Georgetown Bancorp, Inc. - FORM 10-Q

Attached files

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EX-31.1 - EX-31.1 - Georgetown Bancorp, Inc.	gtwn-20160331ex3112ff396.htm
EX-32 - EX-32 - Georgetown Bancorp, Inc.	gtwn-20160331xex32.htm
EX-31.2 - EX-31.2 - Georgetown Bancorp, Inc.	gtwn-20160331ex3123e6102.htm

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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 March 31, 2016

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

For the transition period from to

Commission File Number: 001-35595

GEORGETOWN BANCORP, INC.

(Exact name of registrant as specified in its charter)

Maryland		80-0817763
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

2 East Main Street, Georgetown, MA		01833
(Address of principal executive office)		(Zip Code)

(978) 352-8600

(Registrant’s telephone number, including area code)

None

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No☐

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

Large accelerated filer ☐		Accelerated filer ☐
Non-accelerated filer ☐		Smaller reporting company ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of the registrant’s common stock, as of the latest practicable date: Common Stock, $0.01 par value, 1,840,920 shares outstanding as of May 9, 2016.

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Form 10-Q

GEORGETOWN BANCORP, INC.

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		Page

Part I. Financial Information

Item 1:	Financial Statements

	Consolidated Statements of Financial Condition at March 31, 2016 (unaudited) and December 31, 2015	1

	Consolidated Statements of Income for the Three Months Ended March 31, 2016 and 2015 (unaudited)	2

	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2016 and 2015 (unaudited)	3

	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2016 and 2015 (unaudited)	4

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015 (unaudited)	5

	Notes to Consolidated Financial Statements (unaudited)	7

Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3:	Quantitative and Qualitative Disclosures About Market Risk	35

Item 4:	Controls and Procedures	35

Part II. Other Information

Item 1:	Legal Proceedings	36
Item 1A:	Risk Factors	36
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3:	Defaults upon Senior Securities	36
Item 4:	Mine Safety Disclosures	36
Item 5:	Other Information	36
Item 6:	Exhibits	37

SIGNATURES		38

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PART I—FINANCIAL INFORMATION

ITEM 1. Financial Statements

GEORGETOWN BANCORP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


	At		At
	March 31,		December 31,
	2016		2015
	(Unaudited)
	(In thousands, except share data)
ASSETS

Cash and due from banks	$	2,545	$	1,927
Short-term investments		6,493		5,831
Total cash and cash equivalents		9,038		7,758

Securities available for sale, at fair value		18,660		19,028
Securities held to maturity, at amortized cost (fair value of $3,110 at March 31, 2016 and $3,128 at December 31, 2015)		3,051		3,112
Federal Home Loan Bank stock, at cost		2,422		2,933
Bankers Bank Northeast stock, at cost		60		60
Loans, net of allowance for loan losses of $2,483 at March 31, 2016 and $2,408 at December 31, 2015		262,501		253,983
Premises and equipment, net		4,097		3,837
Accrued interest receivable		770		799
Bank-owned life insurance		3,127		3,101
Other assets		2,487		1,891

Total assets	$	306,213	$	296,502

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits	$	235,815	$	207,726
Short-term Federal Home Loan Bank advances		8,250		23,500
Long-term Federal Home Loan Bank advances		26,100		27,100
Mortgagors’ escrow accounts		1,776		1,386
Due to broker for investment purchase		—		2,505
Accrued expenses and other liabilities		2,166		2,377
Total liabilities		274,107		264,594

Commitments and contingencies

Stockholders’ equity:
Preferred stock, $0.01 par value per share: 50,000,000 shares authorized at March 31, 2016 and December 31, 2015; none outstanding		—		—
Common stock, $0.01 par value per share: 100,000,000 shares authorized, 1,840,920 shares issued at March 31, 2016 and 1,828,238 shares issued at December 31, 2015		18		18
Additional paid-in capital		19,690		19,402
Retained earnings		13,785		13,788
Accumulated other comprehensive income		200		46
Unearned compensation - ESOP (77,835 shares unallocated at March 31, 2016 and 79,645 shares unallocated at December 31, 2015)		(815)		(835)
Unearned compensation - Restricted stock (46,449 shares non-vested at March 31, 2016 and 44,866 shares non-vested at December 31, 2015)		(772)		(511)
Total stockholders’ equity		32,106		31,908

Total liabilities and stockholders’ equity	$	306,213	$	296,502

See accompanying notes to consolidated financial statements.

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GEORGETOWN BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)


	Three Months Ended
	March 31,
	2016		2015
	(In thousands, except share and per share data)

Interest and dividend income:
Loans, including fees	$	3,003	$	2,715
Securities		154		139
Short-term investments		6		2
Total interest and dividend income		3,163		2,856

Interest expense:
Deposits		411		236
Short-term Federal Home Loan Bank advances		20		13
Long-term Federal Home Loan Bank advances		143		149
Total interest expense		574		398

Net interest and dividend income		2,589		2,458
Provision for loan losses		74		27
Net interest and dividend income, after provision for loan losses		2,515		2,431

Non-interest income:
Customer service fees		184		169
Mortgage banking income, net		9		22
Gain on sale of SBA loans		15		—
Income from bank-owned life insurance		26		25
Other		8		6
Total non-interest income		242		222

Non-interest expenses:
Salaries and employee benefits		1,411		1,228
Occupancy and equipment expenses		265		278
Data processing expenses		214		160
Professional fees		291		122
Advertising expenses		87		88
FDIC insurance		44		42
Other general and administrative expenses		325		336
Total non-interest expenses		2,637		2,254

Income before income taxes		120		399

Income tax provision		40		149

Net income	$	80	$	250

Weighted-average number of common shares outstanding:
Basic		1,754,525		1,747,833
Diluted		1,759,031		1,759,445

Net income per share:
Basic	$	0.05	$	0.14
Diluted	$	0.05	$	0.14

Dividends paid per share	$	0.0475	$	0.0425

See accompanying notes to consolidated financial statements.

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GEORGETOWN BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)


	Three Months Ended
	March 31,
	2016		2015
	(In thousands)

Net income	$	80	$	250

Net unrealized gain on securities available for sale		238		71
Income tax provision		(84)		(26)
Other comprehensive income, net of tax		154		45

Comprehensive income	$	234	$	295

See accompanying notes to consolidated financial statements.

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GEORGETOWN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited)


							Accumulated
			Additional				Other		Unearned		Unearned
	Common		Paid-in		Retained		Comprehensive		Compensation-		Compensation-
	Stock		Capital		Earnings		Income		ESOP		Restricted Stock		Total
	(In thousands)

Balance at December 31, 2014	$	18	$	19,245	$	12,593	$	143	$	(918)	$	(369)	$	30,712

Net income		—		—		250		—		—		—		250
Other comprehensive income		—		—		—		45		—		—		45
Cash dividends paid ($0.0425 per share)		—		—		(73)		—		—		—		(73)
Common stock held by ESOP allocated or committed to be allocated (1,810 shares)		—		11		—		—		20		—		31
Restricted stock granted in connection with equity incentive plan (20,000 shares)		—		351		—		—		—		(351)		—
Purchased stock related to vested restricted stock (2,417 shares)		—		(54)		—		—		—		—		(54)
Share based compensation - options		—		18		—		—		—		—		18
Share based compensation - restricted stock		—		—		—		—		—		45		45

Balance at March 31, 2015	$	18	$	19,571	$	12,770	$	188	$	(898)	$	(675)	$	30,974

Balance at December 31, 2015	$	18	$	19,402	$	13,788	$	46	$	(835)	$	(511)	$	31,908

Net income		—		—		80		—		—		—		80
Other comprehensive income		—		—		—		154		—		—		154
Cash dividends paid ($0.0475 per share)		—		—		(83)		—		—		—		(83)
Common stock held by ESOP allocated or committed to be allocated (1,810 shares)		—		15		—		—		20		—		35
Restricted stock granted in connection with equity incentive plan (16,500 shares)		—		320		—		—		—		(320)		—
Purchased stock related to vested restricted stock (3,818 shares)		—		(74)		—		—		—		—		(74)
Share based compensation - options		—		27		—		—		—		—		27
Share based compensation - restricted stock		—		—		—		—		—		59		59

Balance at March 31, 2016	$	18	$	19,690	$	13,785	$	200	$	(815)	$	(772)	$	32,106

See accompanying notes to consolidated financial statements.

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GEORGETOWN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Three Months Ended
	March 31,
	2016		2015
	(In thousands)

Cash flows from operating activities:
Net income	$	80	$	250
Adjustments to reconcile net income to net cash (used by) provided by operating activities:
Provision for loan losses		74		27
Amortization of securities, net		31		32
Net change in deferred loan fees and costs		(10)		62
Depreciation and amortization expense		98		95
Decrease in accrued interest receivable		29		1
Income from bank-owned life insurance		(26)		(25)
Stock-based compensation expense		121		94
Gain on sale of loans		(15)		(29)
Loans originated for sale		(210)		(1,158)
Proceeds from sales of loans		225		2,177
Net change in other assets and liabilities		(891)		1,344
Net cash (used by) provided by operating activities		(494)		2,870

Cash flows from investing activities:
Activity in securities available for sale:
Maturities, prepayments and calls		577		578
Activity in securities held to maturity:
Maturities, prepayments and calls		48		48
Purchases		(2,494)		—
Redemption of Federal Home Loan Bank stock		511		—
Loan originations, net		(5,451)		(158)
Principal balance of loans purchased		(3,131)		—
Purchase of premises and equipment		(358)		(5)
Proceeds from sale of premises and equipment		—		77
Net cash (used by) provided by investing activities		(10,298)		540

(continued)

See accompanying notes to consolidated financial statements.

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GEORGETOWN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(concluded)


	Three Months Ended
	March 31,
	2016		2015
	(In thousands)

Cash flows from financing activities:
Net change in deposits		28,089		7,512
Net change in Federal Home Loan Bank advances with maturities of three months or less		(15,250)		(13,750)
Proceeds from Federal Home Loan Bank advances with maturities greater than three months		—		5,000
Repayments of Federal Home Loan Bank advances with maturities greater than three months		(1,000)		—
Net change in mortgagors’ escrow accounts		390		260
Repurchase of common stock		(74)		(54)
Cash dividends paid on common stock		(83)		(73)
Net cash provided by (used by) financing activities		12,072		(1,105)

Net change in cash and cash equivalents		1,280		2,305

Cash and cash equivalents at beginning of period		7,758		4,918

Cash and cash equivalents at end of period	$	9,038	$	7,223

Supplementary information:
Interest paid on deposit accounts	$	411	$	235
Interest paid on advances		167		159
Income taxes paid		111		73
Change in due to broker for investment purchases		(2,505)		2,544

See accompanying notes to consolidated financial statements.

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GEORGETOWN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(1)Basis of Presentation

The accompanying unaudited financial statements of Georgetown Bancorp, Inc., a Maryland corporation, (the “Company”) were prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions for Form 10-Q and with Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with GAAP. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the three-month period ended March 31, 2016 are not necessarily indicative of the results that may be expected for future periods, including the entire fiscal year. These financial statements should be read in conjunction with the financial statements and notes thereto included in the December 31, 2015 Consolidated Financial Statements presented in the Annual Report on Form 10-K of the Company filed with the Securities and Exchange Commission on March 29, 2016. The consolidated financial statements include the accounts of Georgetown Bank (the “Bank”) and its wholly owned subsidiary, Georgetown Securities Corporation, which engages in the buying, selling and holding of securities. All significant inter-company balances and transactions have been eliminated in consolidation. These consolidated financial statements consider events that occurred through the date the consolidated financial statements were issued.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts in the financial statements and accompanying notes. Actual results may differ from those estimates and such differences could be material to the financial statements.

(2)Corporate Structure

The Company completed a “second step” conversion to a fully public stock holding company on July 11, 2012. The Bank is a wholly owned subsidiary of the Company. Georgetown Securities Corporation, established in 1995 as a Massachusetts securities corporation for the purpose of buying, selling and holding securities on its own behalf, is a wholly owned subsidiary of the Bank.

(3)Earnings Per Common Share

The Company has adopted the Earnings Per Share (“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 earnings per share reflect 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.

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

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Earnings per common share have been computed based on the following:


	Three Months Ended
	March 31,
	2016		2015
	(In thousands, except share and per share data)

Net income available to common stockholders	$	80	$	250

Basic common shares:
Weighted average shares outstanding		1,788,005		1,793,805
Less: Weighted average unallocated ESOP shares		(79,009)		(86,250)
Add: Weighted average unvested restricted stock shares with non-forfeitable dividend rights		45,529		40,278
Basic weighted average common shares outstanding		1,754,525		1,747,833

Dilutive potential common shares		4,506		11,612

Diluted weighted average common shares outstanding		1,759,031		1,759,445

Basic earnings per share	$	0.05	$	0.14

Diluted earnings per share	$	0.05	$	0.14

Options to purchase 122,775 shares, representing all outstanding options, were included in the computation of diluted earnings per share for the three months ended March 31, 2016. Options to purchase 61,681 shares, representing outstanding options granted in 2010, 2011, 2012, 2013 and 2014, were included in the computation of diluted earnings per share for the three months ended March 31, 2015. Options to purchase 30,000 shares that were granted in 2015 were not included in the computation of diluted earnings per share for the three months ended March 31, 2015, because to do so would have been antidilutive.

(4)Recent Accounting Pronouncements

In May 2014 and August 2015, respectively, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2014-09 and 2015-14, “Revenue from Contracts with Customers (Topic 606).” The objective of ASU 2014-09 is to clarify principles for recognizing revenue and to develop a common revenue standard for GAAP and International Financial Reporting Standards. The guidance in ASU 2014-09 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. The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2017, and interim periods within that period. Earlier application is permitted only as of an annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently reviewing ASUs 2014-09 and 2015-14 to determine if they will have an impact on its consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The amendments in this ASU address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments and makes targeted improvements to GAAP as follows:

1.Require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value

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recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

2.Simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value.

3.Eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet.

4.Require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.

5.Require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.

6.Require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements.

7.Clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.

The amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption of item 5 above is permitted as of the fiscal years or interim periods for which financial statements have not yet been issued. Early adoption of all other amendments in this ASU is not permitted. The Company anticipates that the adoption of this ASU will not have a material impact on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” This ASU was issued to increase transparency and comparability among organizations by requiring reporting entities to recognize all leases, including operating, as lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company anticipates that the adoption of this ASU will not have a material impact on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting.” This ASU includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. Some of the key provisions of this new ASU include: (1) removing the requirement for companies to record excess tax benefits and certain tax deficiencies in additional paid-in capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement, and APIC pools will be eliminated. The guidance also eliminates the requirement that excess tax benefits be realized before companies can recognize them. In addition, the guidance requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity; (2) increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding obligation. The new guidance will also require an employer to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on its statement of cash flows (current guidance did not specify how these cash flows should be classified); and (3) permit companies to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards. Forfeitures can be estimated, as required today, or recognized when they occur. ASU 2016-09 is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted, but all of the guidance must be adopted in the same period. The Company is currently evaluating the provisions of ASU 2016-09 to determine the potential impact the new standard will have on its consolidated financial statements.

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(5)Securities

A summary of securities is as follows:


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In thousands)

At March 31, 2016

Securities available for sale

State and municipal	$	2,398	$	76	$	—	$	2,474

Residential mortgage-backed securities		15,949		246		(9)		16,186

Total securities available for sale	$	18,347	$	322	$	(9)	$	18,660

Securities held to maturity

State and municipal	$	571	$	10	$	—	$	581

Residential mortgage-backed securities		2,480		49		—		2,529

Total securities held to maturity	$	3,051	$	59	$	—	$	3,110

At December 31, 2015

Securities available for sale

State and municipal	$	2,410	$	62	$	(2)	$	2,470

Residential mortgage-backed securities		16,543		104		(89)		16,558

Total securities available for sale	$	18,953	$	166	$	(91)	$	19,028

Securities held to maturity

State and municipal	$	573	$	12	$	—	$	585

Residential mortgage-backed securities		2,539		4		—		2,543

Total securities held to maturity	$	3,112	$	16	$	—	$	3,128

All residential mortgage-backed securities have been issued by government-sponsored enterprises.

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The amortized cost and estimated fair value of debt securities by contractual maturity at March 31, 2016 is as follows. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(In thousands)

After five years through ten years	$	536	$	555	$	—	$	—
Over ten years		1,862		1,919		571		581
		2,398		2,474		571		581
Residential mortgage-backed securities		15,949		16,186		2,480		2,529

	$	18,347	$	18,660	$	3,051	$	3,110

There were no sales of securities for the three months ended March 31, 2016 and 2015.

Information pertaining to securities with gross unrealized losses, aggregated by investment category and length of time that the individual securities have been in a continuous loss position, is as follows:


	Less Than Twelve Months				Twelve Months Or Longer
	Gross				Gross
	Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value
	(In thousands)
At March 31, 2016

Securities available for sale

Residential mortgage-backed securities	$	—	$	—	$	(9)	$	3,223

Total temporarily impaired securities	$	—	$	—	$	(9)	$	3,223

At December 31, 2015

Securities available for sale

State and municipal	$	—	$	—	$	(2)	$	244

Residential mortgage-backed securities		(20)		3,946		(69)		3,229

Total temporarily impaired securities	$	(20)	$	3,946	$	(71)	$	3,473

Each reporting period, the Company evaluates all securities classified as available for sale or held to maturity with a decline in fair value below the amortized cost of the investment to determine whether or not the impairment is deemed to be other-than-temporary (“OTTI”).

At March 31, 2016, two securities classified as available for sale had an unrealized loss with aggregate depreciation of 0.27% from the securities’ amortized cost basis. The unrealized losses on the Company’s investments in residential mortgage-backed securities were primarily caused by changes in interest rates and not by credit quality. These investments are issued by government-sponsored enterprises and as management has not decided to sell these securities, nor is it likely that the Company will be required to sell these securities, no declines are deemed to be OTTI.

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(6)Loans and Servicing

Loans

A summary of loans is as follows:


	At				At
	March 31,				December 31,
	2016				2015
	Amount		Percent		Amount		Percent
	(In thousands)
Residential loans:
One- to four-family	$	85,680	32.38	%	$	86,472	33.78	%
Home equity loans and lines of credit		17,233	6.51			18,263	7.13
Total residential mortgage loans		102,913	38.89			104,735	40.91

Commercial loans:
One- to four-family investment property		13,901	5.25			15,255	5.96
Multi-family real estate		29,757	11.25			30,709	12.00
Commercial real estate		74,549	28.17			67,152	26.23
Commercial business		19,428	7.34			17,548	6.85
Total commercial loans		137,635	52.01			130,664	51.04

Construction loans:
One- to four-family		15,870	6.01			12,967	5.07
Multi-family		1,643	0.62			1,486	0.58
Non-residential		6,329	2.39			5,925	2.31
Total construction loans		23,842	9.02			20,378	7.96

Consumer		207	0.08			237	0.09

Total loans		264,597	100.00	%		256,014	100.00	%

Other items:
Net deferred loan costs		387				377
Allowance for loan losses		(2,483)				(2,408)

Total loans, net	$	262,501			$	253,983

Table of Contents

An analysis of the allowance for loan losses for the three months ended March 31, 2016 and 2015 and at March 31, 2016 and December 31, 2015 is below. For additional information please refer to Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations.


	Residential				Commercial								Construction
					One‑ to four‑
			Home equity		family
	One‑ to four‑		loans and		investment		Multi‑family		Commercial		Commercial		One‑ to four‑				Non-
	family		lines of credit		property		real estate		real estate		business		family		Multi‑family		residential		Consumer		Unallocated		Total
	(In thousands)

Allowance for loan losses

Three Months Ended March 31, 2016
Beginning Balance	$	197	$	276	$	90	$	233	$	1,021	$	305	$	113	$	12	$	91	$	2	$	68	$	2,408
Charge-offs		—		—		—		—		—		—		—		—		—		—		—		—
Recoveries		—		1		—		—		—		—		—		—		—		—		—		1
(Benefit) provision		(17)		(17)		(7)		(7)		105		33		26		2		6		—		(50)		74
Ending Balance	$	180	$	260	$	83	$	226	$	1,126	$	338	$	139	$	14	$	97	$	2	$	18	$	2,483

Three Months Ended March 31, 2015
Beginning Balance	$	273	$	249	$	46	$	113	$	943	$	311	$	117	$	97	$	77	$	3	$	—	$	2,229
Charge-offs		—		—		—		—		—		—		—		—		—		(1)		—		(1)
Recoveries		—		—		—		—		—		—		—		—		—		1		—		1
(Benefit) provision		(61)		3		(1)		11		28		4		(6)		(30)		(2)		—		81		27
Ending Balance	$	212	$	252	$	45	$	124	$	971	$	315	$	111	$	67	$	75	$	3	$	81	$	2,256

At March 31, 2016

Allowance for loan losses
Individually evaluated for impairment	$	1	$	—	$	7	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	8
Collectively evaluated for impairment		179		260		76		226		1,126		338		139		14		97		2		18		2,475
	$	180	$	260	$	83	$	226	$	1,126	$	338	$	139	$	14	$	97	$	2	$	18	$	2,483

Loans
Individually evaluated for impairment	$	1,565	$	104	$	88	$	—	$	286	$	—	$	—	$	—	$	—	$	—	$	—	$	2,043
Collectively evaluated for impairment		84,115		17,129		13,813		29,757		74,263		19,428		15,870		1,643		6,329		207		—		262,554
	$	85,680	$	17,233	$	13,901	$	29,757	$	74,549	$	19,428	$	15,870	$	1,643	$	6,329	$	207	$	—	$	264,597

At December 31, 2015

Allowance for loan losses
Individually evaluated for impairment	$	7	$	—	$	7	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	14
Collectively evaluated for impairment		190		276		83		233		1,021		305		113		12		91		2		68		2,394
	$	197	$	276	$	90	$	233	$	1,021	$	305	$	113	$	12	$	91	$	2	$	68	$	2,408

Loans
Individually evaluated for impairment	$	1,567	$	104	$	88	$	—	$	287	$	—	$	—	$	—	$	—	$	—	$	—	$	2,046
Collectively evaluated for impairment		84,905		18,159		15,167		30,709		66,865		17,548		12,967		1,486		5,925		237		—		253,968
	$	86,472	$	18,263	$	15,255	$	30,709	$	67,152	$	17,548	$	12,967	$	1,486	$	5,925	$	237	$	—	$	256,014

Table of Contents

The following is a summary of past-due and non-accrual loans at March 31, 2016 and December 31, 2015. For additional information please refer to Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations.


	Loans delinquent for:												90 days
					90 days		Total		Total		Total		or more		Non-accrual
	30 - 59 Days		60 - 89 Days		or more		Past Due		Current		Loans		and accruing		Loans
	(In thousands)
At March 31, 2016
Residential loans:
One- to four-family	$	126	$	—	$	649	$	775	$	84,905	$	85,680	$	—	$	775
Home equity loans and lines of credit		31		157		—		188		17,045		17,233		—		157

Commercial loans:
One- to four-family investment property		—		—		—		—		13,901		13,901		—		—
Multi-family real estate		—		—		—		—		29,757		29,757		—		—
Commercial real estate		—		—		—		—		74,549		74,549		—		—
Commercial business		9		—		—		9		19,419		19,428		—		—

Construction loans:
One- to four-family		—		—		—		—		15,870		15,870		—		—
Multi-family		—		—		—		—		1,643		1,643		—		—
Non-residential		—		—		—		—		6,329		6,329		—		—

Consumer		4		—		—		4		203		207		—		—
Total	$	170	$	157	$	649	$	976	$	263,621	$	264,597	$	—	$	932


	Loans delinquent for:												90 days
					90 days		Total		Total		Total		or more		Non-accrual
	30 - 59 Days		60 - 89 Days		or more		Past Due		Current		Loans		and accruing		Loans
	(In thousands)
At December 31, 2015
Residential loans:
One- to four-family	$	—	$	—	$	649	$	649	$	85,823	$	86,472	$	—	$	776
Home equity loans and lines of credit		273		—		—		273		17,990		18,263		—		—

Commercial loans:
One- to four-family investment property		—		—		—		—		15,255		15,255		—		—
Multi-family real estate		—		—		—		—		30,709		30,709		—		—
Commercial real estate		—		—		—		—		67,152		67,152		—		—
Commercial business		12		—		—		12		17,536		17,548		—		—

Construction loans:
One- to four-family		—		—		—		—		12,967		12,967		—		—
Multi-family		—		—		—		—		1,486		1,486		—		—
Non-residential		—		—		—		—		5,925		5,925		—		—

Consumer		—		4		—		4		233		237		—		—
Total	$	285	$	4	$	649	$	938	$	255,076	$	256,014	$	—	$	776

Table of Contents

The following is a summary of impaired loans at March 31, 2016 and December 31, 2015, and for the threee months and year then ended, respectively.


			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(In thousands)
At March 31, 2016
Impaired loans without a valuation allowance

Residential loans:
One- to four-family	$	1,255	$	1,255	$	—	$	1,255	$	8
Home equity loans and lines of credit		104		104		—		104		1
Commercial loans:
One- to four-family investment property		—		—		—		—		—
Multi-family real estate		—		—		—		—		—
Commercial real estate		286		286		—		287		4
Commercial business		—		—		—		—		—
Construction loans:
One- to four-family		—		—		—		—		—
Multi-family		—		—		—		—		—
Non-residential		—		—		—		—		—
Consumer		—		—		—		—		—

Total impaired with no related allowance	$	1,645	$	1,645	$	—	$	1,646	$	13

Impaired loans with a valuation allowance

Residential loans:
One- to four-family	$	310	$	310	$	1	$	311	$	4
Home equity loans and lines of credit		—		—		—		—		—
Commercial loans:
One- to four-family investment property		88		88		7		88		1
Multi-family real estate		—		—		—		—		—
Commercial real estate		—		—		—		—		—
Commercial business		—		—		—		—		—
Construction loans:
One- to four-family		—		—		—		—		—
Multi-family		—		—		—		—		—
Non-residential		—		—		—		—		—
Consumer		—		—		—		—		—

Total with an allowance recorded	$	398	$	398	$	8	$	399	$	5

Table of Contents


			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(In thousands)
At December 31, 2015
Impaired loans without a valuation allowance

Residential loans:
One- to four-family	$	1,255	$	1,255	$	—	$	236	$	12
Home equity loans and lines of credit		104		104		—		51		2
Commercial loans:
One- to four-family investment property		—		—		—		—		—
Multi-family real estate		—		—		—		—		—
Commercial real estate		287		287		—		292		17
Commercial business		—		—		—		74		9
Construction loans:
One- to four-family		—		—		—		—		—
Multi-family		—		—		—		—		—
Non-residential		—		—		—		—		—
Consumer		—		—		—		—		—

Total impaired with no related allowance	$	1,646	$	1,646	$	—	$	653	$	40

Impaired loans with a valuation allowance

Residential loans:
One- to four-family	$	312	$	312	$	7	$	314	$	16
Home equity loans and lines of credit		—		—		—		—		—
Commercial loans:
One- to four-family investment property		88		88		7		55		4
Multi-family real estate		—		—		—		—		—
Commercial real estate		—		—		—		—		—
Commercial business		—		—		—		—		—
Construction loans:
One- to four-family		—		—		—		—		—
Multi-family		—		—		—		—		—
Non-residential		—		—		—		—		—
Consumer		—		—		—		—		—

Total with an allowance recorded	$	400	$	400	$	14	$	369	$	20

The Company made no loan modifications that resulted in a troubled debt restructuring (“TDR”) during the three months ended March 31, 2016. There were two loan modifications made to the same borrower that resulted in the classification of TDR during the three months ended March 31, 2015, and the TDRs did not result in a material impact to the allowance for loan losses account. The first loan, a commercial business loan with a pre-modification and post-modification balance of $131,000 at March 31, 2015, was restructured to extend the original maturity date for an additional 10 years and the interest rate was reduced. The second loan, a commercial business loan with a pre-modification and post-modification balance of $4,000 at March 31, 2015, was restructured into a two year amortizing note and the interest rate was reduced. At March 31, 2016 there were no commitments to lend additional funds to borrowers whose loans were modified in TDRs.

At March 31, 2016 and December 31, 2015, there were no TDR loans in default of their modified terms.

The Company has one residential loan in the process of foreclosure with a recorded balance of $649,000 at March 31, 2016.

Table of Contents

The following table represents the Company’s loans by risk rating at March 31, 2016 and December 31, 2015. For additional information please refer to Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations.


	Residential				Commercial								Construction
					One‑ to four‑
			Home equity		family
	One‑ to four‑		loans and lines		investment		Multi‑family		Commercial		Commercial		One‑ to four‑				Non-
	family		of credit		property		real estate		real estate		business		family		Multi‑family		residential		Consumer		Total
	(In thousands)
At March 31, 2016

Classification:
Not formally rated	$	83,989	$	16,996	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	207	$	101,192
Pass		—		—		13,813		29,757		73,822		19,279		15,870		1,643		6,329		—		160,513
Special mention		—		—		—		—		727		149		—		—		—		—		876
Substandard		1,691		237		88		—		—		—		—		—		—		—		2,016
Doubtful		—		—		—		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—		—		—		—
Total loans	$	85,680	$	17,233	$	13,901	$	29,757	$	74,549	$	19,428	$	15,870	$	1,643	$	6,329	$	207	$	264,597

At December 31, 2015

Classification:
Not formally rated	$	84,778	$	18,183	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	237	$	103,198
Pass		—		—		15,167		30,709		66,420		17,454		12,967		1,486		5,925		—		150,128
Special mention		—		—		—		—		732		94		—		—		—		—		826
Substandard		1,694		80		88		—		—		—		—		—		—		—		1,862
Doubtful		—		—		—		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—		—		—		—
Total loans	$	86,472	$	18,263	$	15,255	$	30,709	$	67,152	$	17,548	$	12,967	$	1,486	$	5,925	$	237	$	256,014

Table of Contents

Credit Quality Information

The Bank utilizes a nine grade internal loan rating system for all commercial and construction loans as follows:

Loans rated 1 - 5: Loans in these categories are considered “pass” rated loans with low to average risk.

Loans rated 6: Loans in this category are considered “special mention.” These loans have risk profiles that are starting to show signs of potential weakness and are being closely monitored by management.

Loans rated 7: Loans in this category are considered “substandard.” These loans have a well defined weakness that jeopardizes the liquidation of the debt and is inadequately protected by the current sound worth and paying capacity of the borrower or pledged collateral. There is a distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Loans rated 8: 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 9: Loans in this category are considered a “loss.” The loan has been determined to be uncollectible and the chance of loss is inevitable. Loans in this category will be charged-off.

On an annual basis, or more often if needed, the Bank formally reviews the ratings on all commercial and construction loans. For residential real estate and consumer loans, the Bank initially assesses credit quality based on the borrower’s ability to pay and subsequently monitors these loans based on the borrower’s payment activity; however, these loans are not formally risk-rated.

Loans serviced for others and mortgage servicing rights

Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of mortgage loans serviced for others were $96.2 million and $100.5 million at March 31, 2016 and December 31, 2015, respectively.

The risks inherent in the mortgage servicing assets relate primarily to changes in prepayments that result from shifts in mortgage interest rates. The fair value of servicing rights was $799,000 and $1.1 million at March 31, 2016 and December 31, 2015, respectively, and was determined using the moving average 10-year, U.S. Treasury rate plus 5.0%, adjusted to reflect the current credit spreads and conditions in the market as a discount rate. Prepayment assumptions, which are impacted by loan rates and terms, are calculated using a moving average of prepayment data published by the Securities Industry and Financial Markets Association and an independent third party proprietary analysis of prepayment rates embedded in liquid mortgage securities markets and modeled against the serviced loan portfolio by the independent third party valuation specialist.

Table of Contents

The following summarizes mortgage servicing rights capitalized and amortized, along with the aggregate activity related to valuation allowances.


	Three Months Ended
	March 31,
	2016		2015
	(In thousands)

Mortgage servicing rights:
Balance at beginning of period	$	523	$	840
Additions		—		11
Amortization		(78)		(85)
Balance at end of period		445		766

Valuation allowance:
Balance at beginning of period		4		6
Additions		12		13
Reductions		—		—
Balance at end of period		16		19

Mortgage servicing assets, net	$	429	$	747

Fair value of mortgage servicing assets	$	799	$	1,166

(7)Secured Borrowings and Collateral

Federal Home Loan Bank advances

At March 31, 2016, all Federal Home Loan Bank of Boston (“FHLB”) advances were secured by a blanket security agreement on qualified collateral, principally first mortgage loans on owner-occupied residential property in the amount of $73.2 million, commercial real estate loans in the amount of $24.7 million and mortgage-backed securities with a fair value of $18.7 million.

(8)Fair Value Measurements

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 as follows:

Level l - Valuation is based on quoted prices in active markets for identical assets or liabilities. Level l assets and liabilities generally include debt and equity securities that are traded in an active exchange market. At March 31, 2016, the Company had no assets or liabilities valued using Level 1 measurements.

Level 2 - Valuation is based on observable inputs other than Level l prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Table of Contents

All of the Company’s securities that are measured at fair value are included in Level 2 and are based on pricing models from independent, third party pricing services that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data. There are no liabilities measured at fair value. All of the Company’s impaired loans that are measured at fair value are included in Level 3 and are based on the appraised value of the underlying collateral considering discounting factors, if deemed appropriate, and adjusted for selling costs. These appraised values may be discounted based on management’s historical knowledge, expertise or changes in market conditions from time of valuation. The Company did not have any significant transfers of assets or liabilities to or from Levels 1 and 2 of the fair value hierarchy during the three month period ended March 31, 2016.

Assets and liabilities measured at fair value on a recurring basis at March 31, 2016 and December 31, 2015 are summarized below.


							Total
							Assets
	Level 1		Level 2		Level 3		at Fair Value
	(In thousands)
At March 31, 2016

Assets

Securities available for sale

State and municipal	$	—	$	2,474	$	—	$	2,474

Residential mortgage-backed securities		—		16,186		—		16,186

Total securities available for sale	$	—	$	18,660	$	—	$	18,660

At December 31, 2015

Assets

Securities available for sale

State and municipal	$	—	$	2,470	$	—	$	2,470

Residential mortgage-backed securities		—		16,558		—		16,558

Total securities available for sale	$	—	$	19,028	$	—	$	19,028

Table of Contents

The Company may also be required, from time to time, to measure certain other financial assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. Assets measured at fair value on a non-recurring basis at March 31, 2016 and December 31, 2015 are summarized below. The fair value adjustments relate to the amount of write-down recorded or related allowance recorded as of March 31, 2016 and December 31, 2015.


							Assets		Adjustments
	Level 1		Level 2		Level 3		at Fair Value		to Fair Value
	(In thousands)
At March 31, 2016

Impaired loans	$	—	$	—	$	390	$	390	$	(8)


							Assets		Adjustments
	Level 1		Level 2		Level 3		At Fair Value		to Fair Value
	(In thousands)
At December 31, 2015

Impaired loans	$	—	$	—	$	386	$	386	$	(14)

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

Cash and cash equivalents: The carrying amounts of cash and short-term investments approximate fair values.

Securities: Fair values for the Company’s debt securities are based on pricing models that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data.

FHLB and Bankers Bank Northeast (BBN) stock: Fair value is based on redemption provisions of the FHLB and BBN. The FHLB and BBN stock have no quoted market value.

Loans: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for other loans are estimated using discounted cash flow analyses, using market interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values for impaired loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

Capitalized mortgage servicing rights: Fair value is based on a quarterly, independent third-party valuation model that calculates the present value of estimated future net servicing income. The model utilizes a variety of assumptions, the most significant of which are loan prepayment assumptions and the discount rate used to discount future cash flows. Prepayment assumptions, which are impacted by loan rates and terms, are calculated using a moving average of prepayment data published by the Securities Industry and Financial Markets Association and a third party proprietary analysis of prepayment rates embedded in liquid mortgage securities markets and modeled against the serviced loan portfolio by the independent third party valuation specialist. The discount rate is the moving average 10-year, U.S. Treasury rate plus 5.0% adjusted to reflect the current credit spreads and conditions in the market. Other assumptions include delinquency rates, foreclosure rates, servicing cost inflation, and annual unit loan cost. All assumptions are adjusted periodically to reflect current circumstances and all are obtained from independent market sources.

Deposits: The fair values for non-certificate accounts are, by definition, equal to the amount payable on demand at the reporting date which is the carrying amount. Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies market interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Table of Contents

Short-term FHLB advances: The fair value of short-term FHLB advances approximates carrying value, as they generally mature within 90 days.

Long-term FHLB advances: The fair value for long-term FHLB advances is estimated using discounted cash flow analyses based on current market borrowing rates for similar types of borrowing arrangements.

Mortgagors’ escrow accounts: The fair value of mortgagors’ escrow accounts approximates carrying value.

Accrued interest: The carrying amounts of accrued interest approximate fair value.

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. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligation with the counterparties at the reporting date. At March 31, 2016 and December 31, 2015, the fair value of commitments outstanding is not significant since fees charged are not material.

The estimated fair values and related carrying amounts of the Company’s financial instruments at March 31, 2016 and December 31, 2015 are as follows.


	March 31, 2016
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Total
	(In thousands)
Financial assets:
Cash and cash equivalents	$	9,038	$	9,038	$	—	$	—	$	9,038
Securities available for sale		18,660		—		18,660		—		18,660
Securities held to maturity		3,051		—		3,110		—		3,110
FHLB stock		2,422		2,422		—		—		2,422
Bankers Bank Northeast stock		60		60		—		—		60
Loans, net		262,501		—		—		263,327		263,327
Accrued interest receivable		770		770		—		—		770
Capitalized mortgage servicing rights		429		—		799		—		799

Financial liabilities:
Deposits	$	235,815	$	—	$	236,500	$	—	$	236,500
Short-term FHLB advances		8,250		8,250		—		—		8,250
Long-term FHLB advances		26,100		—		26,297		—		26,297
Mortgagors’ escrow accounts		1,776		1,776		—		—		1,776
Accrued interest payable		55		55		—		—		55

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	December 31, 2015
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Total
	(In thousands)
Financial assets:
Cash and cash equivalents	$	7,758	$	7,758	$	—	$	—	$	7,758
Securities available for sale		19,028		—		19,028		—		19,028
Securities held to maturity		3,112		—		3,128		—		3,128
FHLB stock		2,933		2,933		—		—		2,933
Bankers Bank Northeast stock		60		60		—		—		60
Loans, net		253,983		—		—		254,095		254,095
Accrued interest receivable		799		799		—		—		799
Capitalized mortgage servicing rights		519		—		1,100		—		1,100

Financial liabilities:
Deposits	$	207,726	$	—	$	207,894	$	—	$	207,894
Short-term FHLB advances		23,500		23,500		—		—		23,500
Long-term FHLB advances		27,100		—		27,255		—		27,255
Mortgagors’ escrow accounts		1,386		1,386		—		—		1,386
Accrued interest payable		59		59		—		—		59

(9)Equity Incentive Plans

At March 31, 2016 the Company had two equity incentive plans, the 2009 Equity Plan and the 2014 Equity Plan. Both plans were described more fully in Note 12 of the consolidated financial statements and notes thereto for the year ended December 31, 2015.

The following tables present the activity for the 2009 and 2014 Equity Plans as of and for the three months ended March 31, 2016.


	Stock Options
	2016
			Weighted
			Average
	Number of		Exercise
	Shares		Price

Outstanding at beginning of year		89,275	$	14.02
Granted		33,500	$	19.40

Outstanding at end of period		122,775	$	15.49

Exercisable at end of period		51,740

Weighted average fair value of options granted during the period	$	6.07

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Options Outstanding					Options Exercisable
Number	Weighted-Average		Weighted		Number	Weighted
Outstanding	Remaining		Average		Exercisable	Average
as of 3/31/2016	Contractual Life		Exercise Price		as of 3/31/2016	Exercise Price

8,712	3.90	Years	$	9.33	8,712	$	9.33
9,683	4.90	Years	$	9.55	9,683	$	9.55
8,570	5.90	Years	$	9.58	7,359	$	9.58
15,200	6.90	Years	$	14.00	10,500	$	14.00
17,110	7.90	Years	$	14.98	8,286	$	14.98
30,000	8.90	Years	$	17.55	7,200	$	17.55
33,500	9.90	Years	$	19.40	—	$	—
122,775	7.91	Years	$	15.49	51,740	$	12.40


	Non-vested
	Restricted Stock
	2016
		Weighted
		Average
	Number of	Grant Date
	Shares	Value

Outstanding at beginning of year	44,866	$	15.21
Granted	16,500	$	19.40
Vested	(14,917)	$	14.27

Outstanding at end of period	46,449	$	17.00

As of March 31, 2016, unrecognized share-based compensation expense related to non-vested options amounted to $407,000 and the unrecognized share-based compensation expense related to non-vested restricted stock amounted to $772,000. The unrecognized expense related to the non-vested options and non-vested restricted stock will be recognized over a weighted average period of 3.6 years.

For the three months ended March 31, 2016, the Company recognized compensation expense for stock options of $27,000 with a related tax benefit of $4,000. The related tax benefit applies only to non-qualified stock options. For the three months ended March 31, 2016, the Company recognized compensation expense for restricted stock awards of $59,000 with a related tax benefit of $24,000.

The Company declared a quarterly cash dividend of $0.05 per share of common stock on April 25, 2016. The dividend will be paid on or about May 23, 2016, to stockholders of record as of the close of business on May 9, 2016.

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

This document may contain certain forward-looking statements, such as statements of the Company’s or the Bank’s plans, objectives, expectations, estimates and intentions. Forward-looking statements may be identified by the use of words such as “expects,” “subject,” and “believe,” “will,” “intends,” “will be” or “would.” These statements are subject to change based on various important factors (some of which are beyond the Company’s or the Bank’s control) and actual results may differ materially. Accordingly, readers should not place undue reliance on any forward-looking statements, which reflect management’s analysis of factors only as of the date of which they are given. These factors include general economic conditions, trends in interest rates, the ability of our borrowers to repay their loans, the ability of the Company or the Bank to effectively manage its growth, and results of regulatory examinations, among other factors. The foregoing list of important factors is not exclusive. Readers should carefully review the risk factors described in other documents the Company files from time to time with the Securities and Exchange Commission, including Current Reports on Form 8-K.

Except as required by applicable law and regulation, the Company does not undertake — and specifically disclaims any obligation — to publicly release the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Overview

The Company’s results of operations depend primarily on net interest and dividend income, which is the difference between the interest and dividend income earned on its interest-earning assets, such as loans and securities, and the interest expense on its interest-bearing liabilities, such as deposits and FHLB advances. The Company also generates non-interest income, primarily from fees and service charges and mortgage banking income. The Company’s non-interest expense primarily consists of employee compensation and benefits, occupancy and equipment expense, advertising, data processing, professional fees and other operating expenses.

Net income for the three months ended March 31, 2016 decreased $170,000 compared to the same period in 2015. The decrease was primarily due to an increase in non-interest expenses. The $383,000 or 17% increase in non-interest expense was related to the enhancement of our regulatory compliance staff and compliance programs. Additionally, we added to our commercial lending support staff in late 2015, in line with our continued commercial loan growth. Net interest and dividend income increased primarily due to the increase in commercial loans outstanding. The provision for loan losses totaled $74,000 for the three months ended March 31, 2016, compared to a $27,000 provision for loan losses during the same period in 2015. Non-interest income increased $20,000, or 9.0%, primarily due to an increase in gain on sale of Small Business Administration (“SBA”) loans. We continued to maintain strong asset quality, as non-performing assets to total assets was 0.30% at March 31, 2016. We are in the process of converting our Loan Production Office (“LPO”) in southern New Hampshire to a full service office and expect it to be fully operating during the second quarter of 2016.

Critical Accounting Policies

Critical accounting policies are those that involve significant judgments and assumptions by management and that have, or could have, a material impact on our income or the carrying value of our assets. Our critical accounting policies are those related to our allowance for loan losses and the valuation of our deferred tax assets.

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

The allowance for loan losses is evaluated on a monthly basis by management and is based upon management’s monthly review of the collectability of the loans in light of known and inherent risks in the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral

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and prevailing economic conditions. Additionally, as part of the evaluation of the level of the allowance for loan losses, on a quarterly basis management analyzes several qualitative loan portfolio risk factors including, but not limited to, charge-off history, changes in management or underwriting policies, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower and results of internal and external loan reviews. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance for loan losses consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For such loans that are classified as impaired, an allowance for loan losses is established when the discounted cash flows or the fair value of the existing collateral (less costs to sell) of the impaired loan is lower than the carrying value of that loan. The general component covers non-impaired loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component may be maintained to cover uncertainties that could affect management’s estimate of probable losses.

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

We periodically may agree to modify the contractual terms of loans. When a loan is modified and a concession is made to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring. All troubled debt restructurings are initially classified as impaired.

Adjustable-rate mortgage loans decrease the risk associated with changes in market interest rates by periodically repricing, but involve other risks because, as interest rates increase, the underlying payments by the borrower increase, thus increasing the potential for default by the borrower. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustment of the contractual interest rate is also limited by the maximum periodic and lifetime interest rate adjustments permitted by our loan documents and, therefore, the effectiveness of adjustable-rate mortgage loans may be limited during periods of rapidly rising interest rates.

Loans secured by commercial real estate, multi-family and one- to four-family investment properties generally involve larger principal amounts and a greater degree of risk than one- to four-family residential mortgage loans. Because payments on loans secured by commercial real estate, including multi-family and one- to four-family investment properties, are often dependent on successful operation or management of the properties, repayment of such loans may be affected by adverse conditions in the real estate market or the economy.

Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment or other income, and which are secured by real property whose value tends to be more easily ascertainable, commercial business loans generally are made on the basis of the borrower’s ability to repay the loan from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial business loans may depend substantially on the success of the business itself. Further, any collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value.

Construction and development financing is generally considered to involve a higher degree of credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions. If the estimate of construction cost proves to be inaccurate, we may be required to advance funds beyond the amount originally committed in order to protect the value of the property. Additionally, if the estimate of value proves to be inaccurate, we may be confronted with a project, when completed, having a value that is insufficient to assure full repayment.

Income Taxes. Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary

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differences between the book and tax basis of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws. A valuation allowance is established against deferred tax assets when, based upon the available evidence including historical and projected taxable income, it is more likely than not that some or all of the deferred tax assets will not be realized.

Comparison of Financial Condition at March 31, 2016 and December 31, 2015

Total assets increased $9.7 million, or 3.28%, to $306.2 million at March 31, 2016 from $296.5 million at December 31, 2015. The increase was primarily due to an increase in loans.

Cash and cash equivalents increased $1.3 million, or 16.5%, to $9.0 million at March 31, 2016 from $7.8 million at December 31, 2015. This temporary increase resulted from the timing of normal cash flows.

Loans, net of allowance for loan losses, increased $8.5 million, or 3.4%, to $262.5 million at March 31, 2016 from $254.0 million at December 31, 2015, due primarily to an increase in commercial loans and construction loans, partially offset by a decrease in residential mortgage loans. Despite the current competitive market, we have decided to maintain our historically high underwriting standards instead of relaxing these standards, and we have not reduced loan rates below levels at which we could not operate profitably. Commercial loans increased $6.9 million, or 5.3%, to $137.6 million at March 31, 2016 from $130.7 million at December 31, 2015, primarily due to a $7.4 million, or 11.0%, increase in commercial real estate loans. Construction loans increased by $3.4 million, or 17.0%, to $23.8 million at March 31, 2016 from $20.4 million at December 31, 2015, primarily due to a $2.9 million, or 22.4%, increase in one- to four-family construction loans. The majority of our construction loans remain collateralized by residential real estate (73.5% at March 31, 2016 and 70.9% at December 31, 2015). One- to four-family residential mortgage loans decreased $792,000, or 0.9%, to $85.7 million at March 31, 2016 from $86.5 million at December 31, 2015, as a decrease in mortgage rates resulted in an increase in loan prepayments. Home equity loans and lines of credit decreased $1.0 million, or 5.6%, to $17.2 million at March 31, 2016 from $18.3 million at December 31, 2015, primarily due to one loan payoff.

Our total securities portfolio decreased $429,000, or 1.9%, to $21.7 million at March 31, 2016 from $22.1 million at December 31, 2015, due to the principal payments received on mortgage-backed securities.

Deposits increased $28.1 million, or 13.5%, to $235.8 million at March 31, 2016 from $207.7 million at December 31, 2015. The increase in deposits was primarily due to an increase of $18.1 million, or 25.0%, in certificates of deposit, as promotional rates on 18 month and 30 month certificates were offered during most of the quarter. Demand deposits increased $2.6 million, or 9.3%, and NOW accounts increased $4.2 million, or 14.0%. Management continues to focus on the generation of core checking accounts.

Total FHLB advances decreased $16.2 million, or 32.1%, to $34.4 million at March 31, 2016 compared to $50.6 million at December 31, 2015, primarily due to the inflow of deposits. Short-term advances decreased $15.2 million and long-term advances decreased $1.0 million during the three months ended March 31, 2016.

Stockholders’ equity increased $198,000, or 0.62%, to $32.1 million at March 31, 2016 from $31.9 million at December 31, 2015. The increase resulted primarily from net income of $80,000 for the three months ended March 31, 2016 and other comprehensive income, partially offset by dividend payments and stock repurchases. Other comprehensive income, net of taxes, of $154,000 reflects the change in net unrealized gains/losses, net of taxes, on securities available for sale from a net unrealized gain of $46,000 at December 31, 2015 to a net unrealized gain of $200,000 at March 31, 2016. Dividend payments totaled $83,000 for the three months ended March 31, 2016. We repurchased 3,818 shares at an average cost of $19.40 totaling $74,000 during the three months ended March 31, 2016.

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Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio by type of loan as of the dates indicated.


	At				At
	March 31,				December 31,
	2016				2015
	Amount		Percent		Amount		Percent
	(Dollars in thousands)

Residential loans:
One- to four-family	$	85,680	32.38	%	$	86,472	33.78	%
Home equity loans and lines of credit		17,233	6.51			18,263	7.13
Total residential mortgage loans		102,913	38.89			104,735	40.91

Commercial loans:
One- to four-family investment property		13,901	5.25			15,255	5.96
Multi-family real estate		29,757	11.25			30,709	12.00
Commercial real estate		74,549	28.17			67,152	26.23
Commercial business		19,428	7.34			17,548	6.85
Total commercial loans		137,635	52.01			130,664	51.04

Construction loans:
One- to four-family		15,870	6.01			12,967	5.07
Multi-family		1,643	0.62			1,486	0.58
Non-residential		6,329	2.39			5,925	2.31
Total construction loans		23,842	9.02			20,378	7.96

Consumer		207	0.08			237	0.09

Total loans		264,597	100.00	%		256,014	100.00	%

Other items:
Net deferred loan costs		387				377
Allowance for loan losses		(2,483)				(2,408)

Total loans, net	$	262,501			$	253,983

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Asset Quality. The table below sets forth the amounts and categories of our non-performing assets at the dates indicated. Delinquent loans that are 90 days or more past due and/or on non-accrual status are generally considered non-performing assets.


	At March 31,			At December 31,
	2016			2015
	(Dollars in thousands)

Non-accrual loans:
Residential mortgage loans	$	932		$	776
Commercial loans		—			—
Construction loans		—			—
Consumer		—			—

Total non-accrual loans		932			776

Non-performing restructured loans		—			—

Total non-performing loans		932			776

Other real estate owned		—			—

Total non-performing assets	$	932		$	776

Ratios:
Non-performing loans to total loans		0.35	%		0.30	%
Non-performing assets to total assets		0.30	%		0.26	%
Allowance for loan losses to non-performing loans		266.42	%		310.31	%

Total delinquent loans increased $38,000, from $938,000 at December 31, 2015 to $976,000 at March 31, 2016, primarily in residential loans.

Non-performing assets totaled $932,000 and $776,000 at March 31, 2016 and December 31, 2015, respectively. Total non-performing assets represented 0.30% and 0.26% of total assets at March 31, 2016 and December 31, 2015, respectively.

Loans classified as substandard increased $154,000, to $2.0 million at March 31, 2016 from $1.9 million at December 31, 2015, primarily in home equity loans and lines of credit.

The allowance for loan losses increased $75,000 to $2.5 million at March 31, 2016 primarily due to the growth in the commercial loan portfolio. There were no loan charge-offs and $1,000 in recoveries for the three months ended March 31, 2016, as compared to $1,000 in loan charge-offs and $1,000 in recoveries for the same period in 2015. The allowance represented 0.94% of total loans at March 31, 2016 and December 31, 2015. At these levels, the allowance for loan losses as a percentage of non-performing loans was 266.42% at March 31, 2016 and 310.31% at December 31, 2015.

Comparison of Operating Results for the Three Months Ended March 31, 2016 and 2015

General. Net income decreased $170,000, or 68.0%, to $80,000 for the three months ended March 31, 2016, from $250,000 for the three months ended March 31, 2015. The decrease in net income was caused by increases in the provision for loan losses and non-interest expense, partially offset by increases in net interest and dividend income and in non-interest income.

Interest and Dividend Income. Interest and dividend income increased $307,000, or 10.7%, to $3.2 million for the three months ended March 31, 2016, primarily due to an increase in interest income on loans. Interest income on

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loans increased $288,000, or 10.6%, to $3.0 million for the three months ended March 31, 2016, due to a $27.5 million, or 11.8%, increase in the average balance of loans, partially offset by a five basis point decrease in yield to 4.61% for the three months ended March 31, 2016 from 4.66% for the three months ended March 31, 2015.

Interest and dividend income on investment securities increased $15,000, or 10.8%, to $154,000 for the three months ended March 31, 2016 from $139,000 for the three months ended March 31, 2015, due to a $1.6 million, or 6.9% increase in the average balance of investment securities and by a nine basis point increase in yield to 2.50% for the three months ended March 31, 2016 from 2.41% for the three months ended March 31, 2015.

Interest Expense. Interest expense increased $176,000, or 44.2%, to $574,000 for the three months ended March 31, 2016 from $398,000 for the three months ended March 31, 2015. Interest expense on deposits increased $175,000, or 74.2%, to $411,000 for the three months ended March 31, 2016 from $236,000 for the three months ended March 31, 2015, due to an increase in the average balance of interest-bearing deposits of $35.2 million, or 22.2%, to $194.0 million for the three months ended March 31, 2016 from $158.8 million for the three months ended March 31, 2015 and an increase in the average rate we paid on interest-bearing deposits to 0.85% for the three months ended March 31, 2016 compared to 0.59% for the three months ended March 31, 2015. The increase in interest expense on deposits was primarily due to certificates of deposits, as promotional rates were offered during most of the quarter. Interest expense on certificates of deposits increased $138,000, or 81.6%, to $306,000 for the three months ended March 31, 2016 from $169,000 for the three months ended March 31, 2015 due to an increase in the average balance in certificates of deposits of $23.5 million, or 39.3%, to $83.3 million for the three months ended March 31, 2016 from $59.8 million for the same period in 2015 and by an increase in the average rate we paid on certificates of deposits to 1.47% for the three months ended March 31, 2016 compared to 1.12% for the same period in 2015. Interest expense on money market deposits increased $33,000, or 68.4%, to $81,000 for the three months ended March 31, 2016 from $48,000 for the three months ended March 31, 2015 due to an increase in the average balance in money market deposits of $7.5 million, or 14.0%, to $61.3 million for the three months ended March 31, 2016 from $53.7 million for the same period in 2015 and by an increase in the average rate we paid on money market deposits to 0.53% for the three months ended March 31, 2016 compared to 0.36% for the same period in 2015.

Interest expense on FHLB advances increased $1,000, or 0.6%, to $163,000 for the three months ended March 31, 2016 from $162,000 for the three months ended March 31, 2015. The increase was primarily due to the average rate we paid, which increased 25 basis points to 1.50% for the three months ended March 31, 2016 compared to 1.25% for the three months ended March 31, 2015, partially offset by an $8.2 million, or 15.8%, decrease in the average outstanding balance of advances to $43.6 million for the three months ended March 31, 2016 from $51.8 million for the three months ended March 31, 2015. The average outstanding balance of long-term advances decreased $1.7 million, or 6.0%, to $27.1 million for the three months ended March 31, 2016 from $28.8 million for the three months ended March 31, 2015 and the average outstanding balance of short-term advances decreased $6.4 million, or 28.1%, to $16.5 million for the three months ended March 31, 2016 from $23.0 million for the same period in 2015, as we paid off advances with deposit increases. We expect the average balance of short-term FHLB advances to increase in the near term, as we fund current loan demand.

Net Interest and Dividend Income. Net interest and dividend income increased $131,000, or 5.3%, to $2.5 million for the three months ended March 31, 2016 compared to $2.4 million for the three months ended March 31, 2015. The increase in net interest and dividend income was primarily the result of a $2.6 million, or 5.0%, increase in net average interest-earning assets to $53.8 million for the three months ended March 31, 2016, from $51.2 million for the same period in 2015. Our net interest margin may compress in the future due to competitive pricing in our market area and due to a rising interest rate environment.

Provision for Loan Losses. We establish provisions for loan losses, which are charged to operations, at a level necessary to absorb known and inherent losses that are both probable and reasonably estimable at the date of the financial statements. In evaluating the level of the allowance for loan losses quarterly, management analyzes several quantitative and qualitative loan portfolio risk factors including but not limited to, charge-off history over a relevant period, changes in management or underwriting policies, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower and results of internal and external loan reviews. This evaluation is inherently subjective, as it requires estimates that are susceptible

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to significant revision as more information becomes available. After an evaluation of these factors, we recorded a provision for loan losses of $74,000 for the three months ended March 31, 2016, compared to a provision for loan losses of $27,000 for the three months ended March 31, 2015. There were no loan charge-offs and $1,000 of recoveries for the three months ended March 31, 2016, as compared to$1,000 in charge-offs and $1,000 in recoveries for the same period in 2015. The allowance for loan losses was $2.5 million, or 0.94%, of total loans and 266.42% of non-performing loans at March 31, 2016, compared to an allowance for loan losses of $2.4 million, or 0.94%, of total loans and 310.31% of non-performing loans at December 31, 2015. For additional information please refer to Note 6, Loans and Servicing.

Non-interest Income. Non-interest income increased $20,000, or 9.0%, to $242,000 for the three months ended March 31, 2016 from $222,000 for the three months ended March 31, 2015, primarily due to an increase in gain on sale of SBA loans and customer service fees. The gain on sale of SBA loans was $15,000 for the three months ended March 31, 2016, compared to no gains during the same period in 2015. Income from customer service fees increased $15,000, or 8.9%, to $184,000 for the three months ended March 31, 2016 from $169,000 for the three months ended March 31, 2015. The increase was primarily from the Company’s commercial customer base. Mortgage banking income, net decreased $13,000, or 59.1%, to $9,000 for the three months ended March 31, 2016 from $22,000 for the three months ended March 31, 2015. The decrease was primarily due to a lower level of residential loan volume.

Non-interest Expense. Non-interest expense increased $383,000, or 17%, to $2.6 million for the three months ended March 31, 2016, from $2.2 million for the three months ended March 31, 2015. Salaries and benefits expense increased $183,000, or 14.9%, primarily due to the costs associated with an increase in the commercial lending support. Data processing expenses increased $54,000, or 33.8%, primarily due to one-time implementation fees of $41,000 expensed during the three months ended March 31, 2016. Professional fees increased $169,000, or 138.5%, primarily due to the costs associated with enhancements to our regulatory compliance staff and compliance programs.

Income Tax Expense. The income before income taxes of $120,000 resulted in income tax expense of $40,000 for the three months ended March 31, 2016, compared to income before income taxes of $399,000 resulting in an income tax expense of $149,000 for the three months ended March 31, 2015. The effective income tax rate was 33.6% for the three months ended March 31, 2016 compared to 37.3% for the three months ended March 31, 2015. The decrease in the effective tax rate was primarily due to a decrease in taxable income as a percentage of total income.

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Average Balance Sheet. The following table sets forth certain information regarding the Company’s average balance sheet for the periods indicated, including the average annualized yields on its interest-earning assets and the average annualized costs of its interest-bearing liabilities. Average yields are calculated by dividing the annualized interest and dividend income produced by the average balance of interest-earning assets. Average costs are calculated by dividing the annualized interest expense produced by the average balance of interest-bearing liabilities. The average balances for the period are derived from average balances that are calculated daily. The average annualized yields and costs include fees that are considered adjustments to such average yields and costs.


	Three Months Ended March 31,
	2016						2015
	Average						Average
	Outstanding				Yield/		Outstanding				Yield/
	Balance		Interest (1)		Rate (1)		Balance		Interest (1)		Rate (1)
	(Dollars in thousands)
Interest-earning assets:
Loans (2)	$	260,704	$	3,003	4.61	%	$	233,216	$	2,715	4.66	%
Investment securities (1)		24,657		163	2.65	%		23,055		147	2.55	%
Short-term investments		6,035		6	0.40	%		5,513		2	0.15	%
Total interest-earning assets		291,396		3,172	4.35	%		261,784		2,864	4.38	%
Non-interest-earning assets		9,224		—				8,448		—
Total assets	$	300,620		3,172			$	270,232		2,864

Interest-bearing liabilities:
Savings deposits	$	15,720		1	0.03	%	$	14,608		1	0.03	%
NOW accounts		33,722		23	0.27	%		30,663		19	0.25	%
Money market accounts		61,273		81	0.53	%		53,729		48	0.36	%
Certificates of deposit		83,280		306	1.47	%		59,781		168	1.12	%
Total interest-bearing deposits		193,995		411	0.85	%		158,781		236	0.59	%
FHLB advances		43,612		163	1.50	%		51,783		162	1.25	%
Total interest-bearing liabilities		237,607		574	0.97	%		210,564		398	0.76	%
Non-interest-bearing liabilities:
Demand deposits		27,912						26,486
Other non-interest-bearing liabilities		4,056						3,052
Total liabilities		269,575						240,102
Stockholders’ equity		31,045						30,130
Total liabilities and equity	$	300,620					$	270,232
Net interest-earning assets (3)	$	53,789					$	51,220
Fully tax-equivalent net interest income				2,598						2,466

Less: tax-equivalent adjustments				(9)						(8)
Net interest income			$	2,589					$	2,458
Net interest rate spread (1)(4)					3.38	%					3.62	%
Net interest margin (1)(5)					3.57	%					3.77	%
Average of interest-earning assets to interest-bearing liabilities					122.64	%					124.33	%

(1)

Interest and yield on investment securities, interest rate spread and net interest margin are presented on a tax-equivalent basis. Tax-equivalent adjustments are deducted from tax-equivalent net interest income to agree to amounts reported in the consolidated statements of income. For the three months ended March 31, 2016 and 2015, the yield on investment securities before tax-equivalent adjustments was 2.50% and 2.41%, respectively, and the yield on total interest-earning assets was 4.34% and 4.36%, respectively. Net interest rate spread before tax-equivalent adjustments for the three months ended March 31, 2016 and 2015 was 3.37% and 3.60%, respectively, while net interest margin before tax-equivalent adjustments was 3.55% and 3.76%, respectively.

(2)

Includes loans held for sale.

(3)

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

(4)

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

(5)

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

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


	For the Three Months Ended March 31, 2016
	Compared to the Three Months Ended
	March 31, 2015
	Increase (Decrease) Due to
	Volume		Rate		Net
	(In thousands)

Interest-earning assets:
Loans	$	320	$	(32)	$	288
Investment securities (1)		10		6		16
Short-term investments		—		4		4

Total interest-earning assets		330		(22)		308

Interest-bearing liabilities:
Savings deposits		—		—		—
NOW accounts		2		2		4
Money market accounts		7		26		33
Certificates of deposit		66		72		138

Total interest-bearing deposits		75		100		175

FHLB advances		(26)		27		1

Total interest-bearing liabilities		49		127		176

Change in net interest income	$	281	$	(149)	$	132

(1)

Municipal securities income and net interest income are presented on a tax-equivalent basis using a tax rate of 34% resulting in an adjustment of $9,000 and $8,000 for the three months ended March 31, 2016 and 2015, respectively.

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

We regularly adjust our investments in liquid assets based upon our assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities, and (4) the objectives of our asset/liability management program. Excess liquid assets are generally invested in interest-earning deposits and short- and intermediate-term securities. The excess cash and cash equivalent balances are expected to be used to fund increases in loans and securities.

Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At March 31, 2016, cash and cash equivalents totaled $9.0 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $18.7

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million at March 31, 2016. Our policies also allow for access to the wholesale funds market for up to 50.0% of total assets, or $153.1 million. At March 31, 2016, we had $34.4 million in FHLB advances outstanding, $30.2 million in certificates of deposit obtained through a listing service and $3.3 million in brokered certificates of deposit, allowing the Company access to an additional $85.2 million in wholesale funds based on policy guidelines.

At March 31, 2016 we had $2.1 million in loan commitments outstanding. In addition to commitments to originate loans, we had $42.2 million in unadvanced funds to borrowers.

At March 31, 2016, we had $3.0 million in outstanding irrevocable stand-by letters of credit. These letters of credit, which have terms of 12 months, collateralize specific municipal deposits. The fair value of these letters of credit approximate contract values based on the nature of the fee arrangements with the FHLB.

Certificates of deposit due within one year of March 31, 2016 totaled $25.3 million, or 10.7% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit or other wholesale funding options. Depending on market conditions, we may be required to pay higher rates on such deposits than we currently pay on the certificates of deposit due on or before March 31, 2017. We believe, however, based on past experience that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

We have no material commitments or demands that are likely to affect our liquidity other than set forth below. In the event loan demand were to increase at a pace greater than expected, or any unforeseen demand or commitment were to occur, we would access our borrowing capacity with the FHLB and other wholesale market sources.

Our primary investing activities are the origination and purchase of loans and the purchase of securities. During the three months ended March 31, 2016, we originated $24.8 million in loans, purchased $3.1 million of residential loans and purchased $2.5 million of investment securities. We expect to purchase additional residential mortgages to replace recent residential loan prepayments.

Financing activities consist primarily of activity in deposit accounts and FHLB advances. We experienced a net increase in total deposits of $28.1 million for the three months ended March 31, 2016. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits to be competitive. FHLB advances decreased $16.3 million during the three months ended March 31, 2016 due to deposit growth. FHLB advances have primarily been used to fund loan demand and deposit outflows. We sold $210,000 of SBA loans during the three months ended March 31, 2016.

Capital Management. Effective January 1, 2015 (with a phase-in period of two to five years for certain components), the Bank became subject to new capital regulations adopted by the OCC and other federal bank regulatory agencies that implement the Basel III regulatory capital reforms and the changes required by the Dodd-Frank Act. Among other things, the regulations established a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increased the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The regulations also require unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt-in or opt-out is exercised. The regulations limit a banking organization’s capital distributions and certain discretionary bonus payments to executive officers if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. The regulations also implement the Dodd-Frank Act’s directive to apply to savings and loan holding companies consolidated capital requirements that are not less stringent than those applicable to their subsidiary institutions. The “capital conservation buffer” is being phased in from January 1, 2016 to January 1, 2019, when the full capital conservation buffer will be effective.

At March 31, 2016, Georgetown Bank met each of its capital requirements and was considered “well-capitalized”, and also met each of its capital requirements on a fully phased-in basis.

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Off-Balance Sheet Arrangements. For the three months ended March 31, 2016, we engaged in no off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

Not applicable to smaller reporting companies.

Item 4.Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure (1) that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms; and (2) that information required to be disclosed by the Company in the reports that it files or submits under the Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. There has been no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.Legal Proceedings

Neither the Company nor the Bank is engaged in pending legal proceedings material to the Company’s consolidated financial condition or results of operations.

Item 1A.Risk Factors

Other than as set forth in prior filings with the Securities and Exchange Commission or this Quarterly Report on Form 10-Q, there have been no material changes to the Risk Factors set forth in the Annual Report on Form 10-K of the Company filed with the Securities and Exchange Commission on March 29, 2016.

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

Not applicable.

c) The following table presents a summary of the Company’s share repurchases during the quarter ended March 31, 2016.


				Total Number of Shares	Maximum Number of
				Purchased as Part of	Shares That May Yet be
	Total Number of	Average Price Paid		Publicly Announced	Purchased Under the
Period	Shares Purchased	Per Share		Program (1)	Program (1)
January 1 through January 31, 2016	0	$	0.00	0	15,973
February 1 through February 29, 2016	3,818	$	19.40	0	15,973
March 1 through March 31, 2016	0	$	0.00	0	15,973

(1)

On July 23, 2013, the Company announced that its Board of Directors had authorized a second stock repurchase program pursuant to which the Company intends to purchase up to approximately 5.0% of its then issued and outstanding shares, or up to 93,765 shares. The repurchase program has no expiration date.

Item 3.Defaults Upon Senior Securities

None.

Item 4.Mine Safety Disclosures

Not applicable.

Item 5.Other Information

a) Not applicable.

b) There were no material changes to the procedures by which security holders may recommend nominees to the Company’s board of directors during the period covered by this Form 10-Q.

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Item 6.Exhibits

31.1Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act

31.2Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act

32Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act

101The following financial statements from Georgetown Bancorp Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, filed on May 13, 2016, formatted in XBRL: (1) Consolidated Statements of Financial Condition, (2) Consolidated Statements of Income, (3) Consolidated Statements of Comprehensive Income, (4) Consolidated Statements of Changes in Stockholders’ Equity, (5) Consolidated Statements of Cash Flows, (6) Notes to Consolidated Financial Statements.

101.INS	Interactive datafile	XBRL Instance Document
101.SCH	Interactive datafile	XBRL Taxonomy Extension Schema Document
101.CAL	Interactive datafile	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Interactive datafile	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Interactive datafile	XBRL Taxonomy Extension Label Linkbase
101.PRE	Interactive datafile	XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

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

		GEORGETOWN BANCORP, INC.
		(Registrant)


Date: May 13, 2016		/s/ Robert E. Balletto
		Robert E. Balletto
		President and Chief Executive Officer
		(Principal Executive Officer)


Date: May 13, 2016		/s/ Joseph W. Kennedy
		Joseph W. Kennedy
		Senior Vice President, Chief Financial Officer and Treasurer
		(Principal Accounting and Financial Officer)

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