectively, the “Company”).

Principles of Consolidation

The consolidated financial statements are comprised of the accounts of Sunnyside Bancorp. Inc., and its wholly-owned subsidiary, Sunnyside Federal Savings and Loan Association of Irvington (“Sunnyside Federal” or the “Association”). All significant intercompany accounts and transactions have been eliminated in consolidation.

Business

Sunnyside Federal is a community-oriented savings institution whose primary business is accepting deposits from customers within its market area (Westchester County, New York) and investing those funds in mortgage loans secured by one-to-four family residences and in mortgage-backed and other securities. To a significantly lesser extent, funds are invested in multi-family and commercial mortgage loans, commercial loans, and consumer loans. Customer deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation. As a federally-chartered savings association, Sunnyside Federal’s primary regulator is the Office of the Controller of the Currency (the “OCC”).

Basis of Financial Statement Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with instructions for Form 10-Q, and in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. However, such information presented reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of the Company’s management, necessary for a fair statement of results for the interim period.

The results of operations for the three months ended March 31, 2014, are not necessarily indicative of the results to be expected for the year ended December 31, 2014, or any other future interim period. The unaudited consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2013 included in the Company’s annual report on Form 10-K.

Cash and Cash Equivalents

For purposes of reporting cash flows, the Company considers all cash and amounts due from depository institutions and interest-bearing deposits in other depository institutions with original maturities of three months or less to be cash equivalents.

Investment and Mortgage-Backed Securities

Securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. Securities classified as available-for-sale securities are reported at fair value, with unrealized holding gains or losses reported in a separate component of retained earnings. As of March 31, 2014 and December 31, 2013, the Company had no securities classified as held for trading.

The Company conducts a periodic review and evaluation of the securities portfolio to determine if a decline in the fair value of any security below its cost basis is other-than-temporary. The evaluation of other-than-temporary impairment considers the duration and severity of the impairment, the Company’s intent and ability to hold the securities and assessments of the reason for the decline in value and the likelihood of a near-term recovery. If such a decline is deemed other-than-temporary, the security is written down to a new cost basis and the resulting loss is charged to income as a component of non-interest expense.

6

  1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Premiums and discounts on securities are amortized by use of the level-yield method, over the life of the individual securities. Gain or loss on sales of securities is based upon the specific identification method.

Loans Receivable

Loans receivable are stated at unpaid principal balances less the allowance for loan losses and net deferred loan fees.

Recognition of interest on the accrual method is generally discontinued when interest or principal payments are ninety days or more in arrears, or when other factors indicate that the collection of such amounts is doubtful. At that time, a loan is placed on a nonaccrual status, and all previously accrued and uncollected interest is reversed against interest income in the current period. Interest on such loans, if appropriate, is recognized as income when payments are received. A loan is returned to an accrual status when factors indicating doubtful collectibility no longer exist.

Allowance for Loan Losses

An allowance for loan losses is maintained at a level, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio that are both probable and reasonable to estimate. Management of the Company, in determining the provision for loan losses considers the risks inherent in its loan portfolio and changes in the nature and volume of its loan activities, along with the general economic and real estate market conditions. The Company utilizes a two tier approach: (1) identification of problem loans and establishment of specific loss allowances on such loans; and (2) establishment of general valuation allowances on the remainder of its loan portfolio. The Company maintains a loan review system which allows for a periodic review of its loan portfolio and the early identification of potential problem loans. Such system takes into consideration, among other things, delinquency status, size of loans, type of collateral, and financial condition of the borrowers. Specific loan losses are established for identified loans based on a review of such information and appraisals of the underlying collateral. General loan losses are based upon a combination of factors including, but not limited to, actual loan loss experience, composition of the loan portfolio, current economic conditions, and management's judgment. Although management believes that adequate specific and general loan loss allowances are established, actual losses are dependent upon future events and, as such, further additions to the level of specific and general loan loss allowances may be necessary.

A loan evaluated for impairment is deemed to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. An insignificant payment delay, which is defined as up to ninety days by the Company, will not cause a loan to be classified as impaired. A loan is not impaired during a period of delay in payment if the Company expects to collect all amounts due, including interest accrued at the contractual interest rate for the period of delay. The amount of loan impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. All loans identified as impaired are evaluated independently. The Company does not aggregate such loans for evaluation purposes. Payments received on impaired loans are applied first to accrued interest receivable and then to principal.

Federal Home Loan Bank of New York stock

As a member of the Federal Home Loan Bank of New York (“FHLB”), the Company is required to acquire and hold shares of FHLB Class B stock. The holding requirement varies based on the Company’s activities, primarily its outstanding borrowings, with the FHLB. The investment in FHLB stock is carried at cost. The Company conducts a periodic review and evaluation of its FHLB stock to determine if any impairment exists.

Premises and Equipment

Premises and equipment are comprised of land, building, and furniture, fixtures, and equipment, at cost, less accumulated depreciation. Depreciation charges are computed on the straight-line method over the following estimated useful lives:

Building and improvements	5 to 40 years
Furniture, fixtures and equipment	2 to 10 years

7

  1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Bank-Owned Life Insurance

Bank-owned life insurance (“BOLI”) is accounted for in accordance with FASB guidance. The cash surrender value of BOLI is recorded on the statement of financial condition as an asset and the change in the cash surrender value is recorded as non-interest income. The amount by which any death benefits received exceeds a policy’s cash surrender value is recorded in non-interest income at the time of receipt. A liability is also recorded on the statement of financial condition for postretirement death benefits provided by the split-dollar endorsement policy. A corresponding expense is recorded in non-interest expense for the accrual of benefits over the period during which employees provide services to earn the benefits.

Income Taxes

Federal and state income taxes have been provided on the basis of reported income. The amounts reflected on the tax return differ from these provisions due principally to temporary differences in the reporting of certain items for financial reporting and income tax reporting purposes. The tax effect of these temporary differences is accounted as deferred taxes applicable to future periods. Deferred income tax expense or benefit is determined by recognizing deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. The realization of deferred tax assets is assessed and a valuation allowance provided, when necessary, for that portion of the asset which is not likely to be realized.

Employee Benefits

Defined Benefit Plans:

The accounting guidance related to retirement benefits requires an employer to: (a) recognize in its statement of financial position an asset for a plan’s overfunded status or a liability for a plan’s underfunded status; (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year; and (c) recognize, in comprehensive income, changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. The accounting guidance requires that plan assets and benefit obligations be measured as of the date of the employer’s fiscal year-end statement of financial condition.

401(K) Plan:

The Company has a 401(k) plan covering substantially all employees. The Company matches 50% of the first 6% contributed by participants and recognizes expense as its contributions are made.

Employee Stock Ownership Plan:

The employee stock ownership plan (ESOP) is accounted for in accordance with the provisions of ASC 718-40, “Employers’ Accounting for Employee Stock Ownership Plans.” The funds borrowed by the ESOP from the Company to purchase the Company’s common stock are being repaid from the Association’s contributions over a period of up to 25 years. The Company’s common stock not yet allocated to participants is recorded as a reduction of stockholders’ equity at cost. Compensation expense for the ESOP is based on the market price of the Company’s stock and is recognized as shares are committed to be released to participants.

Comprehensive Income

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

8

  1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Concentration of Credit Risk and Interest-Rate Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents, investment and mortgage-backed securities and loans. Cash and cash equivalents include amounts placed with highly rated financial institutions. Investment securities include securities backed by the U.S. Government and other highly rated instruments. The Company’s lending activity is primarily concentrated in loans collateralized by real estate in the State of New York. As a result, credit risk is broadly dependent on the real estate market and general economic conditions in the State.

The Company is principally engaged in the business of attracting deposits from the general public and using these deposits, together with borrowings and other funds, to make loans secured by real estate in the State of New York. The potential for interest-rate risk exists as a result of the shorter duration of the Company's interest-sensitive liabilities compared to the generally longer duration of interest-sensitive assets. In a rising rate environment, liabilities will reprice faster than assets, thereby reducing net interest income. For this reason, management regularly monitors the maturity structure of the Company's assets and liabilities in order to measure its level of interest-rate risk and to plan for future volatility.

Advertising Costs

It is the Company’s policy to expense advertising costs in the period in which they are incurred.

Earnings Per Share

Basic earnings per share is computed by dividing net income for the period by the weighted average number of shares of common stock outstanding adjusted for unearned shares of the Employee Stock Ownership Plan (“ESOP”).

Subsequent Events

The Company has evaluated all events subsequent to the balance sheet date of March 31, 2014 through the date of this report, and has determined that there are no subsequent events that require disclosure under FASB guidance other than as disclosed in note 6.

2. MUTUAL TO STOCK CONVERSION AND LIQUIDATION ACCOUNT

On July 15, 2013, the Association completed its mutual-to-stock conversion, and the Company consummated its initial stock offering. The Company sold 793,500 shares of its common stock, including 55,545 shares purchased by the Association’s ESOP, at a price of $10.00 per share, in a subscription offering, for gross offering proceeds of $7,935,000. The cost of conversion and the stock offering were deferred and deducted from the proceeds of the offering. Conversion costs incurred totaled $845,000 resulting in net proceeds of $6.5 million after also deducting the shares acquired by the ESOP.

In accordance with applicable federal conversion regulations, at the time of the completion of our mutual-to-stock conversion, the Company established a liquidation account in the Association in an amount equal to the Association’s total retained earnings as of the latest balance sheet date in the final prospectus used in the Conversion.  Each eligible account holder or supplemental account holder is entitled to a proportionate share of this liquidation account in the event of a complete liquidation of the Association, and only in such event.  This share will be reduced if the eligible account holder’s or supplemental account holder’s deposit balance falls below the amounts on the date of record as of any December 31 and will cease to exist if the account is closed.  The liquidation account will never be increased despite any increase after conversion in the related deposit balance.

The Company may not declare, pay a dividend on, or repurchase any of its capital stock, if the effect thereof would cause retained earnings to be reduced below the liquidation account amount or regulatory capital requirements

9

  3. SECURITIES

	March 31, 2014
	Amortized		Gross Unrealized				Fair
	Cost		Gains		Losses		Value
Securities held to maturity:
U.S.government and agency obligations	$	2,000,000	$	-	$	-	$	2,000,000
State, county, and municipal obligations		489,574		15,781		-		505,355
Mortgage-backed securities		3,804,994		128,994		-		3,933,988
	$	6,294,568	$	144,775	$	-	$	6,439,343
Securities available for sale:
U.S. government and agency obligations	$	3,996,921	$	-	$	163,281	$	3,833,640
Mortgage-backed securities		32,078,592		120,852		567,201		31,632,243
	$	36,075,513	$	120,852	$	730,482	$	35,465,883

	December 31, 2013
	Amortized		Gross Unrealized				Fair
	Cost		Gains		Losses		Value
Securities held to maturity:
State, county, and municipal obligations	$	489,566	$	17,035	$	-	$	506,601
Mortgage-backed securities		4,176,942		125,291		-		4,302,233
	$	4,666,508	$	142,326	$	-	$	4,808,834
Securities available for sale:
U.S. government and agency obligations	$	3,996,781	$	-	$	225,048	$	3,771,733
Mortgage-backed securities		35,139,713		100,428		771,416		34,468,725
	$	39,136,494	$	100,428	$	996,464	$	38,240,458

Mortgage-backed securities consist of securities guaranteed by Ginnie Mae, Fannie Mae, Freddie Mac, and the Small Business Administration with amortized costs of $5.8 million, $15.9 million, $8.1 million, and $6.0 million, respectively, at March 31, 2014 ($6.3 million, $16.4 million, $9.1 million, and $7.5 million, respectively, at December 31, 2013).

Proceeds from the sale of securities held to maturity amounted to $230,771 for the three months ended March 31, 2014. There were no sales of securities held to maturity during the comparable quarter in 2013. Net gains of $4,425 were recognized on the sales for the three months ended, March 31, 2014. The sale of the securities occurred after the Company had already collected a substantial portion (at least 85%) of the principal outstanding due to prepayments on the debt securities.

Proceeds from the sale of securities available for sale amounted to $1,877,730 and $2,123,541 for the three months ended March 31, 2014 and 2013, respectively. Net gains of $13,653 and $4,587 were recognized on those sales for the three months ended March 31, 2014 and 2013, respectively.

10

  3.  SECURITIES (Cont’d)

The following is a summary of the amortized cost and fair value of securities at March 31, 2014 and December 31, 2013, by remaining period to contractual maturity. Actual maturities may differ from these amounts because certain debt security issuers have the right to call or redeem their obligations prior to contractual maturity. In addition, mortgage backed securities that amortize monthly are listed in the period the security is legally set to pay off in full.

	March 31, 2014
	Held to Maturity				Available for Sale
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Within one year	$	-	$	-	$	-	$	-
After one to five years		110,082		116,107		-		-
After five to ten years		379,492		389,248		12,037,920		11,891,546
After ten years		5,804,994		5,933,988		24,037,593		23,574,337
	$	6,294,568	$	6,439,343	$	36,075,513	$	35,465,883

	December 31, 2013
	Held to Maturity				Available for Sale
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Within one year	$	-	$	-	$	-	$	-
After one to five years		110,095		116,846		574,576		577,199
After five to ten years		379,471		389,755		12,429,566		12,191,416
After ten years		4,176,942		4,302,233		26,132,352		25,471,843
	$	4,666,508	$	4,808,834	$	39,136,494	$	38,240,458

The following tables summarize the fair values and unrealized losses of securities with an unrealized loss at March 31, 2014 and December 31, 2013, segregated between securities that have been in an unrealized loss position for less than one year, or one year or longer, at the respective dates.

	March 31, 2014
	Under One Year				One Year or More
			Gross				Gross
	Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss
Securities available for sale:
U.S. government and agency obligations	$	2,879,245	$	118,862	$	954,395	$	44,419
Mortgage-backed securities		16,988,246		296,060		3,888,369		271,141
	$	19,867,491	$	414,922	$	4,842,764	$	315,560

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  3.  SECURITIES (Cont’d)

	December 31, 2013
	Under One Year				One Year or More
			Gross				Gross
	Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss
Securities available for sale:
U.S. government and agency obligations	$	3,771,733	$	225,048	$	-	$	-
Mortgage-backed securities		20,801,105		447,844		3,941,749		323,572
	$	24,572,838	$	672,892	$	3,941,749	$	323,572

The unrealized losses are primarily due to changes in market interest rates subsequent to purchase. At March 31, 2014, a total of 29 securities were in an unrealized loss position (33 at December 31, 2013). The Company generally purchases securities issued by Government Sponsored Enterprises (GSE). Accordingly, it is expected that the GSE securities would not be settled at a price less than the Company’s amortized cost basis. The Company does not consider these investments to be other-than-temporarily impaired at March 31, 2014 and December 31, 2013 since the decline in market value is attributable to changes in interest rates and not credit quality and the Company has the intent and ability to hold these investments until there is a full recovery of the unrealized loss, which may be at maturity.

  4.  LOANS RECEIVABLE, NET

	March 31,			December 31,
	2014			2013
Mortgage loans:
Residential 1-4 family	$	34,656,083		$	34,616,130
Commercial and multi-family		4,733,734			4,458,768
Home equity lines of credit		685,665			689,805
		40,075,482			39,764,703
Other loans:
Commercial		500,000			500,000
Secured by savings accounts		26,837			43,683
		526,837			543,683
Total loans		40,602,319			40,308,386
Less:
Deferred loan fees (costs), net		(68,618	)		(71,868	)
Allowance for loan losses		350,145			340,145
		281,527			268,277
	$	40,320,792		$	40,040,109

In the ordinary course of business, the Company makes loans to its directors, executive officers, and their associates (related parties) on the same terms as those prevailing at the time of origination for comparable loans with other borrowers. The unpaid principal balances of related party loans were approximately $253,000 and $260,000 at March 31, 2014 and December 31, 2013, respectively.

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  4.  LOANS RECEIVABLE, NET (Cont’d)

Activity in the allowance for loan losses is summarized as follows:

	Three Months Ended
	March 31,
	2014		2013
Balance at beginning of period	$	340,145	$	314,490
Provision for loan losses		10,000		-
Charge offs		-		-
Recoveries		-		1,155
Balance at end of period	$	350,145	$	315,645

The allowance for loan losses consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. There are no specific allowances as of March 31, 2014 and December 31, 2013. The general component covers pools of loans by loan class not considered impaired, as well as smaller balance homogeneous loans, such as one-to-four family real estate, home equity lines of credit and other consumer loans.  These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors.  These qualitative risk factors include:

1. Lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices.

2. National, regional, and local economic and business conditions including the value of underlying collateral for collateral dependent loans.

3. Nature and volume of the portfolio and terms of loans.

4. Experience, ability, and depth of lending management and staff and the quality of the Company’s loan review system.

5. Volume and severity of past due, classified and nonaccrual loans.

6. Existence and effect of any concentrations of credit and changes in the level of such concentrations.

7. Effect of external factors, such as competition and legal and regulatory requirements.

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

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  4.  LOANS RECEIVABLE, NET (Cont’d)

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 specific and general losses in the portfolio.

The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated when credit deficiencies arise, such as delinquent loan payments. Credit quality risk ratings include regulatory classifications of pass, special mention, substandard, doubtful and loss.

Loan classifications are defined as follows:

• Pass — These loans are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral in a timely manner.

• Special Mention — These loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of repayment prospects.

• Substandard — These loans are inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

• Doubtful — These loans have all the weaknesses inherent in a loan classified substandard with the added characteristic that the weaknesses make the full recovery of our principal balance highly questionable and improbable on the basis of currently known facts, conditions, and values. The likelihood of a loss on an asset or portion of an asset classified as doubtful is high. Its classification as Loss is not appropriate, however, because pending events are expected to materially affect the amount of loss.

• Loss — These loans are considered uncollectible and of such little value that a charge-off is warranted. This classification does not necessarily mean that an asset has no recovery or salvage value; but rather, there is much doubt about whether, how much, or when the recovery will occur.

One of the primary methods the Company uses as an indicator of the credit quality of their portfolio is the regulatory classification system. The following table reflects the credit quality indicators by portfolio segment and class, at the dates indicated:

	March 31, 2014
	Mortgage Loans
			Commercial
	Residential		and		Home Equity
	1-4 Family		Multi-Family		LOC		Other		Total
	(In thousands)
Pass	$	34,156	$	4,245	$	487	$	527	$	39,415
Special Mention		138		489		198		-		825
Substandard		362		-		-		-		362
Total	$	34,656	$	4,734	$	685	$	527	$	40,602

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  4.  LOANS RECEIVABLE, NET (Cont’d)

	December 31, 2013
	Mortgage Loans
			Commercial
	Residential		and		Home Equity
	1-4 Family		Multi-Family		LOC		Other		Total
	(In thousands)
Pass	$	34,109	$	3,958	$	690	$	543	$	39,300
Special Mention		138		501		-		-		639
Substandard		369		-		-		-		369
Total	$	34,616	$	4,459	$	690	$	543	$	40,308

The following table provides information about loan delinquencies at the dates indicated:

	March 31, 2014
													90 Days
					90 Days								or More
	30-59 Days		60-89 Days		or More		Total		Current		Total		Past Due
	Past Due		Past Due		Past Due		Past Due		Loans		Loans		and Accruing
							(In Thousands)
Residential 1-4 family	$	15	$	138	$	287	$	440	$	34,216	$	34,656	$	-
Commercial and multi-family		-		-		-		-		4,734		4,734		-
Home equity lines of credit		198		-		-		198		487		685		-
Other loans		-		-		-		-		527		527		-
	$	213	$	138	$	287	$	638	$	39,964	$	40,602	$	-

	December 31, 2013
													90 Days
					90 Days								or More
	30-59 Days		60-89 Days		or More		Total		Current		Total		Past Due
	Past Due		Past Due		Past Due		Past Due		Loans		Loans		and Accruing
							(In thousands)
Residential 1-4 family	$	138	$	-	$	369	$	507	$	34,109	$	34,616	$	-
Commercial and multi-family		-		-		-		-		4,459		4,459		-
Home equity lines of credit		-		198		-		198		492		690		-
Other loans		-		-		-		-		543		543		-
	$	138	$	198	$	369	$	705	$	39,603	$	40,308	$	-

There were no troubled debt restructured loans at March 31, 2014 or December 31, 2013.

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  4.  LOANS RECEIVABLE, NET (Cont’d)

The following is a summary of loans, by loan type, on which the accrual of income has been discontinued and loans that are contractually past due 90 days or more but have not been classified as non-accrual at the dates indicated:

	March 31,		December 31,
	2014		2013
	(In thousands)
Residential 1-4 family	$	500	$	369
Commercial and multi-family		-		-
Home equity lines of credit		198		-
Other Loans		-		-
Total non-accrual loans		698		369
Accruing loans delinquent 90 days or more		-		-
Total non-performing loans	$	698	$	369

The total amount of interest income on non-accrual loans that would have been recognized if interest on all such loans had been recorded based upon original contract terms amounted to approximately $2,300 for the three months ended March 31, 2014.There were no loans on non-accrual status during the three months ended March 31, 2013.

The following tables present the activity in the allowance for loan losses by loan type for the periods indicated:

	Three Months Ended
	March 31, 2014
	Mortgage Loans
			Commercial
	Residential		and		Home Equity
	1-4 Family		Multi-Family		LOC		Other			Unallocated		Total
	(In thousands)
Beginning balance	$	295	$	34	$	6	$	5		$	-	$	340
Provision for loan losses		-		1		1		(1	)		9		10
Recoveries		-		-		-		-			-		-
Ending Balance	$	295	$	35	$	7	$	4		$	9	$	350

	Three Months Ended
	March 31, 2013
	Mortgage Loans
			Commercial
	Residential		and			Home Equity
	1-4 Family		Multi-Family			LOC		Other			Unallocated			Total
	(In thousands)
Beginning balance	$	128	$	59		$	5	$	4		$	118		$	314
Provision for loan losses		173		(51	)		-		(4	)		(118	)		-
Recoveries		-		-			-		2			-			2
Ending Balance	$	301	$	8		$	5	$	2		$	-		$	316

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  5.  ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of accumulated other comprehensive loss included in equity are as follows:

	March 31,			December 31,
	2014			2013
Unrealized net loss on pension plan	$	(1,204,899	)	$	(1,204,899	)
Unrealized gain (loss) on securities available for sale		(609,630	)		(896,035	)
Accumulated other comprehensive loss before taxes		(1,814,529	)		(2,100,934	)
Tax effect		720,291			833,982
Accumulated other comprehensive loss	$	(1,094,238	)	$	(1,266,952	)

  6.  FAIR VALUE MEASUREMENTS AND DISCLOSURES

A. Fair Value Measurements

The Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures,” defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC Topic 820 applies only to fair value measurements already required or permitted by other accounting standards and does not impose requirements for additional fair value measures. ASC Topic 820 was issued to increase consistency and comparability in reporting fair values.

The Company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. The Company did not have any liabilities that were measured at fair value at March 31, 2014 and December 31, 2013. Securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets or liabilities on a non-recurring basis, such as foreclosed real estate owned and certain impaired loans. These non-recurring fair value adjustments generally involve the write-down of individual assets due to impairment losses.

In accordance with ASC Topic 820, the Company groups its assets at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:

• Level 1 — Valuation is based upon quoted prices for identical instruments traded in active markets.

• Level 2 — Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.

• Level 3 — Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques. The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability.

The Company bases its fair values on the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. ASC Topic 820 requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Assets that are measured on a recurring basis are limited to the available-for-sale securities portfolio. The available-for-sale portfolio is carried at estimated fair value with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income or loss in stockholders’ equity. Substantially all of the available-for-sale portfolio consists of investment securities issued by government-sponsored enterprises. The fair values for substantially all of these securities are obtained from an independent securities broker. Based on the nature of the securities, the securities broker provides the Company with prices which are categorized as Level 2 since quoted prices in active markets for identical assets are generally not available for the majority of securities in the portfolio.

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  6.  FAIR VALUE MEASUREMENTS AND DISCLOSURES (Cont’d)

A. Fair Value Measurements (Cont’d)

The following table provides the level of valuation assumptions used to determine the carrying value of assets measured at fair value on a recurring basis at March 31, 2014 and December 31, 2013:

			Fair Value Measurements
			Quoted Prices in Active		Significant Other		Significant
	Carrying		Markets for Identical		Observable Inputs		Unobservable Inputs
Description	Value		Assets (Level 1)		(Level 2)		(Level 3)
March 31, 2014:
Securities available for sale	$	35,465,883	$	-	$	35,465,883	$	-
December 31, 2013:
Securities available for sale	$	38,240,458	$	-	$	38,240,458	$	-

There were no assets measured at fair value on a non-recurring basis at March 31, 2014 and December 31, 2013.

B. Fair Value Disclosures

The following methods and assumptions were used by the Company in estimating fair values of financial instruments as disclosed herein.

Cash and Cash Equivalents

For cash and due from banks and federal funds sold, the carrying amount approximates the fair value (Level 1).

Securities

The fair value of securities is estimated based on bid quotations received from securities dealers, if available (Level 1). If a quoted market price was not available, fair value was estimated using quoted market prices of similar instruments, adjusted for differences between the quoted instruments and the instruments being valued (Level 2).

FHLB Stock

The fair value for FHLB stock is its carrying value, since this is the amount for which it could be redeemed. There is no active market for this stock, and the Company is required to maintain a minimum balance based upon the unpaid principal of home mortgage loans (Level 2).

Loans Receivable

Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as residential mortgage, commercial, and consumer. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and nonperforming categories (Level 3).

Deposits

The fair value of deposits with no stated maturity, such as non-interest-bearing demand deposits, savings, and NOW and money market accounts, is equal to the amount payable on demand (Level 1). The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits with similar remaining maturities (Level 2).

Short-Term Borrowings

The carrying amounts of federal funds purchased, and other short-term borrowings maturing within 90 days approximate their fair values. Fair values of other short-term borrowings are estimated using discounted cash flow analyses based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements (Level 1).

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  6.  FAIR VALUE MEASUREMENTS AND DISCLOSURES (Cont’d)

B. Fair Value Disclosures (Cont’d)

Long-Term Borrowings

The fair value of long-term borrowings is estimated using discounted cash flow analysis based on the current incremental borrowing rates for similar types of borrowing arrangements (Level 2).

Off-Balance-Sheet Instruments

In the ordinary course of business the Company has entered into off-balance-sheet financial instruments consisting of commitments to extend credit. Such financial instruments are recorded in the financial statements when they are funded. Their fair value would approximate fees currently charged to enter into similar agreements.

The carrying values and estimated fair values of financial instruments are as follows (in thousands):

	March 31,				December 31,
	2014				2013
	Carrying		Estimated		Carrying		Estimated
	Value		Fair Value		Value		Fair Value
	(In Thousands)
Financial assets:
Cash and cash equivalents	$	1,045	$	1,045	$	2,637	$	2,637
Securities held to maturity		6,295		6,439		4,667		4,809
Securities available for sale		35,466		35,466		38,240		38,240
Loans receivable		40,321		40,571		40,040		40,180
FHLB and other stock, at cost		222		222		222		222
Accrued interest receivable		259		259		268		268
Financial liabilities:
Deposits		75,685		76,295		78,025		78,533

The fair value estimates are made at a discrete point in time based on relevant market information and information about the financial instruments. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Further, the foregoing estimates may not reflect the actual amount that could be realized if all or substantially all of the financial instruments were offered for sale.

In addition, the fair value estimates were based on existing on-and-off balance sheet financial instruments without attempting to value the anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other significant assets and liabilities that are not considered financial assets and liabilities include premises and equipment and advances from borrowers for taxes and insurance. In addition, the tax ramifications related to the realization of the unrealized gains and losses have a significant effect on fair value estimates and have not been considered in any of the estimates.

Finally, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence of active secondary markets for many of the financial instruments. The lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated fair values.

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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 and results of operations at and for the three months ended March 31, 2014 and 2013 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto, appearing on Part I, Item 1 of this quarterly report on Form 10-Q.

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” 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 quality of our loan and investment portfolios; and

· estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our management 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.

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 de novo or acquired branches, if any;

· our ability to execute on our business strategy to increase commercial real estate and multi-family lending and commercial lending, including implementing an SBA lending program;

· 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; and

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

20

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

There are no material changes to the critical accounting policies disclosed in the Company’s form 10K for the year 2013.

Comparison of Financial Condition at March 31, 2014 and December 31, 2013

Total assets decreased $2.4 million, or 2.6%, to $88.8 million at March 31, 2014 from $91.3 million at December 31, 2013. The decrease was due primarily to a $1.6 million decrease in cash and cash equivalents and a $2.8 million decrease in securities available for sale offset by increases in securities held to maturity of $1.6 million and loans receivable of $281,000.

Cash and cash equivalents decreased $1.6 million, or 61.5%, to $1.0 million at March 31, 2014 from $2.6 million at December 31, 2013, as cash was used to fund the outflow of higher interest rate certificates of deposit during the period. Securities available for sale decreased $2.8 million, or 7.3%, to $35.5 million at March 31, 2014 from $38.2 million at December 31, 2013 and securities held to maturity increased $1.6 million, or 34.9%, to $6.3 million at March 31, 2014 from $4.7 million at December 31, 2013 reflecting additional purchases from stock proceeds offset by the sale of mortgage backed securities classified as held to maturity after collection of a substantial portion (at least 85%) of principal outstanding at acquisition and monthly principal payments.

Net loans receivable increased $281,000, or 0.7%, to $40.3 million at March 31, 2014 from $40.0 million at December 31, 2013. The increase in loans receivable was due primarily to new loan originations exceeding loan repayments.

At March 31, 2014, our investment in bank-owned life insurance increased $16,500 to $2.02 million from $2.00 million at December 31, 2013. We invest in bank-owned life insurance to provide us with a funding offset for our benefit plan obligations. Bank-owned life insurance also generally provides us noninterest income that is non-taxable. Federal regulations generally limit our investment in bank-owned life insurance to 25% of our Tier 1 capital plus our allowance for loan losses, and we have not made any additional contributions to our bank-owned life insurance since 2002.

Other assets, consisting primarily of accrued interest receivable, prepaid FDIC insurance premiums, refundable income taxes, an annuity contract for a former director, and deferred income taxes remained relatively unchanged at $1.8 million at March 31, 2014 and at December 31, 2013.

Total deposits decreased $2.3 million, or 3.0%, to $75.7 million at March 31, 2014 from $78.0 million at December 31, 2013. The decrease resulted primarily from decreases in savings and club accounts of $1.9 million, or 6.5%, and certificates of deposit accounts of $1.7 million, or 5.2%. As part of our efforts to reduce our reliance on certificates of deposit, we continued to allow higher costing certificates of deposit to run off at maturity during the first quarter of 2014, as we increased our emphasis on increasing core deposits.NOW accounts increased $599,000, or 6.3% from December 31, 2013 while money market accounts increased $139,000 or 4.2% and Non-interest bearing deposit accounts increased $509,000 or 14.2%.

We had no borrowings outstanding at March 31, 2014 or at December 31, 2013. At March 31, 2014, we had the ability to borrow up to 30 percent of the Association’s assets in FHLB advances and $1.0 million on a Fed Funds line of credit with Atlantic Central Bankers Bank.

Total equity increased to $12.1 million at March 31, 2014 from $11.9 million at December 31, 2013 resulting from a decrease in other comprehensive loss of $173,000, a $6,000 decrease in the unallocated common stock held by the Employee Stock Ownership Plan offset by a net loss for the quarter ended March 31, 2014 of $36,000.

Comparison of Results of Operations for the Quarters Ended March 31, 2014 and March 31, 2013

General. We had a net loss of $36,000 for the quarter ended March 31, 2014 compared to a net loss of $18,000 for the quarter ended March 31, 2013. The increase in our net loss resulted primarily from increases in the provision for loan losses and non-interest expense, which was partially offset by increases in net interest income, non-interest income and the income tax benefit when comparing the 2014 quarter to the 2013 quarter.

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Net Interest Income.   Net interest income increased $49,000 or 9.1%, to $580,000 for the quarter ended March 31, 2014 from $531,000 for the quarter ended March 31, 2013. The increase resulted from an increase of $4,000 in interest and dividend income and a decrease of $45,000 in interest expense on deposits quarter to quarter. The average yield on our loans decreased 30 basis points, the average yield on our investment securities increased 107 basis points and the yield on average mortgage-backed securities increased 30 basis points during the quarter ended March 31, 2014 compared to the same quarter in 2013. Our net interest rate spread increased 28 basis points to 2.75% for the quarter ended March 31, 2014 from 2.47% for the quarter ended March 31, 2013 and our net interest margin increased 30 basis points to 2.82% for the 2014 quarter from 2.52% for the 2013 period. Average interest-earning assets decreased $2.3 million, or 2.7%, to $83.3 million for the quarter ended March 31, 2014 from $85.6 million for the first quarter of 2013.

Interest and Dividend Income.  Interest and dividend income increased $4,000 to $687,000 for the quarter ended March 31, 2014 from $683,000 for the quarter ended March 31, 2013. The increase resulted primarily from increases of $43,000 in interest income on mortgage-backed securities offset by decreases in interest income on loans of $35,000 and $4,000 in investment securities.

Interest income on loans decreased $35,000, or 6.9%, to $470,000 for the quarter ended March 31, 2014 from $505,000 for the quarter ended March 31, 2013. The decrease resulted primarily from a decrease of 30 basis points in the average yield on loans to 4.70% for the 2014 quarter from 5.00% for the 2013 quarter, reflecting lower market interest rates year to year. The average balance of loans outstanding decreased $410,000 to $40.6 million, or 1.0%, from $41.0 million for the quarter ended March 31, 2013.

Interest and dividend income on investment and mortgage-backed securities increased $38,000 to $214,000 for the quarter ended March 31, 2014 from $176,000 for the quarter ended March 31, 2013 due to an increase in the average yield on securities to 2.50% during the 2014 quarter from 1.43% during the 2013 quarter, offset in part by a decrease in the average balance of securities of $1.4 million to $42.5 million for the 2014 quarter from $43.9 million for the 2013 quarter. The average balance in the mortgage-backed portfolio increased $3.5 million to $37.8 million from $34.3 million for the same periods in 2013.The average balance in the investment securities portfolio decreased $4.9 million to $4.7 million for the first quarter of 2014 from $9.6 million for the same quarter in 2013.

Interest Expense.  Interest expense, consisting primarily of the cost of interest-bearing deposits, decreased $45,000, or 29.4%, to $107,000 for the quarter ended March 31, 2014 from $152,000 for the quarter ended March 31, 2013.  The decrease in the cost of interest-bearing deposits was due to a decrease of 16 basis points in the average rate paid on interest-bearing deposits to 0.59% for the quarter ended March 31, 2014 from 0.75% for the quarter ended March 31, 2013, primarily due to lower interest paid on certificates of deposit reflecting lower market interest rates.  Average interest-bearing liabilities decreased $7.9 million, or 9.7% to $73.7 million for the quarter ended March 31, 2014 from $81.6 million for the quarter ended March 31, 2013. The average balance of the higher cost interest-bearing certificates of deposits decreased $5.0 million and the average balance of lower-cost NOW, money market and savings accounts decreased $2.9 million from the quarter ended March 31, 2013 to the quarter ended March 31, 2014.  

Provision for Loan Losses.  We establish provisions for loan losses that are charged to operations in order to maintain the allowance for loan losses at a level believed, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio both probable and reasonable to estimate at each reporting date. There was a $10,000 provision for loan losses recorded for the quarter ended March 31, 2014 and no provision recorded for the quarter ended March 31, 2013. Management of the Company determined that an increase of $10,000 to the provision for loan losses was necessary due to the increase in non-performing loans during the quarter to $698,000, at March 31, 2014, from $369,000 at December 31, 2013. The allowance for loan losses was $350,000 at March 31, 2014 compared to $340,000 at December 31, 2013. There were no charge offs or recoveries during the quarter ended March 31, 2014 and no charge offs and $1,200 of recoveries during the quarter ended March 31, 2013.

Noninterest Income.  Noninterest income increased $11,000 to $54,000 for the quarter ended March 31, 2014 from $43,000 for the quarter ended March 31, 2013. The increase was primarily due to an increase in security gains during the first quarter of 2014 of $13,000 offset by a decline in fees and service charges of $2,000 from the comparable quarter in 2013.

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Noninterest Expense.  Noninterest expense increased $95,000, or 15.8%, to $695,000 for the quarter ended March 31, 2014 from $600,000 for the quarter ended March 31, 2013. Occupancy and equipment increased $7,000 or 7.0%, to $108,000 for the quarter ended March 31, 2014 from $101,000 for the quarter ended March 31, 2013, as a result of increases in office building maintenance and related expenses. Data processing service fees increased $17,000 or 41.0% to $57,000 for the quarter ended March 31, 2014 from $40,000 for the same period in 2013. Professional fees increased $51,000 or 111.4% to $97,000 during the first quarter of 2014 from $46,000 for the quarter ended March 31, 2013. The increases in data processing service fees and professional fees related to the additional compliance, regulatory and public company reporting requirements required by the newly formed public Company.

Income Tax Expense (Benefit).  We recorded a $35,000 income tax benefit for the quarter ended March 31, 2014 and a $7,000 income tax benefit for the quarter ended March 31, 2013. Income tax expense (benefit) is calculated based on pre-tax income or (loss) adjusted for permanent book to tax differences, such as non-taxable interest income on municipal securities and income on bank owned life insurance.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable, as the Registrant is a smaller reporting company.

Item 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of March 31, 2014. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Registrant’s disclosure controls and procedures were effective.

During the quarter ended March 31, 2014, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II – Other Information

Item 1. Legal Proceedings

The Company is 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 Bank’s or the Company’s financial condition or results of operations.

Item 1A. Risk Factors

Not applicable, as the Registrant is a smaller reporting company.

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

(a) There were no sales of unregistered securities during the period covered by this Report.

(b) Not applicable.

(c) There were no issuer repurchases of securities during the period covered by this Report.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

31	Certification of Chief Executive Officer and Interim Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification of Chief Executive Officer and Interim 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 Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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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.

	SUNNYSIDE BANCORP, INC.
Date:  May 9, 2014	/s/ Timothy D. Sullivan
	Timothy D. Sullivan
	President, Chief Executive Officer, and
	Interim Chief Financial Officer

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