Pilgrim Bancshares, Inc. - FORM 10-Q

Attached files

file	filename
EX-31.2 - EXHIBIT 31.2 - Pilgrim Bancshares, Inc.	v423950_ex31-2.htm
EX-32 - EXHIBIT 32 - Pilgrim Bancshares, Inc.	v423950_ex32.htm
EX-31.1 - EXHIBIT 31.1 - Pilgrim Bancshares, Inc.	v423950_ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2015.

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

For the transition period from ______________ to ______________.

Commission file number: 000-55290

PILGRIM BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

Maryland	46-5110553
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

40 South Main Street, Cohasset, Massachusetts	02025
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: (781) 383-0541

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, 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 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 a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ¨ NO x

As of November 13, 2015, there were issued and outstanding 2,247,589 shares of the Registrant’s Common Stock with a par value of $0.01 per share.

Pilgrim Bancshares, Inc.

Form 10-Q

Index

		Page
Part I. Financial Information

Item 1.	Consolidated Financial Statements

	Consolidated Balance Sheets as of September 30, 2015 (unaudited) and December 31, 2014	3

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

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

	Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2015 and September 30, 2014 (unaudited)	6

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

	Notes to Consolidated Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37

Item 4.	Controls and Procedures	37

Part II. Other Information

Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37

Item 3.	Defaults upon Senior Securities	37

Item 4.	Mine Safety Disclosures	37

Item 5.	Other Information	38

Item 6.	Exhibits	38

	Signature Page	39

Part I. – Financial Information

PILGRIM BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(In Thousands, except share data)

	September 30,			December 31,
	2015			2014
	(unaudited)
ASSETS
Cash and due from banks	$	1,840		$	1,938
Interest-bearing demand deposits with other banks		5,607			16,357
Total cash and cash equivalents		7,447			18,295
Interest-bearing time deposits with other banks		1,084			2,575
Investments in available-for-sale securities (at fair value)		13,708			11,767
Investments in held-to-maturity securities (fair value of $162 at September 30, 2015, and $196 at December 31, 2014)		124			149
Federal Home Loan Bank stock, at cost		945			694
Investment in The Co-operative Central Reserve Fund, at cost		384			384
Loans, net of allowance for loan losses of $839 at September 30, 2015, and $743 at December 31, 2014		163,917			143,774
Premises and equipment, net		5,240			5,409
Investment in real estate, net		1,589			1,623
Accrued interest receivable		480			447
Deferred income tax asset, net		393			410
Bank-owned life insurance		2,265			2,230
Other assets		157			278
Total assets	$	197,733		$	188,035

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing	$	15,509		$	13,978
Interest-bearing		140,596			137,032
Total deposits		156,105			151,010
Federal Home Loan Bank advances		9,000			5,000
Other liabilities		522			423
Total liabilities		165,627			156,433
Stockholders' equity:
Common stock $.01 par value per share: 10,000,000 shares authorized, 2,247,589 shares issued at September 30, 2015 and December 31, 2014		22			22
Additional paid-in capital		20,761			20,770
Retained earnings		13,037			12,599
Unearned compensation - ESOP (169,318 shares unallocated at September 30, 2015 and 173,813 shares unallocated at December 31, 2014)		(1,693	)		(1,738	)
Accumulated other comprehensive loss		(21	)		(51	)
Total stockholders' equity		32,106			31,602
Total liabilities and stockholders' equity	$	197,733		$	188,035

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

PILGRIM BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, except share and per share data)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2015			2014		2015			2014
	(unaudited)					(unaudited)
Interest and dividend income:
Interest and fees on loans	$	1,696		$	1,414	$	4,839		$	4,274
Interest on debt securities:
Taxable		47			47		133			136
Tax-exempt		17			15		51			55
Other interest and dividends		12			13		37			37
Total interest and dividend income		1,772			1,489		5,060			4,502
Interest expense:
Interest on deposits		250			266		730			770
Interest on Federal Home Loan Bank advances		18			7		45			37
Total interest expense		268			273		775			807
Net interest and dividend income		1,504			1,216		4,285			3,695
Provision for loan losses		36			-		96			-
Net interest and dividend income after provision for loan losses		1,468			1,216		4,189			3,695
Noninterest income:
Service charges on deposit accounts		30			29		90			90
Net gain on sales/calls of securities		16			1		17			69
Writedown of securities (includes losses of $3 for the three and nine month periods ended September 30, 2015 and $12 for the nine month period ended September 30, 2014, no amounts recognized in other comprehensive income in any of the periods, before taxes)		(3	)		-		(3	)		(12	)
Gain on sales of loans, net		17			-		54			48
Rental income		63			67		194			193
Other income		33			31		96			95
Total noninterest income		156			128		448			483
Noninterest expense:
Salaries and employee benefits		749			649		2,259			2,005
Occupancy expense		120			110		418			369
Equipment expense		45			45		138			124
Data processing expense		100			98		277			285
Professional fees		104			79		300			213
FDIC assessment		36			36		106			97
Communications expense		31			29		90			88
Advertising and public relations expense		36			16		92			61
Insurance expense		20			17		61			50
Supplies expense		14			14		47			45
Other expense		49			51		173			162
Total noninterest expense		1,304			1,144		3,961			3,499
Income before income taxes		320			200		676			679
Income tax expense		117			69		238			247
Net income	$	203		$	131	$	438		$	432

Weighted-average number of common shares outstanding:
Basic		2,077,522			na		2,076,024			na
Diluted		2,077,522			na		2,076,024			na

Earnings per share:
Basic	$	0.10		$	na	$	0.21		$	na
Diluted	$	0.10		$	na	$	0.21		$	na

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

PILGRIM BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(unaudited)						(unaudited)
Net income	$	203		$	131		$	438		$	432
Other comprehensive income (loss), net of tax:
Net unrealized holding gain (loss) on available-for-sale securities		110			(29	)		63			261
Reclassification adjustment for net realized gains in net income ⁽¹⁾		(16	)		(1	)		(16	)		(69	)
Other comprehensive income (loss) before income tax effect		94			(30	)		47			192
Income tax (expense) benefit		(35	)		11			(17	)		(72	)
Other comprehensive income (loss), net of tax		59			(19	)		30			120
Comprehensive income	$	262		$	112		$	468		$	552

(1) Reclassification adjustments are comprised of realized security gains. The gains have been reclassified out of accumulated other comprehensive loss and have affected certain lines in the consolidated statements of income as follows: the pre-tax amount is included in net gain on sales/calls of securities, the tax expense amount is included in income tax expense and the after tax amount is included in net income.

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

PILGRIM BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Nine Months Ended September 30, 2015 and 2014 (unaudited)

(In Thousands, except share data)

													Accumulated
	Common				Additional					Unearned			Other
	Stock				Paid-in			Retained		Compensation-			Comprehensive
	Shares		Amount		Capital			Earnings		ESOP			Loss			Total
Balance, December 31, 2013		-	$	-	$	-		$	12,718	$	-		$	(214	)	$	12,504
Net income		-		-		-			432		-			-			432
Other comprehensive income, net of tax effect		-		-		-			-		-			120			120
Balance, September 30, 2014		-	$	-	$	-		$	13,150	$	-		$	(94	)	$	13,056

Balance, December 31, 2014		2,247,589	$	22	$	20,770		$	12,599	$	(1,738	)	$	(51	)	$	31,602
Net income		-		-		-			438		-			-			438
Common stock held by ESOP committed to be allocated (4,495 shares)		-		-		8			-		45			-			53
Other comprehensive income, net of tax effect		-		-		-			-		-			30			30
Issuance costs related to initial public offering		-		-		(17	)		-		-			-			(17	)
Balance, September 30, 2015		2,247,589	$	22	$	20,761		$	13,037	$	(1,693	)	$	(21	)	$	32,106

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

PILGRIM BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

	Nine Months Ended September 30,
	2015			2014
	(unaudited)
Cash flows from operating activities:
Net income	$	438		$	432
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses		96			-
Capitalized interest - interest-bearing time deposits		(9	)		(5	)
Amortization of securities, net		63			70
Net gain on sales/call of securities		(17	)		(69	)
Loans originated for sale		(2,631	)		(1,800	)
Proceeds from sales of loans originated for sale		2,685			1,848
Gain on sales of loans		(54	)		(48	)
Change in deferred origination fees, costs and discounts, excluding purchase discounts		(47	)		(9	)
Writedown of securities		3			12
Depreciation and amortization		255			248
Increase in accrued interest receivable		(33	)		(59	)
Decrease (increase) in other assets		34			(1,096	)
Increase in prepaid expenses		(2	)		(9	)
Decrease in income taxes receivable		89			-
Deferred tax expense		-			9
Increase in bank-owned life insurance		(35	)		(36	)
Stock based compensation expense		53			-
Increase (decrease) in other liabilities		99			(39	)

Net cash provided by (used in) operating activities		987			(551	)

Cash flows from investing activities:
Proceeds from redemption and maturities of interest-bearing time deposits		1,500			1,693
Purchase of Federal Home Loan Bank stock		(251	)		(170	)
Redemption of Federal Home Loan Bank stock		-			143
Purchases of available-for-sale securities		(4,384	)		(2,797	)
Proceeds from maturities of available-for-sale securities		250			1,191
Proceeds from sales of available-for-sale securities		-			2,718
Principal payments received on available-for-sale securities		2,188			-
Principal payments received on held-to-maturity securities		28			45
Loan principal originations and collections, net		(11,634	)		7,812
Loans purchased		(8,558	)		(6,763	)
Recoveries on loans previously charged off		-			1
Capital expenditures		(52	)		(119	)

Net cash (used in) provided by investing activities		(20,913	)		3,754

Cash flows from financing activities:
Net (decrease) increase in demand deposits, NOW and savings accounts		(1,909	)		22,702
Net increase in time deposits		7,004			3,760
Payments on Federal Home Loan Bank long-term advances		(1,000	)		(1,500	)
Proceeds from Federal Home Loan Bank long-term advances		5,500			-
Net change in short-term Federal Home Loan Bank advances		(500	)		(2,500	)
Issuance costs related to initial public offering		(17	)		-

Net cash provided by financing activities		9,078			22,462

Net (decrease) increase in cash and cash equivalents		(10,848	)		25,665
Cash and cash equivalents at beginning of period		18,295			8,991
Cash and cash equivalents at end of period	$	7,447		$	34,656

Supplemental disclosures:
Interest paid	$	773		$	812
Income taxes paid		149			186

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

PILGRIM BANCSHARES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF OPERATIONS

Pilgrim Bank (“the Bank”) is a Massachusetts-chartered stock co-operative bank which was incorporated in 1916 and is headquartered in Cohasset, Massachusetts. The Bank operates its business from three banking offices located in Massachusetts. The Bank is engaged principally in the business of attracting deposits from the general public and investing those deposits in residential and commercial real estate loans, and in commercial, consumer and small business loans.

On October 10, 2014, in accordance with a Plan of Conversion (the “Conversion”), Conahasset Bancshares, MHC, the Bank’s former mutual holding company, completed a mutual-to-stock conversion pursuant to which the Bank became a wholly owned subsidiary of Pilgrim Bancshares, Inc., (the “Company”) a Maryland corporation incorporated in February 2014 for the purpose of becoming the Bank’s holding company upon completion of the Conversion. In connection with the conversion, the Company sold 2,182,125 shares of common stock, including 179,807 shares to a newly established employee stock ownership plan, at an offering price of $10 per share, and issued an additional 65,464 shares of its common stock to the Pilgrim Bank Foundation (the “Foundation”), resulting in an aggregate issuance of 2,247,589 shares of common stock. The Foundation supports charitable causes and community development activities in the Bank’s area of operations. The net proceeds from the stock offering, net of offering costs of $1,685,000, amounted to $20,136,000. The Company’s stock began trading on October 13, 2014 under the symbol PLRM on the OTC Pink Marketplace operated by OTC Market Group.

At the time of conversion, the Company substantially restricted retained earnings by establishing a liquidation account and the Bank established a parallel liquidation account. The liquidation accounts will be maintained for the benefit of eligible account holders who continue to maintain their accounts at the Bank after conversion. The liquidation accounts will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s interest in the liquidation accounts. In the event of a complete liquidation of the Bank or the Bank and the Company, and only in such event, each account holder will be entitled to receive a distribution from the liquidation accounts in an amount proportionate to the adjusted qualifying account balances then held. The Company and the Bank may not pay dividends if those dividends would cause regulatory capital to be reduced below applicable capital requirements or the amount required to maintain their respective liquidation account amounts.

NOTE 2 - BASIS OF PRESENTATION

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank, and the Bank’s wholly-owned subsidiaries, 48 South Main Street Corporation, which was formed to hold securities for its own account; 40 South Main Street Realty Trust, which was formed to hold our main office; and 800 CJC Realty Corporation, which was formed to invest in and develop residential and commercial property. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and accompanying notes required by U.S. generally accepted accounting principles for complete financial statements. Information included herein as of September 30, 2015 and for the interim periods ended September 30, 2015 and 2014 is unaudited; however, in the opinion of management, all adjustments considered necessary for a fair presentation have been included and were of a normal recurring nature. The results of operations for the nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the entire year or any other interim period.

These statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. In preparing consolidated financial statements in conformity with U.S. generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheets and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, impairment of securities and the valuation of deferred tax assets.

NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, “Revenue from Contracts with Customers (Topic 606).” The objective of this ASU is to clarify principles for recognizing revenue and to develop a common revenue standard for Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards. The guidance in this ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principal of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. For public entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. However, in July 2015, the FASB voted to approve deferring the effective date by one year (i.e. interim and annual reporting periods beginning after December 15, 2017). Early adoption is permitted, but not before the original effective date (i.e. interim and annual reporting periods beginning after December 15, 2016). The Company is currently reviewing this ASU to determine if it will have an impact on its consolidated financial statements.

In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis.” The amendments in this ASU affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. Specifically, the amendments: (1) Modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities; (2) Eliminate the presumption that a general partner should consolidate a limited partnership; (3) Affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) Provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. ASU 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015. The Company anticipates that the adoption of this ASU will not have a material impact on its consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The standard is effective for interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted. The guidance should be applied on a retrospective basis. The Company anticipates that the adoption of this ASU will not have a material impact on its consolidated financial statements.

In April 2015, the FASB issued ASU 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” This ASU provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the accounting for a customer’s accounting for service contracts. This ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. The Company anticipates that the adoption of this ASU will not have a material impact on its consolidated financial statements.

In May 2015, the FASB issued ASU 2015-07, “Fair Value Measurement (Topic 820) - Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).” The objective of this update is to address the diversity in practice related to how certain investments measured at net asset value with redemption dates in the future are categorized within the fair value hierarchy. The amendments in this update remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The amendments also remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. Rather, those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

NOTE 4 - EARNINGS PER SHARE (EPS)

The Company has adopted the EPS guidance included in Accounting Standards Codification (“ASC”) 260-10. As presented below, basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS, if presented, reflects the potential dilution that would 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. For purposes of computing diluted EPS, the treasury stock method is used. Because the formation of the Company was completed on October 10, 2014, earnings per share data is not meaningful for prior comparative periods and is therefore not presented.

Unallocated ESOP shares are not deemed outstanding for earnings per share calculations.

EPS for the three and nine months ended September 30, 2015 has been computed based on the following:

	Three Months Ended			Nine Months Ended
	September 30, 2015			September 30, 2015
Net income (In thousands)	$	203		$	438

Basic common shares:
Weighted average shares outstanding		2,247,589			2,247,589
Less: Weighted average unallocated ESOP shares		(170,067	)		(171,565	)
Basic weighted average shares outstanding		2,077,522			2,076,024

Basic earnings per share	$	0.10		$	0.21
Diluted earnings per share (1)	$	0.10		$	0.21

No potentially dilutive common shares

NOTE 5 - INVESTMENTS IN SECURITIES

Investments in securities have been classified in the consolidated balance sheets according to management’s intent. The amortized cost of securities and their approximate fair values are as follows:

	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized		Fair
	Basis		Gains		Losses		Value
	(In Thousands)
Available-for-sale securities:
September 30, 2015 (unaudited):
Debt securities issued by U.S. government corporations and agencies	$	2,100	$	11	$	9	$	2,102
Debt securities issued by states of the United States and political subdivisions of the states		2,993		14		24		2,983
Mortgage-backed securities		8,650		43		70		8,623
	$	13,743	$	68	$	103	$	13,708

December 31, 2014 :
Debt securities issued by U.S. government corporations and agencies	$	1,985	$	7	$	17	$	1,975
Debt securities issued by states of the United States and political subdivisions of the states		3,258		5		30		3,233
Mortgage-backed securities		6,606		24		71		6,559
	$	11,849	$	36	$	118	$	11,767

	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized		Fair
	Basis		Gains		Losses		Value
	(In Thousands)
Held-to-maturity securities:
September 30, 2015 (unaudited):
Mortgage-backed securities	$	124	$	38	$	-	$	162
	$	124	$	38	$	-	$	162

December 31, 2014:
Mortgage-backed securities	$	149	$	47	$	-	$	196
	$	149	$	47	$	-	$	196

The scheduled maturities of debt securities were as follows as of September 30, 2015 (unaudited):

	Available-For-Sale		Held-To-Maturity
			Amortized
	Fair		Cost		Fair
	Value		Basis		Value
	(In Thousands)
Due within one year	$	407	$	-	$	-
Due after one year through five years		2,173		-		-
Due after five years through ten years		984		-		-
Due after ten years		1,521		-		-
Mortgage-backed securities		8,623		124		162
	$	13,708	$	124	$	162

Proceeds from sales of available-for-sale securities during the nine months ended September 30, 2014 (unaudited) were $2,718,000 with gross realized gains of $69,000 and no gross realized losses. The tax expense applicable to these net realized gains for the nine month period ended September 30, 2014 (unaudited) amounted to $25,000.

As of September 30, 2015 (unaudited) and December 31, 2014, there were no securities of issuers whose aggregate carrying amount exceeded 10% of stockholders’ equity.

The aggregate fair value and unrealized losses of securities that have been in a continuous unrealized loss position for less than twelve months and for twelve months or more are as follows:

	Less than 12 Months				12 Months or Longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
	(In Thousands)
September 30, 2015 (unaudited) :
Debt securities issued by U.S. government corporations and agencies	$	299	$	-	$	491	$	9	$	790	$	9
Debt securities issued by states of the United States and political subdivisions of the states		978		13		756		11		1,734		24
Mortgage-backed securities		1,385		13		2,224		57		3,609		70
Total temporarily impaired securities	$	2,662	$	26	$	3,471	$	77	$	6,133	$	103

December 31, 2014 :
Debt securities issued by U.S. government corporations and agencies	$	-	$	-	$	1,485	$	17	$	1,485	$	17
Debt securities issued by states of the United States and political subdivisions of the states		950		8		1,232		22		2,182		30
Mortgage-backed securities		1,411		3		2,641		68		4,052		71
Total temporarily impaired securities		2,361		11		5,358		107		7,719		118
Other-than-temporarily impaired securities:
Mortgage-backed securities		-		-		3		-		3		-
Total temporarily impaired and other- than-temporarily impaired securities	$	2,361	$	11	$	5,361	$	107	$	7,722	$	118

As of September 30, 2015 (unaudited) and December 31, 2014, investment securities with unrealized losses consist of debt securities issued by U.S. government agencies and government-sponsored enterprises, debt securities issued by states of the United States and political subdivisions of the states and non-agency mortgage-backed securities. The Company reviews investments for other-than-temporary impairment using a number of factors including the length of time and the extent to which the market value has been less than cost and by examining any credit deterioration or ratings downgrades. The unrealized losses in the above tables are primarily attributable to changes in market interest rates. As Company management has the intent and ability to hold impaired debt securities until maturity, or for the foreseeable future if classified as available-for-sale, no declines are deemed to be other-than-temporary.

For those debt securities for which the fair value of the security is less than its amortized cost and the Company does not intend to sell such security and it is more likely than not that it will not be required to sell such security prior to the recovery of its amortized cost basis less any credit losses, ASC 320-10, “Investments - Debt and Equity Securities,” requires that the credit component of the other-than-temporary impairment losses be recognized in earnings while the noncredit component is recognized in other comprehensive income, net of related taxes.

Upon acquisition of a security, the Company decides whether it is within the scope of the accounting guidance for beneficial interests in securitized financial assets or will be evaluated for impairment under the accounting guidance for investments in debt and equity securities.

The accounting guidance for beneficial interests in securitized financial assets provides incremental impairment guidance for a subset of debt securities within the scope of the guidance for investments in debt and equity securities. For securities where the security is a beneficial interest in securitized financial assets, the Company uses the beneficial interests in securitized financial assets impairment model. For securities where the security is not a beneficial interest in securitized financial assets, the Company uses the debt and equity securities impairment model.

The following table summarizes other-than-temporary impairment losses on securities for the three and nine months ended September 30, 2015 and 2014 (unaudited):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
	Non-Agency		Non-Agency		Non-Agency		Non-Agency
	Mortgage-Backed		Mortgage-Backed		Mortgage-Backed		Mortgage-Backed
	Securities		Securities		Securities		Securities
	(In Thousands)				(In Thousands)

Total other-than-temporary impairment losses	$	3	$	-	$	3	$	12
Less: unrealized other-than-temporary losses recognized in other comprehensive income (1)		-		-		-		-
Net impairment losses recognized in earnings (2)	$	3	$	-	$	3	$	12

(1) Represents the noncredit component of the other-than-temporary impairment on the securities.

(2) Represents the credit component of the other-than-temporary impairment on securities

For the three and nine months ended September 30, 2015 and 2014, debt securities with other-than-temporary impairment losses related to credit quality that were recognized in earnings consisted of non-agency mortgage-backed securities. The Company estimated the credit component portion of loss for the non-agency mortgage-backed securities using a discounted cash flow model. Significant inputs for the non-agency mortgage-backed securities included estimated cash flows of the underlying collateral based on key assumptions such as default rate, loss severity and prepayment rate. The present value of the expected cash flows was compared to the Company’s holdings to determine the credit-related impairment loss. Based on the expected cash flows derived from the model, the Company expects to recover the remaining unrealized losses on non-agency mortgage-backed securities.

NOTE 6 - LOANS

Loans consisted of the following:

	September 30,			December 31,
	2015			2014
	(unaudited)
	(In Thousands)
Real estate loans:
One-to four- family residential	$	102,840		$	96,440
Commercial		17,773			17,401
Multi-family		14,698			10,171
Home equity loans and lines of credit		2,206			2,854
Construction		19,145			12,072
Commercial and industrial loans		4,501			3,012
Consumer loans:
Consumer lines of credit		21			21
Other consumer loans		3,425			2,446
		164,609			144,417
Net deferred loan origination fees, costs and discounts		147			100
Allowance for loan losses		(839	)		(743	)
Net loans	$	163,917		$	143,774

The following tables set forth information regarding the allowance for loan losses as of and for the nine months ended September 30, 2015 and 2014 (unaudited) and at December 31, 2014:

	Real Estate:																Consumer
									Home Equity Loans					Commercial and			Consumer
	One- to four-family Residential			Commercial			Multi-family		and Lines of Credit			Construction		Industrial Loans			Lines of Credit			Other Consumer		Unallocated			Total
	(In Thousands)
Nine months ended September 30, 2015 (unaudited):
Allowance for loan losses:
Beginning balance	$	362		$	134		$	36	$	27		$	121	$	8		$	1		$	20	$	34		$	743
Charge-offs		-			-			-		-			-		-			-			-		-			-
Recoveries		-			-			-		-			-		-			-			-		-			-
Provision (benefit)		8			(14	)		19		(13	)		99		9			-			12		(24	)		96
Ending balance	$	370		$	120		$	55	$	14		$	220	$	17		$	1		$	32	$	10		$	839

Nine months ended September 30, 2014 (unaudited):
Allowance for loan losses:
Beginning balance	$	323		$	195		$	51	$	30		$	49	$	16		$	1		$	20	$	57		$	742
Charge-offs		-			-			-		-			-		-			-			-		-			-
Recoveries		1			-			-		-			-		-			-			-		-			1
(Benefit) provision		(8	)		(49	)				7			72		(7	)		(1	)		6		(20	)		-
Ending balance	$	316		$	146		$	51	$	37		$	121	$	9		$	-		$	26	$	37		$	743

At September 30, 2015 (unaudited):
Allowance for loan losses:
Ending balance:
Individually evaluated for impairment	$	23		$	-		$	-	$	-		$	-	$	-		$	-		$	-	$	-		$	23
Ending balance:
Collectively evaluated for impairment		347			120			55		14			220		17			1			32		10			816
Total allowance for loan losses ending balance	$	370		$	120		$	55	$	14		$	220	$	17		$	1		$	32	$	10		$	839

Loans:
Ending balance:
Individually evaluated for impairment	$	6,149		$	688		$	-	$	53		$	-	$	-		$	-		$	-	$	-		$	6,890
Ending balance:
Collectively evaluated for impairment		96,691			17,085			14,698		2,153			19,145		4,501			21			3,425		-			157,719
Total loans ending balance	$	102,840		$	17,773		$	14,698	$	2,206		$	19,145	$	4,501		$	21		$	3,425	$	-		$	164,609

At December 31, 2014 :
Allowance for loan losses:
Ending balance:
Individually evaluated for impairment	$	37		$	-		$	-	$	-		$	-	$	-		$	-		$	-	$	-		$	37
Ending balance:
Collectively evaluated for impairment		325			134			36		27			121		8			1			20		34			706
Total allowance for loan losses ending balance	$	362		$	134		$	36	$	27		$	121	$	8		$	1		$	20	$	34		$	743

Loans:
Ending balance:
Individually evaluated for impairment	$	6,572		$	695		$	-	$	53		$	-	$	-		$	-		$	-	$	-		$	7,320
Ending balance:
Collectively evaluated for impairment		89,868			16,706			10,171		2,801			12,072		3,012			21			2,446		-			137,097
Total loans ending balance	$	96,440		$	17,401		$	10,171	$	2,854		$	12,072	$	3,012		$	21		$	2,446	$	-		$	144,417

The following tables set forth information regarding nonaccrual loans and past-due loans at September 30, 2015 and December 31, 2014:

													90 Days
					90 Days								or More
					or More		Total		Total				Past Due		Nonaccrual
	30-59 Days		60-89 Days		Past Due		Past Due		Current		Total		and Accruing		Loans
	(In Thousands)
September 30, 2015 (unaudited):
Real estate loans:
One- to four-family residential	$	541	$	-	$	1,393	$	1,934	$	100,906	$	102,840	$	-	$	1,413
Commercial				-		-		-		17,773		17,773		-		-
Multi-family		-		-		-		-		14,698		14,698		-		-
Home equity loans and lines of credit		3		61		-		64		2,142		2,206		-		-
Construction		-		-		-		-		19,145		19,145		-		-
Commercial and industrial loans		-		-		-		-		4,501		4,501		-		-
Consumer loans:
Consumer lines of credit		-		-		-		-		21		21		-		-
Other consumer		-		-		8		8		3,417		3,425		8		-
Total	$	544	$	61	$	1,401	$	2,006	$	162,603	$	164,609	$	8	$	1,413

December 31, 2014:
Real estate loans:
One- to four-family residential	$	728	$	-	$	1,393	$	2,121	$	94,319	$	96,440	$	-	$	1,419
Commercial		-		-		-		-		17,401		17,401		-		-
Multi-family		938		-		-		938		9,233		10,171		-		-
Home equity loans and lines of credit		-		53		-		53		2,801		2,854		-		-
Construction		-		-		-		-		12,072		12,072		-		-
Commercial and industrial loans		-		-		-		-		3,012		3,012		-		-
Consumer loans:
Consumer lines of credit		-		-		-		-		21		21		-		-
Other consumer		9		-		-		9		2,437		2,446		-		-
Total	$	1,675	$	53	$	1,393	$	3,121	$	141,296	$	144,417	$	-	$	1,419

Information about loans that meet the definition of an impaired loan in ASC 310-10-35, “Receivables – Overall – Subsequent Measurement,” is as follows at September 30, 2015 and December 31, 2014 and the nine months and year then ended, respectively.

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(In Thousands)
September 30, 2015 (unaudited):
With no related allowance recorded:
Real estate loans:
One- to four-family residential	$	5,582	$	5,582	$	-	$	5,840	$	147
Commercial		688		688		-		691		29
Home equity lines of credit		53		53		-		53		1
Total impaired with no related allowance	$	6,323	$	6,323	$	-	$	6,584	$	177

With an allowance recorded:
Real estate loans:
One- to four-family residential	$	567	$	567	$	23	$	573	$	17
Commercial		-		-		-		-		-
Home equity lines of credit		-		-		-		-		-
Total impaired with an allowance recorded	$	567	$	567	$	23	$	573	$	17

Total
Real estate loans:
One- to four-family residential	$	6,149	$	6,149	$	23	$	6,413	$	164
Commercial		688		688		-		691		29
Home equity lines of credit		53		53		-		53		1
Total impaired loans	$	6,890	$	6,890	$	23	$	7,157	$	194

December 31, 2014:
With no related allowance recorded:
Real estate loans:
One- to four-family residential	$	5,991	$	5,991	$	-	$	5,586	$	226
Commercial		695		695		-		699		50
Home equity lines of credit		53		53		-		8		-
Total impaired with no related allowance	$	6,739	$	6,739	$	-	$	6,293	$	276

With an allowance recorded:
Real estate loans:
One- to four-family residential	$	581	$	581	$	37	$	589	$	22
Commercial		-		-		-		-		-
Home equity lines of credit		-		-		-		-		-
Total impaired with an allowance recorded	$	581	$	581	$	37	$	589	$	22

Total
Real estate loans:
One- to four-family residential	$	6,572	$	6,572	$	37	$	6,175	$	248
Commercial		695		695		-		699		50
Home equity lines of credit		53		53		-		8		-
Total impaired loans	$	7,320	$	7,320	$	37	$	6,882	$	298

The following tables present the Company’s loans by risk rating:

	Real Estate:												Consumer
	One- to four-family						Home Equity Loans				Commercial and		Consumer
	Residential		Commercial		Multi-family		and Lines of Credit		Construction		Industrial Loans		Lines of Credit		Other Consumer		Total
	(In Thousands)
September 30, 2015 (unaudited):
Grade:
Pass	$	-	$	17,085	$	14,698	$	-	$	19,145	$	4,501	$	-	$	-	$	55,429
Special mention		541		-		-		53		-		-		-		-		594
Substandard		3,815		688		-		-		-		-		-		-		4,503
Loans not formally rated		98,484						2,153		-		-		21		3,425		104,083
Total	$	102,840	$	17,773	$	14,698	$	2,206	$	19,145	$	4,501	$	21	$	3,425	$	164,609


December 31, 2014:
Grade:
Pass	$	-	$	16,706	$	9,233	$	-	$	12,072	$	3,012	$	-	$	-	$	41,023
Special mention		2,417		695		-		53		-		-		-		-		3,165
Substandard		1,393		-		938		-		-		-		-		-		2,331
Loans not formally rated		92,630		-		-		2,801		-		-		21		2,446		97,898
Total	$	96,440	$	17,401	$	10,171	$	2,854	$	12,072	$	3,012	$	21	$	2,446	$	144,417

At September 30, 2015 and December 31, 2014, there were no loans rated “doubtful” or “loss.”

Credit Quality Information

The Company utilizes a seven grade internal loan rating system for commercial real estate, construction and commercial loans as follows:

Loans rated 1 - 3: Loans in these categories are considered “pass” rated loans with low to average risk.

Loans rated 4: 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 5: 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 6: Loans in this category are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

Loans rated 7: Loans in this category are considered uncollectible (“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 ratings on all commercial real estate, construction and commercial loans. For residential real estate and consumer loans, the Company initially assesses credit quality based upon the borrower’s ability to pay and subsequently monitors these loans based on the borrower’s payment activity.

The Company classifies loans modified as troubled debt restructurings (TDRs) as impaired loans with an allowance established as part of the allocated component of the allowance for loan losses when the discounted cash flows or value of the underlying collateral of the impaired loan is lower than its carrying value.

During the nine months ended September 30, 2015 (unaudited), there were no loans modified as TDRs.

As of September 30, 2015 (unaudited), there were no commitments to lend additional funds to borrowers whose loans were modified as troubled debt restructurings.

Loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of mortgage and other loans serviced for others were $21.1 million and $17.6 million at September 30, 2015 (unaudited) and December 31, 2014, respectively.

NOTE 7 – DEPOSITS

The aggregate amount of time deposit accounts in denominations of $100,000 or more as of September 30, 2015 (unaudited) and December 31, 2014 was $46.8 million and $38.7 million, respectively.

The aggregate amount of time deposits in denominations that meet or exceed the Federal Deposit Insurance Corporation (FDIC) insurance limit of $250,000 at September 30, 2015 (unaudited) and December 31, 2014 was $18.7 million and $15.7 million, respectively.

For time deposits as of September 30, 2015 (unaudited), the scheduled maturities for each of the following five years ended September 30 are:

	(In Thousands)
2016	$	37,526
2017		18,123
2018		15,111
2019		1,314
2020		1,413
Total	$	73,487

NOTE 8 - FEDERAL HOME LOAN BANK ADVANCES

Maturities of advances from the Federal Home Loan Bank of Boston (“FHLB”) for the years ending after September 30, 2015 (unaudited) are summarized as follows:

	(In Thousands)
2016	$	3,500
2017		2,500
2018		3,000
	$	9,000

Interest rates range from 0.24% to 1.15% with a weighted-average interest rate of 0.74% at September 30, 2015 (unaudited).

Borrowings from the FHLB are secured by a blanket lien on qualified collateral, consisting primarily of loans with first mortgages secured by one-to-four family properties, certain unencumbered investment securities and other qualified assets.

NOTE 9 - FAIR VALUE MEASUREMENTS

ASC 820-10, “Fair Value Measurement - Overall,” 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. Level 1 also includes U.S. Treasury, other U.S. Government and agency mortgage-backed securities that are traded by dealers or brokers in active markets. 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, 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.

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 as of September 30, 2015 (unaudited) and December 31, 2014. The Company did not have any significant transfers between level 1 and level 2 of the fair value hierarchy during the nine months ended September 30, 2015 (unaudited) and the year ended December 31, 2014.

The Company’s investment in mortgage-backed securities and other debt 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. For level 3 inputs, fair value is based upon management estimates of the value of the underlying collateral or the present value of the expected cash flows.

Other real estate owned values are estimated using level 2 inputs based upon appraisals of similar properties obtained from a third party. For level 3 inputs, fair values are based on management estimates.

The following summarizes assets measured at fair value as of September 30, 2015 (unaudited) and December 31, 2014.

ASSETS MEASURED AT FAIR VALUE ON A RECURRING BASIS

	Fair Value Measurements at Reporting Date Using:
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Total		Level 1		Level 2		Level 3
	(In Thousands)
September 30, 2015 (unaudited):
Debt securities issued by U.S. government corporations and agencies	$	2,102	$	-	$	2,102	$	-
Debt securities issued by states of the United States and political subdivisions of the states		2,983		-		2,983		-
Mortgage-backed securities		8,623		-		8,623		-
Totals	$	13,708	$	-	$	13,708	$	-

December 31, 2014:
Debt securities issued by U.S. government corporations and agencies	$	1,975	$	-	$	1,975	$	-
Debt securities issued by states of the United States and political subdivisions of the states		3,233		-		3,233		-
Mortgage-backed securities		6,559		-		6,559		-
Totals	$	11,767	$	-	$	11,767	$	-

ASSETS MEASURED AT FAIR VALUE ON A NONRECURRING BASIS

Under certain circumstances we make adjustments to fair value for certain assets and liabilities although they are not measured at fair value on an ongoing basis. The following table presents assets carried on the consolidated balance sheets by caption and by level in the fair value hierarchy at September 30, 2015 (unaudited) and December 31, 2014, for which a nonrecurring change in fair value has been recorded:

	Fair Value Measurements at Reporting Date Using:
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Total		Level 1		Level 2		Level 3
	(In Thousands)
September 30, 2015 (unaudited):
Impaired loans	$	544	$	-	$	-	$	544
Totals	$	544	$	-	$	-	$	544

December 31, 2014:
Impaired loans	$	544	$	-	$	-	$	544
Totals	$	544	$	-	$	-	$	544

The estimated fair values of the Company’s financial instruments, all of which are held or issued for purposes other than trading, are as follows:

	September 30, 2015 (unaudited)
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Total
	(In Thousands)
Financial assets:
Cash and cash equivalents	$	7,447	$	7,447	$	-	$	-	$	7,447
Interest-bearing time deposits with other banks		1,084		-		1,085		-		1,085
Available-for-sale securities		13,708		-		13,708		-		13,708
Held-to-maturity securities		124		-		162		-		162
Federal Home Loan Bank stock		945		945		-		-		945
Investment in The Co-operative Central Reserve Fund		384		384		-		-		384
Loans, net		163,917		-		-		166,456		166,456
Accrued interest receivable		480		480		-		-		480

Financial liabilities:
Deposits		156,105		-		156,750		-		156,750
FHLB advances		9,000		-		9,004		-		9,004

	December 31, 2014
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Total
	(In Thousands)
Financial assets:
Cash and cash equivalents	$	18,295	$	18,295	$	-	$	-	$	18,295
Interest-bearing time deposits with other banks		2,575		-		2,578		-		2,578
Available-for-sale securities		11,767		-		11,767		-		11,767
Held-to-maturity securities		149		-		196		-		196
Federal Home Loan Bank stock		694		694		-		-		694
Investment in The Co-operative Central Reserve Fund		384		384		-		-		384
Loans, net		143,774		-		-		146,705		146,705
Accrued interest receivable		447		447		-		-		447

Financial liabilities:
Deposits		151,010		-		151,638		-		151,638
FHLB advances		5,000		-		5,006		-		5,006

The carrying amounts of financial instruments shown in the above table are included in the consolidated balance sheets as of September 30, 2015 (unaudited) and December 31, 2014 under the indicated captions. Accounting policies related to financial instruments are described below.

ASC 825, “Financial Instruments,” requires that the Company disclose estimated fair values for its financial instruments. Fair value methods and assumptions used by the Company in estimating its fair value disclosures are as follows:

Cash and cash equivalents: The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents approximate those assets' fair values.

Interest-bearing time deposits with other banks: The fair value of interest-bearing time deposits with other banks was determined by discounting the cash flows associated with these instruments using current market rates for deposits with similar characteristics.

Securities: Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Loans receivable: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for other loans are estimated by discounting the future cash flows, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.

Accrued interest receivable: The carrying amount of accrued interest receivable approximates its fair value.

Deposit liabilities: The fair values disclosed for demand deposits, regular savings, NOW accounts, and money market accounts are equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Federal Home Loan Bank advances: Fair values for Federal Home Loan Bank advances are estimated using a discounted cash flow technique that applies interest rates currently being offered on advances to a schedule of aggregated expected monthly maturities on Federal Home Loan Bank advances.

Off-balance sheet instruments: The fair value of commitments to originate loans is estimated using the fees currently charged to enter similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments and the unadvanced portion of loans, fair value also considers the difference between current levels of interest rates and the committed rates.

NOTE 10 – REGULATORY CAPITAL

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Effective January 1, 2015 (with a phase-in period of two to four years for certain components), the Bank became subject to new capital regulations adopted by the Board of Governors of the Federal Reserve System (“FRB”) and the FDIC, which implement the Basel III regulatory capital reforms and the changes required by the Dodd-Frank Act. The new regulations require a new common equity Tier 1 (“CETI”) capital ratio of 4.5%, increase the minimum Tier 1 capital to risk-weighted assets ratio to 6.0% from 4.0%, require a minimum total capital to risk-weighted assets ratio of 8.0% and require a minimum Tier 1 leverage ratio of 4.0%. CETI generally consists of common stock and retained earnings, subject to applicable adjustments and deductions. Under new prompt corrective action regulations, in order to be considered “well capitalized,” the Bank must maintain a CETI capital ratio of 6.5% (new) and a Tier 1 ratio of 8.0% (increased from 6.0%), a total risk based capital ratio of 10.0% (unchanged) and a Tier 1 leverage ratio of 5.0% (unchanged). In addition, the regulations establish a capital conservation buffer above the required capital ratios that phases in beginning January 1, 2016 at 0.625% of risk-weighted assets and increases each year by 0.625% until it is fully phased in at 2.5% effective January 1, 2019. Beginning January 1, 2016, failure to maintain the capital conservation buffer will limit the ability of the Bank and the Company to pay dividends, repurchase shares or pay discretionary bonuses.

The new regulations implemented changes to what constitutes regulatory capital. Certain instruments will no longer constitute qualifying capital, subject to phase-out periods. In addition, Tier 2 capital is no longer limited to the amount of Tier 1 capital included in total capital. Mortgage servicing rights, certain deferred tax assets and investments in unconsolidated subsidiaries over designated percentages of CETI will be deducted from capital. The Bank has elected to permanently opt out of the inclusion of accumulated other comprehensive income (loss) in capital calculations, as permitted by the regulations. This opt-out will reduce the impact of market volatility on our regulatory capital ratios.

The new regulations also changed the risk weights of certain assets, including an increase in the risk weight of certain high volatility commercial real estate acquisition, development and construction loans and non-residential mortgage loans that are 90 days past due or on non-accrual status to 150% from 100%, a credit conversion factor for the unused portion of commitments with maturities of less than one year that are not cancellable to 20% from 0%, an increase in the risk weight for mortgage servicing and deferred tax assets that are not deducted from capital to 250% from 100%, and an increase in the risk weight for equity exposures to 600% from 0%.

As of September 30, 2015 (unaudited), the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.

The Bank’s actual capital amounts and ratios are presented in the table below.

	September 30,			December 31,
Regulatory Capital and Ratios	2015			2014
	(Dollars In Thousands)
Regulatory Capital
Total Stockholder’s Equity	$	21,906		$	21,347
Add: Net unrealized losses on investment securities, net of tax		21			51
Common Equity Tier 1 Capital		21,927			na

Tier 1 Capital		21,927			21,398
Allowable reserve for credit losses and unfunded commitments		857			755
Total Regulatory Capital ⁽¹⁾	$	22,784		$	22,153

Average Assets	$	194,480		$	183,666
Risk Weighted Assets ⁽¹⁾	$	135,482		$	101,078

Key Regulatory Ratios ⁽¹⁾
Common Equity Tier 1 Capital Ratio		16.2	%		na
Tier 1 Capital Ratio		16.2			21.2	%
Total Capital Ratio		16.8			21.9
Tier 1 Leverage Ratio		11.3			11.7

⁽¹⁾ September 30, 2015 capital levels and ratios were calculated under the new capital regulations, which became effective January 1, 2015

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 and nine months ended September 30, 2015 and 2014 is intended to assist in understanding the financial condition and results of operations of the Company on a consolidated basis. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto, appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q.

This Report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “contemplate,” “continue,” “target” 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 Report.

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:

our ability to manage our operations under the current adverse economic conditions nationally and in our market area;

adverse changes in the financial industry, securities, credit and national and local real estate markets (including real estate values);

significant increases in our loan losses, including as a result of our inability to resolve classified and non-performing assets or reduce risks associated with our loans, and management’s assumptions in determining the adequacy of the allowance for loan losses;

credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and in our allowance for loan losses and provision for loan losses;

competition among depository and other financial institutions;

our success in implementing our business strategy, particularly increasing our commercial real estate, multi-family, non-owner occupied residential and construction lending;

our success in introducing new financial products;

our ability to attract and maintain deposits;

our ability to continue to improve our asset quality even as we increase our non-residential and non-owner occupied residential lending;

changes in interest rates generally, including changes in the relative differences between short term and long term interest rates and in deposit interest rates, that may affect our net interest margin and funding sources;

fluctuations in the demand for loans, which may be affected by the number of unsold homes, land and other properties in our market areas and by declines in the value of real estate in our market area;

changes in consumer spending, borrowing and saving habits;

declines in the yield on our assets resulting from the current low interest rate environment;

risks related to a high concentration of loans secured by real estate located in our market area;

the results of examinations by our regulators, including the possibility that our regulators may, among other things, require us to increase our reserve for loan losses, write down assets, change our regulatory capital position, limit our ability to borrow funds or maintain or increase deposits, or prohibit us from paying dividends, which could adversely affect our dividends and earnings;

changes in the level of government support of housing finance;

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

changes in laws or government regulations or policies affecting financial institutions, including the Dodd-Frank Act and the JOBS Act, which could result in, among other things, increased deposit insurance premiums and assessments, capital requirements (particularly the new capital regulations), regulatory fees and compliance costs and the resources we have available to address such changes;

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 our ability to retain key members of our senior management team and to address staffing needs in response to product demand or to implement our strategic plans;

loan delinquencies and changes in the underlying cash flows of our borrowers;

our ability to control costs and expenses, particularly those associated with operating as a publicly traded company;

the failure or security breaches of computer systems on which we depend;

the ability of key third-party service providers to perform their obligations to us;

changes in the financial condition or future prospects of issuers of securities that we own; and

other economic, competitive, governmental, regulatory and operational factors affecting our operations, pricing, products and services described elsewhere in this Report.

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.

During the nine months ended September 30, 2015, there were no material changes to the critical accounting policies disclosed in Pilgrim Bancshares, Inc.’s 10-K for the year ended December 31, 2014, as filed with the Securities and Exchange Commission on March 25, 2015.

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

Total Assets. Total assets increased $9.7 million, or 5.2%, to $197.7 million at September 30, 2015 from $188.0 million at December 31, 2014.

Cash and Cash Equivalents and Time Deposits with Other Banks. Total cash and cash equivalents decreased $10.8 million, or 59.3%, to $7.4 million at September 30, 2015 from $18.3 million at December 31, 2014. The decrease in cash resulted from $20.1 million in net loan growth and $1.9 million in investment securities purchases net of principal payments and maturities, offset by a $5.1 million increase in deposits and a $4.0 million increase in FHLB borrowings. Interest-bearing time deposits with other banks decreased by $1.5 million, or 57.9%, to $1.1 million at September 30, 2015 from $2.6 million at December 31, 2014.

Net Loans. Net loans increased $20.1 million, or 14.0%, to $163.9 million at September 30, 2015 from $143.8 million at December 31, 2014. The Company originated $59.2 million and purchased $8.6 million of new loans during the nine months ended September 30, 2015. Partially offsetting the loan originations and purchases were $32.3 million of loan payoffs and amortization, $4.8 million of loans and loan participations sold and $10.6 million of unadvanced funds on loans originated during the nine months ended September 30, 2015.

Investment Securities. Investment securities classified as available-for-sale increased $1.9 million, or 16.5%, to $13.7 million at September 30, 2015 from $11.8 million at December 31, 2014, due to the purchase of mortgage backed securities partially offset by the maturity of a municipal security. Investment securities classified as held-to-maturity decreased $25,000, or 16.8%, to $124,000 at September 30, 2015, from $149,000 at December 31, 2014 due to maturities in the ordinary course of business and an OTTI write-down. At September 30, 2015, investment securities classified as available-for-sale consisted primarily of debt securities issued by U.S. government corporations and agencies, debt securities issued by states and political subdivisions, and U.S. government-sponsored mortgage-backed securities, with a focus on suitable U.S. government-sponsored securities to augment risk-based capital.

Bank Owned Life Insurance. Bank-owned life insurance at September 30, 2015 increased $35,000, or 1.6%, compared to December 31, 2014 due to normal increases in cash surrender value.

Deposits. Deposits increased $5.1 million, or 3.4%, to $156.1 million at September 30, 2015 from $151.0 million at December 31, 2014, primarily due to a $7.0 million increase in certificates of deposits, $1.9 million increase in savings accounts and a $1.5 million increase in noninterest bearing accounts, offset by a $1.3 million decrease in NOW accounts, and a $4.1 million decrease in money market deposits. Our core deposits, which we consider to be our noninterest bearing demand accounts, NOW accounts, savings accounts and money market accounts, decreased $1.9 million, or 2.3%, to $82.6 million at September 30, 2015 from $84.5 million at December 31, 2014.

Borrowings and Other Liabilities. FHLB advances increased $4.0 million, or 80.0%, to $9.0 million at September 30, 2015 from $5.0 million at December 31, 2014. FHLB borrowings as of September 30, 2015 consist of $3.5 million in short term borrowings, and $5.5 million in long term borrowings. Other liabilities, which include interest payable, accruals for employee pension and medical plans and normal accruals for expenses, increased $99,000, or 23.4%, to $522,000 at September 30, 2015 from $423,000 at December 31, 2014.

Total Stockholders’ Equity. Stockholders’ equity increased $504,000, or 1.6%, to $32.1 million at September 30, 2015 from $31.6 million at December 31, 2014. The increase resulted from net income of $438,000 during the nine months ended September 30, 2015 and the committed allocation of common stock held by the ESOP of $53,000, and a decrease of $30,000 in accumulated other comprehensive loss due to a decrease in the net unrealized loss position of our available-for-sale investment securities portfolio, offset by additional issuance costs related to our public offering of $17,000.

Delinquent Loans. The following table sets forth our loan delinquencies by type and amount at the dates indicated.

	At September 30, 2015						At December 31, 2014
	(unaudited)
	30-59		60-89		90 Days or		30-59		60-89		90 Days or
	Days		Days		More		Days		Days		More
	Past Due		Past Due		Past Due		Past Due		Past Due		Past Due
	(In Thousands)
Real estate loans:
One- to four-family residential⁽¹⁾	$	541	$	-	$	1,393	$	728	$	-	$	1,393
Commercial		-		-		-		-		-		-
Multi-family		-		-		-		938		-		-
Home equity loans and lines of credit		3		61		-		-		53		-
Construction		-		-		-		-		-		-
Total real estate		544		61		1,393		1,666		53		1,393
Commercial and industrial loans		-		-		-		-		-		-
Consumer loans		-		-		8		9		-		-
Total loans	$	544	$	61	$	1,401	$	1,675	$	53	$	1,393

(1)

There were no delinquent non-owner occupied residential real estate loans at September 30, 2015 or December 31, 2014.

The net decrease in total delinquent loans in the 30 – 59 day period from December 31, 2014 to September 30, 2015 was the result of current payments on the loans.

Classified Assets. The following table sets forth our amounts of classified assets and assets designated as special mention as of September 30, 2015 and December 31, 2014.

	At September 30,		At December 31,
	2015		2014
	(In Thousands)
	(unaudited)
Classified assets:
Substandard:
Loans⁽¹⁾	$	4,503	$	2,331
Securities		117		138
Total substandard		4,620		2,469
Doubtful		-		-
Loss		-		-
Other real estate owned		-		-
Total classified assets	$	4,620	$	2,469
Special mention	$	594	$	3,165

(1) Includes $1.4 million of non-accruing loans that are more than 90 days past due for each period.

The increase in classified assets from December 31, 2014 to September 30, 2015 was the result of loans downgraded from “special mention” to “substandard,” partially offset by securities amortization from contractual payments and an OTTI write-down.

Non-Performing Assets. The following table sets forth information regarding our non-performing assets and troubled debt restructurings at the dates indicated. The information reflects net charge-offs but not specific reserves. Troubled debt restructurings include loans where the borrower is experiencing financial difficulty and for which either a portion of interest or principal has been forgiven or an extension of term granted, or for which the loans were modified at interest rates materially less than current market rates.

	At September 30,			At December 31,
	2015			2014
	(Dollars In Thousands)
	(unaudited)
Non-accrual loans:
Real estate loans:
One- to four-family residential⁽¹⁾	$	1,413		$	1,419
Commercial		-			-
Multi-family		-			-
Home equity loans and lines of credit		-			-
Construction		-			-
Total real estate		1,413			1,419
Commercial and industrial loans		-			-
Consumer loans		-			-
Total non-accrual loans		1,413			1,419

Accruing loans past due 90 days or more:
Real estate loans:
One- to four-family residential		-			-
Commercial		-			-
Multi-family		-			-
Home equity loans and lines of credit		-			-
Construction		-			-
Total real estate		-			-
Commercial and industrial loans		-			-
Consumer loans		8			-
Total accruing loans past due 90 days or more		8			-
Total of nonaccrual loans and accruing loans 90 days or more past due		1,421			1,419

Other real estate owned:
One- to four-family residential		-			-
Commercial		-			-
Multi-family		-			-
Home equity loans and lines of credit		-			-
Construction		-			-
Total other real estate owned		-			-
Other non-performing assets		-			-
Total non-performing assets		1,421			1,419

Performing troubled debt restructurings:
Real estate loans:
One- to four-family residential⁽²⁾		4,757			5,180
Commercial		688			695
Multi-family		-			-
Home equity loans and lines of credit		53			53
Total real estate		5,498			5,928
Commercial and industrial loans		-			-
Consumer loans		-			-
Total troubled debt restructurings		5,498			5,928

Total non-performing loans and troubled debt restructurings	$	6,919		$	7,347

Non-performing loans to total loans		0.86	%		0.98	%
Non-performing assets to total assets		0.72	%		0.75	%
Non-performing assets and troubled debt restructurings to total assets		3.50	%		3.91	%

(1)

There were no non-performing non-owner occupied residential real estate loans at September 30, 2015 or December 31, 2014.

(2)

There were no troubled debt restructurings related to non-owner occupied residential real estate loans at September 30, 2015 or December 31, 2014.

The increase in non-performing assets from December 31, 2014 to September 30, 2015 was the result of a loan 90 days past due and still accruing, partially offset by amortization from contractual payments and a loan payoff.

Interest income that would have been recorded for the nine months ended September 30, 2015, had non-accruing loans been current according to their original terms amounted to $29,000. Interest of approximately $1,000 related to these loans was included in interest income for the nine months ended September 30, 2015.

Non-performing loans totaled $1.4 million at September 30, 2015, and consisted of three loans, all owner occupied one- to four- family residential first and second mortgage loans. Our largest non-performing loan was a $1.4 million one- to four-family residential loan secured by property located in Connecticut that was in foreclosure proceedings at September 30, 2015. We had no non-performing commercial real estate and multi-family loans at September 30, 2015. We had no foreclosed real estate at September 30, 2015.

Other Loans of Concern. There were no other loans at September 30, 2015 that are not already disclosed where there is information about possible credit problems of borrowers that caused management to have serious doubts about the ability of the borrowers to comply with present loan repayment terms and that may result in disclosure of such loans in the future.

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

General. Net income for the three months ended September 30, 2015 was $203,000, compared to net income of $131,000 for the three months ended September 30, 2014. The increase of $72,000 in net income was primarily due to an increase in net interest income of $288,000, and an increase in noninterest income of $28,000, offset by an increase in noninterest expense of $160,000, and an increase in provision for loan losses of $36,000.

Interest and Dividend Income. Total interest and dividend income for the three months ended September 30, 2015 increased $283,000, or 19.0%, to $1.8 million compared to $1.5 million for the three months ended September 30, 2014. On a tax-equivalent basis, total interest and dividend income for the three months ended September 30, 2015 increased $284,000, or 18.9%, to $1.8 million compared to $1.5 million for the three months ended September 30, 2014. The increase in interest income was the result of higher average loans in the three months ended September 30, 2015, partially offset by a lower average yield on loans. The average balance of loans during the three months ended September 30, 2015 increased $29.5 million to $160.8 million from $131.3 million for the three months ended September 30, 2014, while the average yield on loans decreased nine basis points to 4.22% for the three months ended September 30, 2015 from 4.31% for the three months ended September 30, 2014. The decrease in yield reflected the lower market rates for originated loans in 2014 and 2015. The average balance of investment securities increased $2.0 million to $14.5 million for the three months ended September 30, 2015 from $12.5 million for the three months ended September 30, 2014, and the yield on investment securities (on a tax-equivalent basis) decreased 22 basis points to 2.09% for the three months ended September 30, 2015 from 2.31% for the three months ended September 30, 2014.

Interest Expense. Total interest expense decreased $5,000, or 1.8%, to $268,000 for the three months ended September 30, 2015 from $273,000 for the three months ended September 30, 2014. Interest expense on interest-bearing deposit accounts decreased $16,000, or 6.0%, to $250,000 for the three months ended September 30, 2015 from $266,000 for the three months ended September 30, 2014. The decrease was primarily due to lower average deposits, the impact of maturing certificates of deposit renewing at lower rates and overall changes in deposit mix.

Interest expense on FHLB advances increased $11,000, or 157.1%, to $18,000 for the three months ended September 30, 2015 from $7,000 for the three months ended September 30, 2014. The average balance of advances increased $7.0 million, or 248.4%, to $9.8 million for the three months ended September 30, 2015 from $2.8 million for the three months ended September 30, 2014. The cost of funds on FHLB advances decreased 28 basis points to 0.72% for the three months ended September 30, 2015 from 1.00% for the three months ended September 30, 2014.

Net Interest and Dividend Income. Net interest and dividend income increased $288,000, or 23.7%, to $1.5 million for the three months ended September 30, 2015 from $1.2 million for the three months ended September 30, 2014. On a tax-equivalent basis, net interest and dividend income increased $289,000, or 23.6%, to $1.5 million for the three months ended September 30, 2015 from $1.2 million for the three months ended September 30, 2014. The tax-equivalent basis increase resulted from a $284,000 increase in interest income and a $5,000 decrease in interest expense. Our average interest-earning assets increased $19.9 million to $183.5 million for the three months ended September 30, 2015 from $163.6 million for the three months ended September 30, 2014. Our net interest rate spread increased 22 basis points to 3.16% for the three months ended September 30, 2015 from 2.94% for the three months ended September 30, 2014, and our net interest margin increased 30 basis points to 3.30% for the three months ended September 30, 2015 from 3.00% for the three months ended September 30, 2014. The increase in our interest rate spread and net interest margin reflected an increase in our balance of higher interest-earning assets.

Provision for Loan Losses. We recorded a provision for loan losses for the three months ended September 30, 2015 of $36,000, compared to no provision for the three months ended September 30, 2014. The fact that we did not record a provision for loan losses for the three months ended September 30, 2014 was due to our evaluation as to the adequacy of the allowance for loan losses. We maintain the allowance for loan losses at levels we believe are adequate to cover our estimate of probable credit losses as of the end of the reporting period. There were no charge-offs for the three months ended September 30, 2015 and 2014, respectively. The allowance for loan losses was $839,000, or 0.51% of total loans at September 30, 2015, compared to $743,000, or 0.56% of total loans at September 30, 2014. Total non-performing loans were $1.4 million at September 30, 2015 compared to $1.4 million at September 30, 2014. As a percentage of non-performing loans, the allowance for loan losses was 59.04% at September 30, 2015 compared to 52.25% at September 30, 2014. This increase is due the increased level of allowance for loan losses. Total classified loans were $4.6 million at September 30, 2015 compared to $4.9 million at September 30, 2014.

Noninterest Income. Noninterest income increased $28,000, or 21.9%, to $156,000 for the three months ended September 30, 2015 from $128,000 for the three months ended September 30, 2014. The increase was due to net gains on sales and calls of securities of $16,000 for the three months ended September 30, 2015 compared to $1,000 for the three months ended September 30, 2014, and an increase in gains on sales of loans of $17,000 to $17,000 for the three months ended September 30, 2015 compared to no gains on sale of loans for the three months ended September 30, 2014, partially offset by a decrease in rental income of $4,000 to $63,000 for the three months ended September 30, 2015 from $67,000 for the three months ended September 30, 2014, and write-downs on securities of $3,000 for the three months ended September 30, 2015 compared to no write-downs for the three months ended September 30, 2014.

Noninterest Expense. Noninterest expense increased $160,000 to $1.3 million for the three months ended September 30, 2015 compared to $1.1 million for the three months ended September 30, 2014. The increase was primarily driven by an increase of $100,000 in salaries and benefits expense, due to additions to staff and expenses associated with the supplemental executive retirement plan (“SERP”) and the employee stock ownership plan (“ESOP”). Professional fees included $44,000 and other expense included $13,000, of incremental costs associated with being a publicly traded company.

Income Taxes. The income before income taxes of $320,000 resulted in income tax expense of $117,000 for the three months ended September 30, 2015, compared to income before income taxes of $200,000 resulting in an income tax expense of $69,000 for the three months ended September 30, 2014. The effective income tax rate was 36.6% for the three months ended September 30, 2015 compared to 34.5% for the three months ended September 30, 2014.

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

General. Net income for the nine months ended September 30, 2015 was $438,000, compared to net income of $432,000 for the nine months ended September 30, 2014. The increase in net income was primarily due to an increase in net interest income of $590,000, offset by an increase in noninterest expense of $462,000, a decrease in noninterest income of $35,000 and an increase in provision for loan losses of $96,000.

Interest and Dividend Income. Total interest and dividend income for the nine months ended September 30, 2015 increased $558,000, or 12.4%, to $5.1 million compared to $4.5 million for the nine months ended September 30, 2014. On a tax-equivalent basis, total interest and dividend income for the nine months ended September 30, 2015 increased $558,000, or 12.3%, to $5.1 million compared to $4.5 million for the nine months ended September 30, 2014. The increase in interest income was the result of higher average loans in the nine months ended September 30, 2015, partially offset by a lower yield on loans due to non-accrual interest recapture recognized in the nine months ended September 30, 2014, and a decrease in interest on investment securities due to a decrease in investment yields. The average balance of loans during the nine months ended September 30, 2015 increased $23.1 million to $155.3 million from $132.2 million for the nine months ended September 30, 2014, while the average yield on loans decreased 15 basis points to 4.16% for the nine months ended September 30, 2015 from 4.31% for the nine months ended September 30, 2014. The decrease in yield reflected the lower market rates for originated loans during the 2015 period, as well as non-accrual interest income recapture in 2014. The average balance of investment securities increased $566,000 to $13.3 million for the nine months ended September 30, 2015 from $12.8 million for the nine months ended September 30, 2014, and the yield on investment securities (on a tax-equivalent basis) decreased 17 basis points to 2.20% for the nine months ended September 30, 2015 from 2.37% for the nine months ended September 30, 2014.

Interest Expense. Total interest expense decreased $32,000, or 4.0%, to $775,000 for the nine months ended September 30, 2015 from $807,000 for the nine months ended September 30, 2014. Interest expense on interest-bearing deposit accounts decreased $40,000, or 5.2%, to $730,000 for the nine months ended September 30, 2015 from $770,000 for the nine months ended September 30, 2014. The decrease was primarily due to the impact of lower average deposits, maturing certificates of deposit renewing at lower rates and overall changes in deposit mix.

Interest expense on FHLB advances increased $8,000, or 21.6%, to $45,000 for the nine months ended September 30, 2015 from $37,000 for the nine months ended September 30, 2014. The average balance of advances increased $3.3 million, or 67.4%, to $8.2 million for the nine months ended September 30, 2015 from $4.9 million for the nine months ended September 30, 2014. The cost of funds on FHLB advances decreased 27 basis points to 0.74% for the nine months ended September 30, 2015 from 1.01% for the nine months ended September 30, 2014.

Net Interest and Dividend Income. Net interest and dividend income increased $590,000, or 16.0%, to $4.3 million for the nine months ended September 30, 2015 from $3.7 million for the nine months ended September 30, 2014. On a tax-equivalent basis, net interest and dividend income increased $590,000, or 15.8%, to $4.3 million for the nine months ended September 30, 2015 from $3.7 million for the nine months ended September 30, 2014. The tax-equivalent basis increase resulted from a $558,000 increase in interest income and a $32,000 decrease in interest expense. Our average interest-earning assets increased $20.9 million to $180.0 million for the nine months ended September 30, 2015 from $159.1 million for the nine months ended September 30, 2014, but our net interest rate spread decreased 1 basis points to 3.05% for the nine months ended September 30, 2015 from 3.06% for the nine months ended September 30, 2014. Our net interest margin increased 7 basis points to 3.20% for the nine months ended September 30, 2015 from 3.13% for the nine months ended September 30, 2014. The increase in our net interest margin reflected an increase in our balance of higher interest-earning assets.

Provision for Loan Losses. We recorded a provision for loan losses for the nine months ended September 30, 2015 of $96,000, compared to no provision for the nine months ended September 30, 2014. The fact that we did not record a provision for loan losses for the nine months ended September 30, 2014 was due to our evaluation as to the adequacy of the allowance for loan losses. We maintain the allowance for loan losses at levels adequate to cover our estimate of probable credit losses as of the end of the reporting period. There were no charge-offs for the nine months ended September 30, 2015 and 2014, respectively. The allowance for loan losses was $839,000, or 0.51% of total loans at September 30, 2015, compared to $743,000, or 0.56% of total loans at September 30, 2014. Total non-performing loans were $1.4 million at September 30, 2015 compared to $1.4 million at September 30, 2014. As a percentage of non-performing loans, the allowance for loan losses was 59.04% at September 30, 2015 compared to 52.25% at September 30, 2014. This increase is due primarily to the increased level of allowance for loan losses. Total classified loans were $4.6 million at September 30, 2015 compared to $4.9 million at September 30, 2014.

Noninterest Income. Noninterest income decreased $35,000, or 7.2%, to $448,000 for the nine months ended September 30, 2015 from $483,000 for the nine months ended September 30, 2014. The decrease was due to a decrease in gains on sales/calls of securities of $52,000 to $17,000 for the nine months ended September 30, 2015 compared to $69,000 for the nine months ended September 30, 2014, partially offset by a decrease in write-downs on securities of $9,000 to $3,000 for the nine months ended September 30, 2015 compared to $12,000 for the nine months ended September 30, 2014, an increase in gains on sales of loans of $6,000 to $54,000 for the nine months ended September 30, 2015 from $48,000 for the nine months ended September 30, 2014, and an increase in other income of $1,000 to $96,000 for the nine months ended September 30, 2015 compared to $95,000 for the nine months ended September 30, 2014.

Noninterest Expense. Noninterest expense increased $462,000 to $4.0 million for the nine months ended September 30, 2015 compared to $3.5 million for the nine months ended September 30, 2014. The increase primarily related to increases in salaries and employee benefits expense of $254,000 due to additions to staff and expenses associated with the supplemental executive retirement plan (“SERP”) and the employee stock ownership plan (“ESOP”). Professional fees included $100,000 and other expense included $36,000, of incremental costs associated with being a publicly traded company. The $9,000 increase in FDIC assessment expense was driven by an increase in assets. Occupancy expense increased $49,000 primarily due to $14,000 of incremental snow removal costs, $15,000 of increased tax assessments and $13,000 of incremental utility costs.

Income Taxes. The income before income taxes of $676,000 resulted in income tax expense of $238,000 for the nine months ended September 30, 2015, compared to income before income taxes of $679,000 resulting in an income tax expense of $247,000 for the nine months ended September 30, 2014. The effective income tax rate was 35.2% for the nine months ended September 30, 2015 compared to 36.4% for the nine months ended September 30, 2014.

Average Balances and Yields. The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. Tax-equivalent yield adjustments have been made because we had tax-exempt interest-earning assets during the periods. All average balances are daily average balances based upon amortized costs. Non-accrual loans were included in the computation of average balances. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense.

	For the Three Months Ended September 30,
	2015								2014
	Average Outstanding Balance			Interest		Average Yield/Rate⁽¹⁾			Average Outstanding Balance			Interest		Average Yield/Rate⁽¹⁾
	(In Thousands)
Interest-earning assets:
Loans	$	160,780		$	1,696		4.22	%	$	131,297		$	1,414		4.31	%
Interest-earning deposits		6,961			5		0.30	%		18,784			10		0.21	%
Investment securities⁽²⁾		14,470			75		2.09	%		12,486			72		2.31	%
Federal Home Loan Bank stock and
The Co- operative Central Reserve Fund		1,310			7		2.02	%		1,083			3		1.11	%
Total interest-earning assets		183,521			1,783		3.89	%		163,650			1,499		3.66	%
Noninterest-earning assets		11,164								12,695
Total assets	$	194,685							$	176,345

Interest-bearing liabilities:
Savings accounts	$	19,189			7		0.16	%	$	24,303			9		0.15	%
NOW accounts		18,996			3		0.06	%		18,834			5		0.11	%
Money market accounts		30,180			29		0.38	%		36,206			35		0.39	%
Certificates of deposit		68,141			211		1.24	%		68,641			217		1.26	%
Total interest-bearing deposits		136,506			250		0.73	%		147,984			266		0.72	%
Federal Home Loan Bank advances		9,751			18		0.72	%		2,799			7		1.00	%
Total interest-bearing liabilities		146,257			268		0.73	%		150,783			273		0.72	%
Noninterest-bearing liabilities:
Noninterest-bearing deposits		14,988								12,213
Other noninterest-bearing liabilities		1,411								282
Total noninterest-bearing liabilities		16,399								12,495
Total liabilities		162,656								163,278
Total stockholders' equity		32,029								13,067
Total liabilities and total stockholders' equity	$	194,685							$	176,345
Net interest income				$	1,515							$	1,226
Net interest rate spread⁽³⁾							3.16	%							2.94	%
Net interest-earning assets⁽⁴⁾	$	37,264							$	12,867
Net interest margin⁽⁵⁾							3.30	%							3.00	%
Average interest-earning assets to interest-bearing liabilities		125.48	%							108.53	%

(1)

Yields and rates are annualized.

(2)

Includes securities available-for-sale and held-to-maturity. A tax equivalent adjustment of $11,000 and $10,000 was applied to tax-exempt income for the three months ended September 30, 2015 and September 30, 2014, respectively.

(3)

Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

(4)

Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(5)

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

	For the Nine Months Ended September 30,
	2015								2014
	Average Outstanding Balance			Interest		Average Yield/Rate⁽¹⁾			Average Outstanding Balance			Interest		Average Yield/Rate⁽¹⁾
	(In Thousands)

Interest-earning assets:
Loans	$	155,264		$	4,839		4.16	%	$	132,181		$	4,274		4.31	%
Interest-earning deposits		10,183			23		0.30	%		13,023			30		0.31	%
Investment securities⁽²⁾		13,337			220		2.20	%		12,771			227		2.37	%
Federal Home Loan Bank stock and
The Co- operative Central Reserve Fund		1,213			14		1.50	%		1,079			7		0.86	%
Total interest-earning assets		179,997			5,096		3.77	%		159,054			4,538		3.80	%
Noninterest-earning assets		11,347								11,961
Total assets	$	191,344							$	171,015

Interest-bearing liabilities:
Savings accounts	$	18,568			26		0.18	%	$	18,969			25		0.18	%
NOW accounts		19,667			13		0.09	%		18,470			14		0.10	%
Money market accounts		31,587			89		0.37	%		36,667			105		0.38	%
Certificates of deposit		66,270			602		1.21	%		67,121			626		1.24	%
Total interest-bearing deposits		136,092			730		0.72	%		141,227			770		0.73	%
Federal Home Loan Bank advances		8,200			45		0.74	%		4,899			37		1.01	%
Total interest-bearing liabilities		144,292			775		0.72	%		146,126			807		0.74	%
Noninterest-bearing liabilities:
Noninterest-bearing deposits		13,900								11,683
Other noninterest-bearing liabilities		1,266								318
Total noninterest-bearing liabilities		15,166								12,001
Total liabilities		159,458								158,127
Total stockholders' equity		31,886								12,888
Total liabilities and total stockholders' equity	$	191,344							$	171,015
Net interest income				$	4,321							$	3,731
Net interest rate spread⁽³⁾							3.05	%							3.06	%
Net interest-earning assets⁽⁴⁾	$	35,705							$	12,928
Net interest margin⁽⁵⁾							3.20	%							3.13	%
Average interest-earning assets to interest-bearing liabilities		124.74	%							108.85	%

(1)

Yields and rates are annualized.

(2)

Includes securities available-for-sale and held-to-maturity. A tax equivalent adjustment of $36,000 and $36,000 was applied to tax-exempt income for the nine months ended September 30, 2015 and September 30, 2014, respectively.

(3)

Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

(4)

Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(5)

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

Liquidity and Capital Resources

Our primary sources of funds are deposits, principal and interest payments on loans and securities, proceeds from the sale of loans, proceeds from maturities and calls of securities, maturities of certificate of deposit investments and FHLB advances. 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. Our most liquid assets are cash and short-term investments including interest-bearing demand deposits. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by (used in) operating activities was $1.0 million and $(0.6) million for the nine months ended September 30, 2015 and September 30, 2014, respectively. Net cash (used in) provided by investing activities, which consists primarily of disbursements for loan originations, the purchase of securities and the purchase of time deposits with other banks, offset by principal collections on loans, proceeds from the sale of securities, proceeds from redemption of time deposits and proceeds from maturing securities and pay downs on mortgage-backed securities, was ($20.9) million, and $3.8 million for the nine months ended September 30, 2015 and September 30, 2014, respectively. During the nine months ended September 30, 2015, we purchased $4.4 million and sold no securities held as available-for-sale, and during the nine months ended September 30, 2014, we purchased $2.8 million and sold $2.7 million in securities held as available-for-sale. Net cash provided by (used in) financing activities, consisting primarily of the activity in deposit accounts and FHLB advances, was $9.1 million, and $22.5 million for the nine months ended September 30, 2015 and September 30, 2014, respectively.

At September 30, 2015, we exceeded all “well capitalized” regulatory capital requirements with a CETI capital level of $21.9 million, or 16.2% of risk-weighted assets, which is above the required level of $8.8 million, or 6.50%; a tier 1 capital level of $21.9 million, or 16.2% of risk-weighted assets, which is above the required level of $10.8 million, or 8.00%; a tier 1 leverage capital level of $21.9 million, or 11.3% of assets, which is above the required level of $9.7 million, or 5.00%; and total risk-based capital of $22.8 million, or 16.8% of risk-weighted assets, which is above the required level of $13.5 million, or 10.00%. At December 31, 2014, we exceeded all of our regulatory capital requirements with a tier 1 capital level of $ 21.4 million, or 21.2% of risk-weighted assets which is above the required level of $6.1 million, or 6.00%; a tier 1 leverage capital level of $21.4 million, or 11.7% of average assets, which is above the required level of $9.2 million, or 5.00%; and total risk-based capital of $22.2 million, or 21.9% of risk-weighted assets, which is above the required level of $10.1 million, or 10.00%. Accordingly, Pilgrim Bank was categorized as well capitalized at September 30, 2015 and December 31, 2014. Management is not aware of any conditions or events since the most recent notification that would change our category.

At September 30, 2015, we had outstanding commitments to originate loans of $9.7 million and unadvanced funds on loans of $18.8 million. We anticipate that we will have sufficient funds available to meet our current loan origination and securities purchase commitments. Certificates of deposit that are scheduled to mature in less than one year from September 30, 2015 totaled $37.5 million. Management expects, based on historical experience, that a substantial portion of the maturing certificates of deposit will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize FHLB advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

Off-Balance Sheet Arrangements. In the normal course of operations, we engage in a variety of financial transactions that, in accordance with U.S. Generally Accepted Accounting Principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments, lines of credit and standby letters of credit. These arrangements are not expected to have a material impact on the Company’s financial condition or results of operations.

We have not engaged in any other off-balance sheet transactions in the normal course of our lending activities.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Quantitative and qualitative disclosures about market risk are not required by smaller reporting companies, such as the 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) and 15d-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of September 30, 2015. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

During the quarter ended September 30, 2015, 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 Bank 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

Disclosure of risk factors is not required by smaller reporting companies, such as the Company.

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

The exhibits required by Item 601 of Regulation S-K are included with this Form 10-Q and are listed on the “Index to Exhibits” immediately following the signatures.

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.

		Pilgrim Bancshares, Inc.

Date: November 13, 2015		/s/ Francis E. Campbell
		Francis E. Campbell
		President and Chief Executive Officer

Date: November 13, 2015		/s/ Christopher G. McCourt
		Christopher G. McCourt Senior Vice President, Chief Financial Officer and Treasurer

INDEX TO EXHIBITS

3.1 Articles of Incorporation of Pilgrim Bancshares, Inc.*

3.2 Bylaws of Pilgrim Bancshares, Inc.*

31.1 Certification of Francis E. Campbell, President and Chief Executive Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a)

31.2 Certification of Christopher G. McCourt, Senior Vice President and Chief Financial Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a)

32 Certification of Francis E. Campbell, President and Chief Executive Officer, and Christopher G. McCourt, Senior Vice President and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101 The following materials from the Company’s Quarterly Report on Form 10Q for the quarter ended September 30, 2015, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Changes in Stockholders’ Equity; (v) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements

* Incorporated herein by reference to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-194485).

Pilgrim Bancshares, Inc. - FORM 10-Q - November 13, 2015

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Pilgrim Bancshares, Inc. Reports