BSB Bancorp 10-Q 2017 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM10-Q

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

For the quarterly period ended September 30, 2017

Commission file number:001-35309

BSB BANCORP, INC.

(Exact Name of Registrant as Specified in Its Charter)

Maryland	80-0752082
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S Employer Identification No.)

2 Leonard Street Belmont, Massachusetts	02478
(Address of Principal Executive Officers)	(Zip Code)

(617)484-6700

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    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 RegulationS-T (§232.405 of this chapter) 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, anon-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐  (Do not check if smaller reporting company)	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).    Yes  ☐    No  ☒

The Registrant had 9,714,775 shares of common stock, par value $0.01 per share, outstanding as of October 27, 2017.

BSB BANCORP, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements
	- Consolidated Balance Sheets as of September 30, 2017 (unaudited) and December 31, 2016		3
	- Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017 and 2016   (unaudited)		4
	- Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2017   and 2016 (unaudited)	5
	- Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2017 and   2016 (unaudited)		6
	- Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016 (unaudited)		7
	- Notes to Unaudited Consolidated Financial Statements		9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		46
Item 4.	Controls and Procedures		46
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		46
Item 1A.	Risk Factors		46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		46
Item 3.	Defaults Upon Senior Securities		47
Item 4.	Mine Safety Disclosures		47
Item 5.	Other Information		47
Item 6.	Exhibits		47

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PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

BSB BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

	September 30, 2017			December 31, 2016
	(unaudited)
ASSETS
Cash and due from banks	$	1,788		$	2,211
Interest-bearing deposits in other banks		74,658			56,665
Cash and cash equivalents		76,446			58,876
Interest-bearing time deposits with other banks		2,440			234
Investments inavailable-for-sale securities		22,108			22,048
Investments inheld-to-maturity securities (fair value of $138,701 as of September 30, 2017 (unaudited) and $129,465 as of December 31, 2016)		139,291			130,197
Loans held for sale		642			—
Loans, net of allowance for loan losses of $15,620 as of September 30, 2017 (unaudited) and $13,585 as of December 31, 2016		2,172,099			1,866,035
Federal Home Loan Bank stock, at cost		28,317			25,071
Premises and equipment, net		2,314			2,355
Accrued interest receivable		5,711			4,635
Deferred tax asset, net		8,803			8,321
Income taxes receivable		13			423
Bank-owned life insurance		36,681			35,842
Other assets		4,833			4,667
Total assets	$	2,499,698		$	2,158,704
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	201,357		$	208,082
Interest-bearing		1,513,406			1,261,340
Total deposits		1,714,763			1,469,422
Federal Home Loan Bank advances		587,250			508,850
Securities sold under agreements to repurchase		1,861			1,985
Accrued interest payable		1,434			1,023
Deferred compensation liability		7,694			7,043
Other liabilities		11,135			9,460
Total liabilities		2,324,137			1,997,783
Stockholders’ Equity:
Common stock; $0.01 par value per share, 100,000,000 shares authorized; 9,714,775 and 9,110,077 shares issued and outstanding at September 30, 2017 (unaudited) and December 31, 2016, respectively		97			91
Additionalpaid-in capital		94,186			92,013
Retained earnings		84,776			72,498
Accumulated other comprehensive income		172			103
Unearned compensation - ESOP		(3,670	)		(3,784	)
Total stockholders’ equity		175,561			160,921
Total liabilities and stockholders’ equity	$	2,499,698		$	2,158,704

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

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BSB BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

	Three months ended September 30,				Nine months ended September 30,
	2017		2016		2017		2016
	(unaudited)				(unaudited)
Interest and dividend income:
Interest and fees on loans	$	18,432	$	14,696	$	52,328	$	42,247
Interest on taxable debt securities		836		784		2,469		2,413
Dividends		320		193		866		534
Other interest income		170		53		365		136
Total interest and dividend income		19,758		15,726		56,028		45,330
Interest expense:
Interest on deposits		3,391		2,427		8,992		6,899
Interest on Federal Home Loan Bank advances		2,187		1,271		5,645		3,407
Interest on securities sold under agreements to repurchase		1		1		3		3
Interest on other borrowed funds		—		—		—		5
Total interest expense		5,579		3,699		14,640		10,314
Net interest and dividend income		14,179		12,027		41,388		35,016
Provision for loan losses		535		443		2,070		1,783
Net interest and dividend income after provision for loan losses		13,644		11,584		39,318		33,233
Noninterest income:
Customer service fees		205		242		586		691
Income from bank-owned life insurance		287		293		834		762
Net gain on sales of loans		267		25		613		191
Loan servicing fee income		71		49		288		253
Other income		55		71		188		150
Total noninterest income		885		680		2,509		2,047
Noninterest expense:
Salaries and employee benefits		5,257		4,445		14,732		13,404
Director compensation		361		305		1,020		786
Occupancy expense		242		250		741		742
Equipment expense		100		112		327		326
Deposit insurance		432		322		1,250		889
Data processing		674		679		2,062		2,440
Professional fees		220		259		779		681
Marketing		178		220		739		648
Other expense		465		474		1,399		1,389
Total noninterest expense		7,929		7,066		23,049		21,305
Income before income tax expense		6,600		5,198		18,778		13,975
Income tax expense		2,001		2,018		6,500		5,304
Net income	$	4,599	$	3,180	$	12,278	$	8,671
Earnings per share
Basic	$	0.52	$	0.36	$	1.39	$	1.00
Diluted	$	0.50	$	0.35	$	1.33	$	0.97

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

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BSB BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

	Three months ended September 30,				Nine months ended September 30,
	2017		2016		2017		2016
	(unaudited)				(unaudited)
Net income	$	4,599	$	3,180	$	12,278	$	8,671
Other comprehensive income, net of tax:
Net change in fair value of securities available for sale		5		67		69		237
Total other comprehensive income		5		67		69		237
Total comprehensive income	$	4,604	$	3,247	$	12,347	$	8,908

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

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BSB BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in thousands)

(Unaudited)

										Accumulated
					Additional					Other			Unearned			Total
	Common Stock				Paid-In			Retained		Comprehensive			Compensation -			Stockholders’
	Shares		Amount		Capital			Earnings		(Loss) Income			ESOP			Equity
Balance at December 31, 2015		9,086,639	$	91	$	89,648		$	60,517	$	(116	)	$	(3,937	)	$	146,203
Net income		—		—		—			8,671		—			—			8,671
Other comprehensive income		—		—		—			—		237			—			237
ESOP shares committed to be released		—		—		146			—		—			114			260
Stock based compensation-restricted stock awards		—		—		648			—		—			—			648
Stock based compensation-stock options		—		—		591			—		—			—			591
Tax benefit from stock based compensation		—		—		58			—		—			—			58
Proceeds from exercises of stock options, net of cash paid		15,377		—		147			—		—			—			147
Balance at September 30, 2016		9,102,016	$	91	$	91,238		$	69,188	$	121		$	(3,823	)	$	156,815
Balance at December 31, 2016		9,110,077	$	91	$	92,013		$	72,498	$	103		$	(3,784	)	$	160,921
Net income		—		—		—			12,278		—			—			12,278
Other comprehensive income		—		—		—			—		69			—			69
ESOP shares committed to be released		—		—		213			—		—			114			327
Stock based compensation-restricted stock awards		—		—		1,363			—		—			—			1,363
Stock based compensation-stock options		—		—		586			—		—			—			586
Restricted stock awards granted		487,200		5		(5	)		—		—			—			—
Proceeds from exercises of stock options, net of cash paid		117,498		1		16			—		—			—			17
Balance at September 30, 2017		9,714,775	$	97	$	94,186		$	84,776	$	172		$	(3,670	)	$	175,561

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

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BSB BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

	Nine months ended September 30,
	2017			2016
Cash flows from operating activities:
Net income	$	12,278		$	8,671
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of securities, net		629			595
Gain on sales of loans, net		(613	)		(191	)
Loans originated for sale		(4,112	)		(7,357	)
Proceeds from sales of loans		51,698			7,892
Provision for loan losses		2,070			1,783
Change in net unamortized mortgage premiums		(1,662	)		(1,755	)
Change in net deferred loan costs		204			849
ESOP expense		327			260
Stock based compensation expense		1,949			1,239
Excess tax benefit from stock based compensation		—			(58	)
Depreciation and amortization expense		451			465
Impairment of fixed assets		18			—
Deferred income tax benefit		(530	)		(1,327	)
Increase in bank-owned life insurance		(834	)		(762	)
Net change in:
Accrued interest receivable		(1,076	)		(481	)
Other assets		(166	)		716
Income taxes receivable		410			(897	)
Income taxes payable		—			(126	)
Accrued interest payable		411			20
Deferred compensation liability		651			668
Other liabilities		472			(1,926	)
Net cash provided by operating activities		62,575			8,278
Cash flows from investing activities:
Maturities of interest-bearing time deposits with other banks		134			131
Purchases of interest-bearing time deposits with other banks		(2,340	)		(134	)
Proceeds from maturities, payments, and calls ofheld-to-maturity securities		20,720			18,323
Purchases ofheld-to-maturity securities		(30,386	)		(16,228	)
Redemption of Federal Home Loan Bank stock		3,767			1,240
Purchases of Federal Home Loan Bank stock		(7,013	)		(7,406	)
Recoveries of loans previously charged off		21			30
Loan originations and principal collections, net		(64,727	)		25,258
Purchases of loans		(289,585	)		(278,589	)
Capital expenditures		(428	)		(257	)
Premiums paid on bank-owned life insurance		(5	)		(5,005	)
Net cash used in investing activities		(369,842	)		(262,637	)

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BSB BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

(Continued)

	Nine months ended September 30,
	2017			2016
Cash flows from financing activities:
Net increase in demand deposits, interest-bearing checking and savings accounts		130,404			91,328
Net increase in time deposits		114,937			65,248
Net proceeds from long-term Federal Home Loan Bank borrowings		110,000			166,250
Principal payments on long-term Federal Home Loan Bank borrowings		(55,000	)		—
Net change in short-term Federal Home Loan Bank advances		23,400			(71,000	)
Net (decrease) increase in securities sold under agreement to repurchase		(124	)		77
Net increase in mortgagors’ escrow accounts		1,203			760
Net proceeds from exercise of stock options		465			147
Payment of income taxes for shares withheld in stock based award activity		(448	)		—
Excess tax benefit from stock based compensation		—			58
Net cash provided by financing activities		324,837			252,868
Net increase (decrease) in cash and cash equivalents		17,570			(1,491	)
Cash and cash equivalents at beginning of period		58,876			51,261
Cash and cash equivalents at end of period	$	76,446		$	49,770
Supplemental disclosures:
Interest paid	$	14,229		$	10,294
Income taxes paid		6,620			7,654
Derecognition of loans and related recourse obligation in other borrowings		—			1,020
Transfer of loans held for investment to loans held for sale		47,441			—

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

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BSB BANCORP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of BSB Bancorp, Inc. have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form10-Q and Rule10-01 of RegulationS-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The consolidated financial statements of BSB Bancorp, Inc. include the balances and results of operations of BSB Bancorp, Inc., a Maryland corporation, and its wholly-owned subsidiaries, Belmont Savings Bank (the “Bank”) and BSB Funding Corporation and the Bank’s wholly owned subsidiary, BSB Investment Corporation (referred to herein as “the Company,” “we,” “us,” or “our”). Intercompany transactions and balances are eliminated in the consolidation.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company’s financial position as of September 30, 2017 and December 31, 2016 and the results of operations and cash flows for the interim periods ended September 30, 2017 and 2016. All interim amounts have not been audited, and the results of operations for the interim periods herein are not necessarily indicative of the results of operations to be expected for the fiscal year. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto included in the Company’s Annual Report onForm 10-K for the year ended December 31, 2016.

Certain previously reported amounts have been reclassified to conform to the current period’s presentation.

NOTE 2 – RECENT ACCOUNTING STANDARDS UPDATES

In May 2014, the Financial Accounting Standards Board (“FASB”) issued amendments to Accounting Standards Codification (“ASC”) section 606 “Revenue from Contracts with Customers” through issuance of ASUNo. 2014-09, “Revenue from Contracts with Customers.” The guidance in this update 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 (for example, insurance contracts or lease contracts). The core principle 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 guidance provides steps to follow to achieve the core principle. An entity should disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Qualitative and quantitative information is required about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. In August 2015, the FASB issued ASU2015-14, “Revenue from Contracts with Customers (Topic 606).” The amendments in ASU2015-14 defer the effective date of ASU2014-09 for all entities by one year to interim and annual reporting periods beginning after December 15, 2017. Our revenue is comprised of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU2014-09, andnon-interest income. We have completed our initial evaluation of the impact of ASU2014-09 on components of ournon-interest income and have not identified any significant changes to our methodology of recognizing revenue. In the fourth quarter of 2017, we will complete this evaluation and finalize the disclosures to be included in our 2018 financial statements. We will adopt the standard in the first quarter of 2018 utilizing the modified retrospective approach with a cumulative effect adjustment to opening retained earnings, if such adjustment is deemed to be significant.

In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update(“ASU”) 2016-01, Financial Instruments – Overall (Subtopic825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entities to disclose the methods 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, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (v) requires 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, (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (vii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related toavailable-for-sale securities in combination with the entity’s other deferred tax assets. The amendments in this update are effective for fiscal years, and interim periods within those fiscal

years, beginning after December 15, 2017. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

9

In February 2016, the FASB issued ASU2016-02, Leases (Topic 842). Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, the new ASU will require both types of leases to be recognized on the balance sheet. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods therein. Early adoption is permitted. We are currently evaluating the impact of adopting the new guidance on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This update makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. ASU2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. The standard is effective for interim and annual reporting periods beginning after December 15, 2016. The Company adopted this standard as of January 1, 2017. As a result, we recognized excess tax benefits from stock-based compensation of $272,000 and $1.05 million during the three and nine months ended September 30, 2017, respectively, within income tax expense on the consolidated statements of operations (adopted prospectively). Excess tax benefits from stock based compensation are now classified in net income within operating activities in the statement of cash flows instead of being separately stated in financing activities for the nine months ended September 30, 2017 (adopted prospectively). Amendments related to the presentation of employee taxes paid within financing activities in the statement of cash flows have been adopted retrospectively and prior period reclassifications will be made. Following the adoption of the new standard, the Company has elected to continue to estimate forfeitures. The adoption did not impact the existing classification of the awards.

In June 2016, the FASB issued ASU2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The update changes the impairment model for most financial assets and sets forth a “current expected credit loss” (CECL) model which will require the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. This method is forward-looking and will generally result in earlier recognition of allowances for losses. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and also applies to someoff-balance sheet credit exposures. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of adopting the new guidance on the Company’s consolidated financial statements.

In August 2016, the FASB issued ASU2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and

Cash Payments. The update provides guidance on the classification of certain cash receipts and cash payments for presentation in the statement of cash flows. The amendment is effective for the Company for fiscal years beginning after December 15, 2017 and interim periods within those years. Early adoption is permitted. The amendments will be applied using a retrospective transition method to each period presented unless impracticable. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In November 2016, the FASB issued ASU2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.” The update requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash or restricted cash equivalents should be included with cash and cash equivalents when reconciling thebeginning-of-period andend-of-period total amounts shown on the statement of cash flows. The amendment is effective for the Company for fiscal years beginning after December 15, 2017 and interim periods within those years. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In February 2017, the FASB issued ASU2017-05, “Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.” This ASU is meant to clarify the scope of Accounting Standards Codification (“ASC”) Subtopic610-20, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets. The guidance is to be applied using a full retrospective method or a modified retrospective method and is effective at the same time as the amendments in update2014-09. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In March 2017, the FASB issued ASU2017-07, “Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” This ASU is meant to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The amendments in this ASU require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately. The

10

amendments in this Update are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In March 2017, the FASB issued ASU2017-08, “Receivables-Nonrefundable Fees and Other Costs (Subtopic310-20): Premium Amortization on Purchased Callable Debt Securities.” The amendments in this ASU shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In July 2017, the FASB issued ASU2017-11, “ASUNo. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception.” The amendments in Part I of this ASU change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. The amendments in Part II of this ASU recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. For public business entities, the amendments in Part I of this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period for which financial statements (interim or annual) have not been issued or have not been made available for issuance. The amendments in Part II of this ASU do not require any transition guidance because those amendments do not have an accounting effect. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

NOTE 3 - INVESTMENTS IN SECURITIES

The amortized cost basis ofavailable-for-sale andheld-to-maturity securities and their approximate fair values were as follows at the dates indicated (in thousands):

	September 30, 2017									December 31, 2016
	Amortized		Gross		Gross					Amortized		Gross		Gross
	Cost		Unrealized		Unrealized			Fair		Cost		Unrealized		Unrealized			Fair
	Basis		Gains		Losses			Value		Basis		Gains		Losses			Value
	(unaudited)
Available-for-sale securities:
Corporate debt securities	$	21,994	$	163	$	(49	)	$	22,108	$	22,051	$	147	$	(150	)	$	22,048
	$	21,994	$	163	$	(49	)	$	22,108	$	22,051	$	147	$	(150	)	$	22,048
Held-to-maturity securities:
U.S. government sponsored mortgage-backed securities	$	121,597	$	271	$	(1,259	)	$	120,609	$	112,543	$	306	$	(1,289	)	$	111,560
Corporate debt securities		17,694		398		—			18,092		17,654		251		—			17,905
	$	139,291	$	669	$	(1,259	)	$	138,701	$	130,197	$	557	$	(1,289	)	$	129,465

11

The amortized cost basis and estimated fair value of debt securities by contractual maturity at September 30, 2017 is as follows (in thousands and unaudited). Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	September 30, 2017
	Available-for-Sale				Held-to-Maturity
	Amortized		Fair		Amortized		Fair
	Cost Basis		Value		Cost Basis		Value
	(unaudited)				(unaudited)
Due within one year	$	12,758	$	12,809	$	7,007	$	7,040
Due after one year through five years		4,236		4,187		5,299		5,340
Due after five years through ten years		5,000		5,112		41,803		41,856
Due after ten years		—		—		85,182		84,465
	$	21,994	$	22,108	$	139,291	$	138,701

When securities are sold, the adjusted cost basis of the specific security sold is used to compute the gain or loss on the sale. During the nine months ended September 30, 2017 (unaudited) and September 30, 2016 (unaudited), there were no sales ofavailable-for-sale securities.

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

			Less than 12 Months					12 Months or Longer
	# of		Fair		Unrealized			Fair		Unrealized
	Holdings		Value		Losses			Value		Losses
September 30, 2017 (unaudited):
Available-for-sale
Corporate debt securities		1	$	—	$	—		$	4,187	$	(49	)
Held-to-maturity
U.S. government sponsored mortgage-backed securities		70		83,834		(825	)		24,161		(434	)
Total temporarily impaired securities		71	$	83,834	$	(825	)	$	28,348	$	(483	)
December 31, 2016:
Available-for-sale
Corporate debt securities		1	$	4,130	$	(150	)	$	—	$	—
Held-to-maturity
U.S. government sponsored mortgage-backed securities		57		77,474		(1,097	)		6,518		(192	)
Total temporarily impaired securities		58	$	81,604	$	(1,247	)	$	6,518	$	(192	)

The investment securities portfolio is generally evaluated for other-than-temporary impairment under ASC320-10, “Investments—Debt and Equity Securities.”

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. At September 30, 2017 (unaudited), 71 debt securities were in an unrealized loss position. When there are securities in an unrealized loss position, consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Based on the Company’s September 30, 2017 (unaudited) quarterly review of securities in the investment portfolio, management has determined that unrealized losses related to 71 debt securities with aggregate depreciation of 1.15% from the Company’s amortized cost basis were caused primarily by changes in market interest rates. The contractual terms of these investments do not permit the companies to settle the security at a price less than the par value of the investment. The Company currently does not believe it is probable that it will be unable to collect all amounts due according to the contractual terms of the investments. Therefore, it is expected that the securities would not be settled at a price less than the par value of the investment. Because the Company does not intend to sell the investments and it is more likely than not that the Company will not be required to sell the investments before recovery of their amortized cost basis, it does not consider these investments to be other-than-temporarily impaired at September 30, 2017.

12

At December 31, 2016, 58 debt securities had unrealized losses with aggregate depreciation of 1.61% from the Company’s amortized cost basis. The Company’s unrealized losses on investments in corporate bonds and mortgage-backed securities are primarily caused by changes in market interest rates.

In addition to the securities listed above, the Company holds investments in a Rabbi Trust that are used to fund the executive and directornon-qualified deferred compensation plan. These investments are available to satisfy the claims of general creditors of the Company in the event of bankruptcy and are included in our consolidated balance sheets in other assets. The investments consisted primarily of mutual funds and are classified as trading securities and recorded at fair value. The fair value of these investments at September 30, 2017 (unaudited) and December 31, 2016 was $2.8 million and $2.6 million, respectively. For the three and nine month periods ending September 30, 2017 (unaudited), the net gain on these investments still held at the reporting date was $33,000 and $116,000, respectively. For the three and nine month periods ending September 30, 2016 (unaudited), the net gain on these investments still held at the reporting date was $37,000 and $51,000, respectively. Refer to Note 7 – Employee and Director Benefit Plans, for more information.

NOTE 4 – LOANS, ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity orpay-off generally are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, deferred fees or costs on originated loans, and any premiums or discounts on purchased loans.

Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

The accrual of interest on all loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual if collection of principal or interest is considered doubtful. All interest accrued but not collected for loans that are placed on nonaccrual is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

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

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 regular basis by management. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. The allowance consists of general, allocated and unallocated components, as further described below.

General Component:

The general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by the following loan segments: residential real estate, home equity lines of credit, commercial real estate, construction, commercial, indirect auto and other consumer. Management uses a rolling average of historical losses based on a time frame appropriate to capture relevant loss data for each loan segment. This historical loss factor is adjusted for the following qualitative factors: levels/trends in delinquencies; trends in volume and terms of loans; effects of changes in risk selection and underwriting standards and other changes in lending policies, procedures and practices; experience/ability/depth of lending management and staff; and national and local economic trends and conditions. There were no changes in the Company’s policies or methodology pertaining to the general component of the allowance for loan losses during the nine months ended September 30, 2017 or during fiscal year 2016.

13

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

Residential real estate loans and home equity lines of credit – The Company generally does not originate or purchase loans with aloan-to-value ratio greater than 80 percent and generally does not grant subprime loans. Loans in this segment are generally collateralized by owner-occupied residential real estate and repayment is dependent on the cash flow and credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment.

Commercial real estate loans – Loans in this segment are primarily secured by income-producing properties in eastern Massachusetts. The underlying cash flows generated by the properties may be adversely impacted by a downturn in the economy and increased vacancy rates, which in turn, will have an effect on the credit quality in this segment. Management generally obtains rent rolls annually and continually monitors the cash flows of these borrowers.

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

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

Indirect auto loans – Loans in this segment are secured installment loans that were originated through a network of select regional automobile dealerships. The Company’s interest in the vehicle is secured with a recorded lien on the state title of each automobile. Collections are sensitive to changes in borrower financial circumstances, and the collateral can depreciate or be damaged in the event of repossession. Repayment is primarily dependent on the credit worthiness and the cash flow of the individual borrower and secondarily, liquidation of the collateral.

Other consumer loans—Loans in this segment include secured and unsecured consumer loans including passbook loans, consumer lines of credit and overdraft protection, and consumer unsecured loans. Repayment is dependent on the credit quality and the cash flow of the individual borrower.

Allocated Component:

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

The Company periodically may agree to modify the contractual terms of loans. When a loan is modified and a concession is made to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring (“TDR”). All TDRs are classified as impaired.

Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral-dependent. Generally, TDRs are measured for impairment using the discounted cash flow method except in instances where foreclosure is probable in which case the fair value of collateral method is used. When the fair value of the impaired loan is determined to be less than the recorded investment in the loan, the impairment is recorded through the valuation allowance. However, for collateral dependent loans, the amount of the recorded investment in a loan that exceeds the fair value of the collateral ischarged-off against the allowance for loan losses in lieu of an allocation of a specific allowance amount when such an amount has been identified definitively as uncollectable.

Unallocated Component:

An unallocated component may be maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio. At September 30, 2017 (unaudited) and December 31, 2016, the Company had unallocated reserves of $595,000 and $517,000, respectively.

14

Loans consisted of the following (dollars in thousands):

	September 30, 2017						December 31, 2016
	Amount			Percent			Amount			Percent
	(unaudited)
Mortgage loans:
Residentialone-to-four family	$	1,237,283			56.85	%	$	997,336			53.34	%
Commercial real estate loans (1)		604,876			27.80			491,838			26.31
Home equity lines of credit		169,085			7.77			167,465			8.96
Construction loans		64,307			2.95			89,003			4.76
Total mortgage loans		2,075,551			95.37			1,745,642			93.37
Commercial loans		64,379			2.96			63,404			3.39
Consumer loans:
Indirect auto loans		36,003			1.65			60,240			3.22
Other consumer loans		433			0.02			439			0.02
		100,815			4.63			124,083			6.63
Total loans		2,176,366			100.00	%		1,869,725			100.00	%
Net deferred loan costs		3,418						3,622
Net unamortized mortgage premiums		7,935						6,273
Allowance for loan losses		(15,620	)					(13,585	)
Total loans, net	$	2,172,099					$	1,866,035

(1) Includes multi-family real estate loans.

The following tables (in thousands) present the activity in the allowance for loan losses by portfolio class for the three and nine months ended September 30, 2017 and 2016 (unaudited); and the balances of the allowance for loan losses and recorded investment in loans by portfolio class based on impairment method at September 30, 2017 (unaudited) and December 31, 2016. The recorded investment in loans in any of the following tables does not include accrued and unpaid interest or any deferred loan fees or costs, as amounts are not significant.

	Three Months Ended September 30, 2017
	Beginning balance		Provision (benefit)			Charge-offs			Recoveries		Ending balance
Residentialone-to-four family	$	5,664	$	292		$	—		$	—	$	5,956
Commercial real estate		5,612		586			—			—		6,198
Construction		1,153		(240	)		—			—		913
Commercial		718		54			—			—		772
Home equity lines of credit		1,024		(128	)		—			—		896
Indirect auto		339		(57	)		(4	)		3		281
Other consumer		7		5			(4	)		1		9
Unallocated		572		23			—			—		595
Total	$	15,089	$	535		$	(8	)	$	4	$	15,620
	Three Months Ended September 30, 2016
	Beginning balance		Provision (benefit)			Charge-offs			Recoveries		Ending balance
Residentialone-to-four family	$	4,155	$	439		$	—		$	—	$	4,594
Commercial real estate		4,810		(171	)		—			—		4,639
Construction		864		187			—			—		1,051
Commercial		698		12			—			—		710
Home equity lines of credit		1,038		3			—			—		1,041
Indirect auto		492		(43	)		(31	)		15		433
Other consumer		10		—			(3	)		2		9
Unallocated		476		16			—			—		492
Total	$	12,543	$	443		$	(34	)	$	17	$	12,969

15

		Nine Months Ended September 30, 2017
		Beginning balance		Provision (benefit)			Charge-offs			Recoveries		Ending balance
Residentialone-to-four family		$	4,828	$	1,128		$	—		$	—	$	5,956
Commercial real estate			4,885		1,313			—			—		6,198
Construction			1,219		(306	)		—			—		913
Commercial			728		44			—			—		772
Home equity lines of credit			1,037		(141	)		—			—		896
Indirect auto			362		(56	)		(44	)		19		281
Other consumer			9		10			(12	)		2		9
Unallocated			517		78			—			—		595
Total		$	13,585	$	2,070		$	(56	)	$	21	$	15,620
		Nine Months Ended September 30, 2016
		Beginning balance		Provision (benefit)			Charge-offs			Recoveries		Ending balance
Residentialone-to-four family		$	3,574	$	1,020		$	—		$	—	$	4,594
Commercial real estate			4,478		161			—			—		4,639
Construction			801		250			—			—		1,051
Commercial			613		97			—			—		710
Home equity lines of credit			928		113			—			—		1,041
Indirect auto			623		(143	)		(73	)		26		433
Other consumer			10		6			(11	)		4		9
Unallocated			213		279			—			—		492
Total		$	11,240	$	1,783		$	(84	)	$	30	$	12,969
	��

	September 30, 2017
	Individually evaluated for impairment				Collectively evaluated for impairment				Total
	Loan balance		Allowance		Loan balance		Allowance		Loan balance		Allowance
Residentialone-to-four family	$	2,951	$	154	$	1,234,332	$	5,802	$	1,237,283	$	5,956
Commercial real estate		3,095		—		601,781		6,198		604,876		6,198
Construction		—		—		64,307		913		64,307		913
Commercial		—		—		64,379		772		64,379		772
Home equity lines of credit		—		—		169,085		896		169,085		896
Indirect auto		—		—		36,003		281		36,003		281
Other consumer		—		—		433		9		433		9
Unallocated		—		—		—		595		—		595
Total	$	6,046	$	154	$	2,170,320	$	15,466	$	2,176,366	$	15,620
	December 31, 2016
	Individually evaluated for impairment				Collectively evaluated for impairment				Total
	Loan balance		Allowance		Loan balance		Allowance		Loan balance		Allowance
Residentialone-to-four family	$	2,896	$	154	$	994,440	$	4,674	$	997,336	$	4,828
Commercial real estate		3,364		—		488,474		4,885		491,838		4,885
Construction		—		—		89,003		1,219		89,003		1,219
Commercial		—		—		63,404		728		63,404		728
Home equity lines of credit		200		—		167,265		1,037		167,465		1,037
Indirect auto		15		—		60,225		362		60,240		362
Other consumer		—		—		439		9		439		9
Unallocated		—		—		—		517		—		517
Total	$	6,475	$	154	$	1,863,250	$	13,431	$	1,869,725	$	13,585

16

Information about loans that meet the definition of an impaired loan in ASC310-10-35 is as follows as of September 30, 2017 (unaudited and in thousands):

	Impaired loans with a related allowance for credit losses
	Recorded Investment		Unpaid Principal Balance		Related Allowance for Credit Losses
Residentialone-to-four family	$	729	$	729	$	154
Totals	$	729	$	729	$	154
	Impaired loans with no related allowance for credit losses
	Recorded Investment		Unpaid Principal Balance		Related Allowance for Credit Losses
Residentialone-to-four family	$	2,222	$	2,341	$	—
Commercial real estate		3,095		3,095		—
Totals	$	5,317	$	5,436	$	—

Information about loans that meet the definition of an impaired loan in ASC310-10-35 is as follows as of December 31, 2016 (in thousands):

	Impaired loans with a related allowance for credit losses
	Recorded Investment		Unpaid Principal Balance		Related Allowance for Credit Losses
Residentialone-to-four family	$	740	$	740	$	154
Totals	$	740	$	740	$	154
	Impaired loans with no related allowance for credit losses
	Recorded Investment		Unpaid Principal Balance		Related Allowance for Credit Losses
Residentialone-to-four family	$	2,156	$	2,278	$	—
Commercial real estate		3,364		3,364		—
Home equity lines of credit		200		200		—
Indirect auto		15		15		—
Totals	$	5,735	$	5,857	$	—

17

The following tables set forth information regarding interest income recognized on impaired loans, by portfolio, for the periods indicated (unaudited and in thousands):

	Three months ended September 30, 2017				Three months ended September 30, 2016
With an allowance recorded	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Residentialone-to-four family	$	730	$	8	$	1,295	$	8
Commercial real estate		—		—		2,962		30
Totals	$	730	$	8	$	4,257	$	38
	Three months ended September 30, 2017				Three months ended September 30, 2016
Without an allowance recorded	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Residentialone-to-four family	$	1,911	$	7	$	2,952	$	19
Commercial real estate		3,125		35		517		6
Home equity lines of credit		—		—		200		2
Indirect auto		4		—		8		—
Consumer		1		—		—		—
Totals	$	5,041	$	42	$	3,677	$	27

	Nine months ended September 30, 2017				Nine months ended September 30, 2016
With an allowance recorded	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Residentialone-to-four family	$	954	$	24	$	1,370	$	25
Commercial real estate		—		—		3,509		115
Totals	$	954	$	24	$	4,879	$	140
	Nine months ended September 30, 2017				Nine months ended September 30, 2016
Without an allowance recorded	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Residentialone-to-four family	$	1,939	$	16	$	3,115	$	58
Commercial real estate		3,215		107		569		19
Home equity lines of credit		142		13		200		6
Indirect auto		7		—		15		—
Totals	$	5,303	$	136	$	3,899	$	83

The following is a summary of past due andnon-accrual loans (in thousands):

	September 30, 2017 (unaudited)
	30–59 Days		60–89 Days		90 Days or More		Total Past Due		90 days or more and accruing		Loans on Non-accrual
Real estate loans:
Residentialone-to-four family	$	1,080	$	—	$	497	$	1,577	$	—	$	1,626
Home equity lines of credit		621		—		—		621		—		—
Other loans:
Indirect auto		205		22		—		227		—		—
Total	$	1,906	$	22	$	497	$	2,425	$	—	$	1,626
	December 31, 2016
	30–59 Days		60–89 Days		90 Days or More		Total Past Due		90 days or more and accruing		Loans on Non-accrual
Real estate loans:
Residentialone-to-four family	$	—	$	—	$	497	$	497	$	—	$	1,804
Home equity lines of credit		57		486		—		543		—		—
Other loans:
Indirect auto		460		106		15		581		—		15
Total	$	517	$	592	$	512	$	1,621	$	—	$	1,819

18

Credit Quality Information

The Company utilizes a nine grade internal loan rating system for commercial, commercial real estate and construction loans, and a five grade internal loan rating system for certain residential real estate and home equity lines of credit that are rated if the loans become delinquent.

Loans rated 1, 2, 2.5, 3 and 3.5: Loans in these categories are considered “pass” rated loans with low to average risk.

Loans rated 4: Loans in this category are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management.

Loans rated 5: Loans in this category are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.

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

Loans rated 7: Loans in this category are considered uncollectible (“loss”) and of such little value that their continuance as loans is not warranted.

On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial, commercial real estate, and construction loans. On an annual basis, the Company engages an independent third party to review a significant portion of loans within these segments. Management uses the results of these reviews as part of its annual review process.

On a quarterly basis, the Company formally reviews the ratings on all residential real estate and home equity lines of credit if they have become delinquent. Criteria used to determine the rating consists ofloan-to-value and days delinquent.

The following tables present the Company’s loans by risk rating at September 30, 2017 (unaudited and in thousands) and December 31, 2016 (in thousands). There were no loans rated as 6 (“doubtful”) or 7 (“loss”) at the dates indicated.

	September 30, 2017
	Loans rated 1-3.5		Loans rated 4		Loans rated 5		Loans not rated (A)		Total
Residentialone-to-four family	$	—	$	346	$	2,319	$	1,234,618	$	1,237,283
Commercial real estate		600,840		—		4,036		—		604,876
Construction		64,307		—		—		—		64,307
Commercial		64,330		49		—		—		64,379
Home equity lines of credit		—		—		792		168,293		169,085
Indirect auto		—		—		—		36,003		36,003
Other consumer		—		—		—		433		433
Total	$	729,477	$	395	$	7,147	$	1,439,347	$	2,176,366
	December 31, 2016
	Loans rated1-3.5		Loans rated 4		Loans rated 5		Loans not rated (A)		Total
Residentialone-to-four family	$	—	$	351	$	2,509	$	994,476	$	997,336
Commercial real estate		471,491		16,032		4,315		—		491,838
Construction		89,003		—		—		—		89,003
Commercial		63,404		—		—		—		63,404
Home equity lines of credit		—		—		799		166,666		167,465
Indirect auto		—		—		—		60,240		60,240
Consumer		—		—		—		439		439
Total	$	623,898	$	16,383	$	7,623	$	1,221,821	$	1,869,725

(A) Residential real estate and home equity lines of credit are not formally risk rated by the Company unless the loans become delinquent.

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The Company periodically modifies loans to extend the term or make other concessions to help a borrower stay current on their loan and to avoid foreclosure. Any loans that are modified are reviewed by the Company to identify if a TDR has occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider. During the three months ended September 30, 2017, there were no loans modified and determined to be TDRs. During the nine months ended September 30, 2017 (unaudited), one existing TDR was modified again to extend the maturity. During the three and nine months ended September 30, 2016, there were no loans modified and determined to be TDRs. At September 30, 2017 (unaudited), the Company had $5.6 million of troubled debt restructurings related to nine loans.

The following table shows the Company’s total TDRs and other pertinent information as of the dates indicated (in thousands):

	September 30, 2017		December 31, 2016
	(unaudited)
TDRs on Accrual Status	$	4,419	$	4,656
TDRs on Nonaccrual Status		1,152		1,442
Total TDRs	$	5,571	$	6,098
Amount of specific allocation included in the allowance for loan losses associated with TDRs	$	154	$	154
Additional commitments to lend to a borrower who has been a party to a TDR	$	—	$	—

The following tables show the TDR modifications which occurred during the nine months ended September 30, 2017 and the change in the recorded investment subsequent to the modifications occurring (dollars in thousands and unaudited):

	Nine months ended
	September 30, 2017
			Pre-modification		Post-modification
	# of		outstanding		outstanding
	Contracts		recorded investment		recorded investment
Real estate loans:
Commercial real estate loans		1	$	273	$	273
Total		1	$	273	$	273

The following table shows the Company’s post-modification balance of TDRs listed by type of modification during the nine months ended September 30, 2017 (in thousands):

	Nine months ended
	September 30, 2017
	(unaudited)
Extended maturity	$	273
Total	$	273

For purposes of this table the Company generally considers a loan to have defaulted when it reaches 90 days past due. There were no loans that have been modified during the past twelve months which have subsequently defaulted during the three and nine months ended September 30, 2017 or the three months ended September 30, 2016.

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The following table shows the loans that have been modified during the past twelve months which have subsequently defaulted during the nine months ended September 30, 2016 (unaudited and in thousands except for number of contracts):

	For the nine months ended September 30, 2016
	Number of Contracts		Recorded Investment
Real estate loans:
Residentialone-to-four family		1	$	497
Total		1	$	497

The impact of TDRs and subsequently defaulted TDRs did not have a material impact on the allowance for loan losses.

Foreclosure Proceedings

Consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure totaled $497,000 as of September 30, 2017 (unaudited) and $497,000 as of December 31, 2016. We did not have any foreclosed residential real estate property as of September 30, 2017 (unaudited) and as of December 31, 2016.

NOTE 5 – TRANSFERS AND SERVICING

Certain residential mortgage loans are periodically sold by the Company to the secondary market. Generally, these loans are sold without recourse or other credit enhancements. The Company sells loans and both releases and retains the servicing rights. For loans sold with the servicing rights retained, we provide the servicing for the loans on aper-loan fee basis. The Company has also periodically sold auto loans to other financial institutions without recourse or other credit enhancements, and the Company generally provides servicing for these loans.

At September 30, 2017 (unaudited) and December 31, 2016, residential loans previously sold and serviced by the Company were $102.0 million and $59.8 million, respectively. At September 30, 2017 (unaudited) and December 31, 2016, indirect auto loans previously sold and serviced by the Company were $14.0 million and $28.2 million, respectively.

Mortgage servicing rights (“MSR”) are initially recorded as an asset and measured at fair value when loans are sold to third parties with servicing rights retained. MSR assets are amortized in proportion to, and over the period of, estimated net servicing revenues. The carrying value of these assets is periodically reviewed for impairment using the lower of amortized cost or fair value methodology. The fair value of the servicing rights is determined by estimating the present value of future net cash flows, taking into consideration market loan prepayment speeds, discount rates, servicing costs and other economic factors. For purposes of measuring impairment, the underlying loans are stratified into relatively homogeneous pools based on predominant risk characteristics which include product type (i.e., fixed or adjustable) and interest rate bands. If the aggregate carrying value of the capitalized mortgage servicing rights for a stratum exceeds its fair value, MSR impairment is recognized in earnings through a valuation allowance for the difference. As the loans are repaid and net servicing revenue is earned, the MSR asset is amortized as an offset to loan servicing income. Servicing revenues are expected to exceed this amortization expense. However, if actual prepayment experience or defaults exceed what was originally anticipated, net servicing revenues may be less than expected and mortgage servicing rights may be impaired. No servicing assets or liabilities related to auto loans were recorded, as the contractual servicing fees are adequate to compensate the Company for its servicing responsibilities.

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Changes in mortgage servicing rights, which are included in other assets, were as follows (in thousands):

	Three months ended September 30,						Nine months ended September 30,
	2017			2016			2017			2016
	(unaudited)						(unaudited)
Balance at beginning of period	$	584		$	457		$	403		$	479
Capitalization		193			4			378			50
Amortization		(37	)		(27	)		(88	)		(72	)
Valuation allowance adjustment		(6	)		(48	)		41			(71	)
Balance at end of period	$	734		$	386		$	734		$	386

NOTE 6 – SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER BORROWED FUNDS

The securities sold under agreements to repurchase as of September 30, 2017 (unaudited) and December 31, 2016 are securities sold on a short-term basis by the Company that have been accounted for not as sales but as borrowings. The securities consisted of mortgage-backed securities issued by U.S. government sponsored entities. The securities were held in the Company’s safekeeping account at the Federal Home Loan Bank of Boston under the control of the Company. The securities are pledged to the purchasers of the securities. The purchasers have agreed to sell to the Company identical securities at the maturity of the agreements. The balance of securities sold under agreements to repurchase as of September 30, 2017 (unaudited) and December 31, 2016 was $1.9 million and $2.0 million, respectively.

NOTE 7 – EMPLOYEE AND DIRECTOR BENEFIT PLANS

Belmont Savings Bank Supplemental Executive Retirement Plan

The purpose of the Belmont Savings Bank Supplemental Executive Retirement Plan is to remain competitive with our peers in our compensation arrangements and to help us retain certain executive officers of the Company. At September 30, 2017 (unaudited) and December 31, 2016, there were four participants in the Plan. Participants are fully vested after the completion of between five and ten years of service. The plan is unfunded. The estimated liability at September 30, 2017 (unaudited) and December 31, 2016 relating to this plan was $1.8 million and $1.5 million, respectively.

Other Supplemental Retirement Plans

The Company has supplemental retirement plans for eligible executive officers that provide for a lump sum benefit upon termination of employment at or after age 55 and completing 10 or more years of service (certain reduced benefits are available prior to attaining age 55 or fewer than 10 years of service), subject to certain limitations as set forth in the agreements. The present value of these future payments is being accrued over the service period. The estimated liability at September 30, 2017 (unaudited) and December 31, 2016 relating to these plans was $2.5 million and $2.3 million, respectively.

The Company has a supplemental retirement plan for eligible directors that provides for monthly benefits based upon years of service to the Company, subject to certain limitations as set forth in the agreements. The present value of these future payments is being accrued over the estimated period of service. The estimated liability at September 30, 2017 (unaudited) and December 31, 2016 relating to this plan was $689,000 and $661,000, respectively.

Incentive Compensation Plan

The Incentive Compensation Plan is a discretionary annual cash-based incentive plan that is an integral part of the participant’s total compensation package and supports the continued growth, profitability and risk management of Belmont Savings Bank. Each year participants are awarded for the achievement of certain performance objectives on a company-wide and individual basis. Compensation expense recognized was $845,000 and $561,000 for the three months ended September 30, 2017 and 2016 (unaudited), respectively, and $1.8 million and $1.5 million for the nine months ended September 30, 2017 and 2016 (unaudited), respectively.

Defined Contribution Plan

The Company sponsors a 401(k) plan covering substantially all employees meeting certain eligibility requirements. Under the provisions of the plan, employees are able to contribute up to an annual limit of the lesser of 75% of eligible compensation or the

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maximum allowed by the Internal Revenue Service. The Company’s contributions for the three months ended September 30, 2017 and 2016 (unaudited) totaled $248,000 and $223,000, respectively, and $700,000 and $653,000 for the nine months ended September 30, 2017 and 2016 (unaudited), respectively.

Deferred Compensation Plan

The Company has a compensation deferral plan by which selected employees and directors of the Company are entitled to elect, prior to the beginning of each year, to defer the receipt of an amount of their compensation for the forthcoming year. Each agreement allows for the individual to elect to defer a portion of his or her compensation to an individual deferred compensation account established by Belmont Savings Bank. In April 2013, Belmont Savings Bank created a Rabbi Trust, or grantor trust. The Rabbi Trust is maintained by the Company primarily for purposes of holding deferred compensation for certain directors and employees of the Company. The plan is administered by a third party and permits participants to select from a number of investment options for the investment of their account balances. Each participant is always 100% vested in his or her deferred compensation account balance. As of September 30, 2017 (unaudited) and December 31, 2016, the recorded liability relating to the Rabbi Trust was $2.8 million and $2.6 million, respectively.

Employee Stock Ownership Plan

The Company maintains an Employee Stock Ownership Plan (“ESOP”) to provide eligible employees the opportunity to own Company stock. This plan is atax-qualified retirement plan for the benefit of all Company employees. Contributions are allocated to eligible participants on the basis of compensation, subject to federal tax law limits.

The Company contributed funds to a subsidiary to enable it to grant a loan to the ESOP for the purchase of 458,643 shares of the Company’s common stock at a price of $10.00 per share. The loan obtained by the ESOP from the Company’s subsidiary to purchase Company common stock is payable annually over 30 years at a rate per annum equal to the Prime Rate on the first business day of each calendar year (3.75% for 2017, unaudited). Loan payments are principally funded by cash contributions from the Bank. The loan is secured by the shares purchased, which are held in a suspense account for allocation among participants as the loan is repaid. Cash dividends paid on allocated shares are distributed to participants and cash dividends paid on unallocated shares are used to repay the outstanding debt of the ESOP. Shares used as collateral to secure the loan are released and available for allocation to eligible employees as the principal and interest on the loan is paid. The Company incurred expenses of $110,000 and $89,000 for the three months ended September 30, 2017 and 2016 (unaudited), respectively, and $327,000 and $260,000 for the nine months ended September 30, 2017 and 2016 (unaudited), respectively.

Severance Agreements

The Company has entered into employment agreements and change in control agreements with certain executive officers which would provide the executive officers with severance payments based on salary, and the continuation of other benefits, upon a change in control as defined in the agreements.

NOTE 8 – PLEDGED ASSETS

The following securities and loans were pledged to secure securities sold under agreements to repurchase, Federal Home Loan Bank (“FHLB”) advances and credit facilities available (in thousands).

September 30, 2017 (unaudited)	Securities held to maturity (at cost)		Loans receivable		Total pledged assets
Repurchase agreements	$	3,945	$	—	$	3,945
FHLB borrowings		30,339		1,323,324		1,353,663
Federal Reserve Bank line of credit		15,770		—		15,770
Total pledged assets	$	50,054	$	1,323,324	$	1,373,378
December 31, 2016	Securities held to maturity (at cost)		Loans receivable		Total pledged assets
Repurchase agreements	$	4,721	$	—	$	4,721
FHLB borrowings		37,561		1,132,476		1,170,037
Federal Reserve Bank line of credit		15,739		—		15,739
Total pledged assets	$	58,021	$	1,132,476	$	1,190,497

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NOTE 9 – EARNINGS PER SHARE

Basic earnings per share (“EPS”) excludes dilution and is calculated by dividing net income allocated to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted EPS is computed in a manner similar to that of basic EPS except that the weighted-average number of common shares outstanding is increased to include the number of incremental common shares (computed using the treasury stock method) that would have been outstanding if all potentially dilutive common stock equivalents (such as stock options and unvested restricted stock not meeting the definition of a participating security) were issued during the period.

Earnings per share consisted of the following components for the periods indicated (unaudited and dollars in thousands except per share data):

	Three months ended						Nine months ended
	September 30,						September 30,
	2017			2016			2017			2016
Net income	$	4,599		$	3,180		$	12,278		$	8,671
Undistributed earnings attributable to participating securities		(38	)		(53	)		(102	)		(144	)
Net income allocated to common stockholders	$	4,561		$	3,127		$	12,176		$	8,527
Weighted average shares outstanding, basic		8,846,786			8,571,225			8,808,340			8,560,589
Effect of dilutive shares		425,656			284,340			418,492			268,826
Weighted average shares outstanding, assuming dilution		9,272,442			8,855,565			9,226,832			8,829,415
Basic EPS	$	0.52		$	0.36		$	1.39		$	1.00
Effect of dilutive shares		(0.02	)		(0.01	)		(0.06	)		(0.03	)
Diluted EPS	$	0.50		$	0.35		$	1.33		$	0.97

The following table illustrates average options to purchase shares of common stock that were outstanding but not included in the computation of EPS because they were antidilutive under the treasury stock method (unaudited):

	Three months ended				Nine months ended
	September 30,				September 30,
	2017		2016		2017		2016
Stock options		—		27,500		—		21,478

Unallocated common shares held by the ESOP are shown as a reduction in stockholders’ equity and are not included in the weighted-average number of common shares outstanding for either basic or diluted earnings per share calculations.

On June 22, 2013, the Company’s Board of Directors authorized a program to repurchase, fromtime-to-time and as market and business conditions warrant, up to 500,000 shares of the Company’s common stock. During the nine months ended September 30, 2017 and 2016 (unaudited), the Company did not repurchase any shares under the repurchase program.

NOTE 10 – STOCK BASED COMPENSATION

The following table presents thepre-tax expense associated with stock options and restricted stock awards and the related tax benefits recognized (in thousands and unaudited):

	Three months ended				Nine months ended
	September 30,				September 30,
	2017		2016		2017		2016
Stock options	$	201	$	204	$	586	$	591
Restricted stock awards		555		223		1,363		648
Total stock based compensation expense	$	756	$	427	$	1,949	$	1,239
Related tax benefits recognized in earnings	$	262	$	126	$	659	$	367

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On February 8, 2017, the stockholders of the Company approved the Company’s 2017 Equity Incentive Plan (“the Plan”). On March 15, 2017, 487,200 restricted stock awards were granted under the Plan at $27.10 with a ten year vesting period and an estimated 2.64% forfeiture rate. The awards are not deemed to be participating securities.

Total compensation cost related tonon-vested awards not yet recognized and the weighted average period (in years) over which it is expected to be recognized is as follows (in thousands):

	As of September 30, 2017				As of December 31, 2016
	(unaudited)
			Weighted				Weighted
	Amount		average period		Amount		average period
Stock options	$	266		1.54	$	819		1.48
Restricted stock		11,055		9.32		772		0.97
Total	$	11,321			$	1,591

NOTE 11 – FAIR VALUE MEASUREMENTS

Determination of Fair Value

The fair value of an asset or liability is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses prices and inputs that are current as of the measurement date, including during periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified from one level to another. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various assets and liabilities. In cases where quoted market prices are not available, fair values are based on estimates using present value of cash flows or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The Company groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the observability and reliability of the assumptions used to determine fair value.

Level 1 - Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 - Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 - Level 3 inputs are unobservable inputs for the asset or liability.

For assets and liabilities, fair value is based upon the lowest level of input that is significant to the fair value measurement.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon models that primarily use, as inputs, observable market based parameters. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein. A more detailed description of the valuation methodologies used for assets and liabilities measured at fair value is set forth below. A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value for September 30, 2017 and December 31, 2016. There were no significant transfers between level 1 and level 2 of the fair value hierarchy during the nine months ended September 30, 2017 (unaudited) and the year ended December 31, 2016.

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Financial Assets and Financial Liabilities: Financial assets and financial liabilities measured at fair value on a recurring basis include the following:

Investment Securities Available for Sale: The Company’s investment in corporate debt securities is generally classified within level 2 of the fair value hierarchy. For these securities, the Company obtains fair value measurements from independent pricing services. The fair value measurements consider observable data that may include reported trades, dealer quotes, market spreads, cash flows, the U.S. treasury yield curve, trading levels, market consensus prepayment speeds, credit information and the instrument’s terms and conditions.

Investments held in the Rabbi Trust: Investments held in the Rabbi Trust consist primarily of exchange-traded mutual funds and were recorded at fair value and included in other assets. The purpose of these investments is to fund certain director and executive non-qualified retirement benefits and deferred compensation. The exchange-traded mutual funds were valued based on quoted prices from the market and are categorized as Level 1.

The following table summarizes financial assets measured at fair value on a recurring basis as of September 30, 2017 and December 31, 2016, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):

							Total
	Level 1		Level 2		Level 3		Fair Value
At September 30, 2017 (unaudited)
Securitiesavailable-for-sale
Corporate debt securities	$	—	$	22,108	$	—	$	22,108
Trading securities
Rabbi trust investments		2,753		—		—		2,753
Totals	$	2,753	$	22,108	$	—	$	24,861
							Total
	Level 1		Level 2		Level 3		Fair Value
At December 31, 2016
Securitiesavailable-for-sale
Corporate debt securities	$	—	$	22,048	$	—	$	22,048
Trading securities
Rabbi trust investments		2,606		—		—		2,606
Totals	$	2,606	$	22,048	$	—	$	24,654

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Financial assets measured at fair value on anon-recurring basis during the reported periods include certain impaired loans reported at the fair value of the underlying collateral. Fair value was measured using appraised values of collateral and adjusted as necessary by management based on unobservable inputs for specific properties. However, the choice of observable data is subject to significant judgment, and there are often adjustments based on judgment in order to make observable data comparable and to consider the impact of time, the condition of properties, interest rates, and other market factors on current values. Additionally, commercial real estate appraisals frequently involve discounting of projected cash flows, which relies inherently on unobservable data. Therefore, real estate collateral related nonrecurring fair value measurement adjustments have generally been classified as Level 3. Estimates of fair value used for other collateral supporting commercial loans generally are based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3.

There were no impaired loans that werere-measured and reported at fair value through a specific valuation allowance allocation of the allowance for loan losses or charge off based upon the fair value of the underlying collateral at September 30, 2017 (unaudited) and December 31, 2016.

Non-Financial Assets andNon-Financial Liabilities: The Company has nonon-financial assets ornon-financial liabilities measured at fair value on a recurring basis. Non financial assets include mortgage servicing right assets that are remeasured and reported at the lower of cost or fair value.

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The following table (in thousands) presents thenon-financial assets that werere-measured and reported at the lower of cost or fair value at the periods indicated:

	September 30, 2017
	Level 1		Level 2		Level 3
			(unaudited)
Mortgage servicing rights	$	—	$	—	$	734
Totals	$	—	$	—	$	734
	December 31, 2016
	Level 1		Level 2		Level 3
Mortgage servicing rights	$	—	$	—	$	403
Totals	$	—	$	—	$	403

ASC Topic 825, “Financial Instruments,” requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis ornon-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring ornon-recurring basis are discussed above. The estimated fair value approximates carrying value for cash and cash equivalents, FHLB stock, accrued interest, bank owned life insurance, securities sold under agreements to repurchase and mortgagors’ escrow accounts. The methodologies for other significant financial assets and financial liabilities are discussed below:

Securities held to maturity- The fair values presented are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments and/or discounted cash flow analyses.

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

Deposits- The fair values disclosed for demand deposits (e.g., interest andnon-interest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificate accounts are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on certificate accounts.

FHLB advances- The fair values of the Company’s FHLB advances are estimated using discounted cash flow analyses based on the current incremental borrowing rates in the market for similar types of borrowing arrangements.

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Summary of Fair Values of Financial Instruments not Carried at Fair Value

The estimated fair values, and related carrying or notional amounts, of the Company’s financial instruments are as follows (in thousands):

	September 30, 2017
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
					(unaudited)
Financial assets:
Cash and cash equivalents	$	76,446	$	76,446	$	76,446	$	—	$	—
Interest-bearing time deposits with other banks		2,440		2,440		—		2,440		—
Held-to-maturity securities		139,291		138,701		—		138,701		—
Federal Home Loan Bank stock		28,317		28,317		—		28,317		—
Loans, net		2,172,099		2,152,777		—		—		2,152,777
Accrued interest receivable		5,711		5,711		5,711		—		—
Bank-owned life insurance		36,681		36,681		—		36,681		—
Financial liabilities:
Deposits		1,714,763		1,714,474		1,264,225		450,249		—
Federal Home Loan Bank advances		587,250		586,699		—		586,699		—
Securities sold under agreements to repurchase		1,861		1,861		—		1,861		—
Accrued interest payable		1,434		1,434		1,434		—		—
Mortgagors’ escrow accounts		4,545		4,545		—		4,545		—

	December 31, 2016
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	58,876	$	58,876	$	58,876	$	—	$	—
Interest-bearing time deposits with other banks		234		233		—		233		—
Held-to-maturity securities		130,197		129,465		—		129,465		—
Federal Home Loan Bank stock		25,071		25,071		—		25,071		—
Loans, net		1,866,035		1,837,068		—		—		1,837,068
Accrued interest receivable		4,635		4,635		4,635		—		—
Bank-owned life insurance		35,842		35,842		—		35,842		—
Financial liabilities:
Deposits		1,469,422		1,469,906		1,133,821		336,085		—
Federal Home Loan Bank advances		508,850		507,773		—		507,773		—
Securities sold under agreements to repurchase		1,985		1,985		—		1,985		—
Accrued interest payable		1,023		1,023		1,023		—		—
Mortgagors’ escrow accounts		3,341		3,341		—		3,341		—

The financial instruments in the tables above are included in the consolidated balance sheets under the indicated captions except for mortgagors’ escrow accounts which are included in other liabilities.

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NOTE 12 – OTHER COMPREHENSIVE INCOME

The following table presents a reconciliation of the changes in the components of other comprehensive income for the dates indicated, including the amount of income tax expense allocated to each component of other comprehensive income:

	Three months ended September 30, 2017							Three months ended September 30, 2016
	(unaudited and in thousands)							(unaudited and in thousands)
	Pre Tax		Tax			After Tax		Pre Tax		Tax			After Tax
	Amount		Expense			Amount		Amount		Expense			Amount
Securitiesavailable-for-sale:
Change in fair value of securitiesavailable-for-sale	$	9	$	(4	)	$	5	$	113	$	(46	)	$	67
Total other comprehensive income	$	9	$	(4	)	$	5	$	113	$	(46	)	$	67
	Nine months ended September 30, 2017							Nine months ended September 30, 2016
	(unaudited and in thousands)							(unaudited and in thousands)
	Pre Tax		Tax			After Tax		Pre Tax		Tax			After Tax
	Amount		Expense			Amount		Amount		Expense			Amount
Securitiesavailable-for-sale:
Change in fair value of securitiesavailable-for-sale	$	117	$	(48	)	$	69	$	397	$	(160	)	$	237
Total other comprehensive income	$	117	$	(48	)	$	69	$	397	$	(160	)	$	237

The components of accumulated other comprehensive income, included in stockholders’ equity, are as follows: (in thousands):

	September 30, 2017		December 31, 2016
	(unaudited)
Net unrealized holding gain (loss) onavailable-for-sale securities, net of tax	$	68	$	(1	)
Unrecognized benefit pertaining to defined benefit plan, net of tax		104		104
Accumulated other comprehensive income	$	172	$	103

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

The following analysis discusses the changes in financial condition and results of operation of the Company, and should be read in conjunction with both the unaudited consolidated interim financial statements and notes thereto, appearing in Part 1, Item 1 of this report.

Forward-Looking Statements

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

• statements of our goals, intentions and expectations;

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

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

• estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We do not undertake any obligation to update any forward-looking statements after the date of this document, except as required by law.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

• our ability to successfully implement our business strategy, which includes significant asset and liability growth;

• our ability to increase our market share in our market areas and capitalize on growth opportunities;

• our ability to successfully implement our branch network expansion strategy;

• general economic conditions, either nationally or in our market areas, and conditions in the real estate markets that could affect the demand for our loans and other products and the ability of borrowers to repay loans, could lead to declines in credit quality and increased loan losses, and negatively affect the value and salability of the real estate that is the collateral for many of our loans;

• competition among depository and other financial institutions;

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

• adverse changes in the securities markets;

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

• increases in Federal Deposit Insurance Corporation (“FDIC”) deposit insurance premiums and assessments could adversely affect our financial condition;

• government shutdowns;

• severe weather, natural disasters, acts of war or terrorism and other external events which could significantly impact our business;

• our inability to adapt to changes in information technology;

• system failures or breaches of our network security;

• electronic fraudulent activity within the financial services industry;

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

• changes in consumer spending, borrowing and savings habits;

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

• changes in our organization, compensation and benefit plans;

• changes in our financial condition or results of operations that reduce capital available; and

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

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Additional factors that could cause results to differ materially from those described in the forward-looking statements can be found in the filings made by BSB Bancorp, Inc. with the Securities and Exchange Commission, including the Annual Report on Form10-K for the fiscal year ended December 31, 2016 under the heading “Item 1A. Risk Factors.” Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

Critical Accounting Policies

There are no material changes to the critical accounting policies from those disclosed in BSB Bancorp, Inc.’s 2016 Annual Report on Form10-K. In applying these accounting policies, management is required to exercise judgment in determining many of the methodologies, assumptions and estimates to be utilized. As discussed in the Company’s 2016 Annual Report on Form10-K, the most significant areas in which management applies critical assumptions and estimates that are particularly susceptible to change relate to the determination of the allowance for loan losses, investment classification and impairment and deferred income taxes. Management’s estimates and assumptions affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the period. Actual results could differ from the amounts derived from management’s estimates and assumptions under different conditions.

Comparison of Financial Condition at September 30, 2017 and December 31, 2016

Total Assets.Total assets increased $341.00 million to $2.50 billion at September 30, 2017 from $2.16 billion at December 31, 2016. The increase was primarily the result of a $306.06 million or 16.4% increase in net loans, a $17.57 million or 29.8% increase in cash and cash equivalents and a $9.09 million or 7.0% increase in investments inheld-to-maturity securities.

Cash and Cash Equivalents.Cash and cash equivalents increased by $17.57 million or 29.8% to $76.45 million at September 30, 2017 from $58.88 million at December 31, 2016.

Investment Securities. Total investment securities increased $9.15 million to $161.40 million at September 30, 2017 from $152.25 million at December 31, 2016.

Loans. Management continues to focus on prudently growing the residential and commercial real estate loan portfolios. We experienced strong growth during the nine months ended September 30, 2017. Net loans increased by $306.06 million or 16.4% to $2.17 billion at September 30, 2017 from $1.87 billion at December 31, 2016. The increase in net loans was primarily due to increases of $239.95 million or 24.1% in residentialone-to-four family loans and $113.04 million or 23.0% in commercial real estate loans. Partially offsetting these increases were decreases of $24.70 million or 27.7% in construction loans and $24.24 million or 40.2% in indirect auto loans. The decrease in construction loans was driven by the completion of certain construction projects and conversion into permanent credit facilities. The decrease in indirect auto loans was driven by the suspension of new originations due to current market conditions. Credit quality remains high with totalnon-performing loans to total loans of 0.07% as of September 30, 2017 as compared to 0.10% as of December 31, 2016.

Bank-Owned Life Insurance. The Company invests in bank-owned life insurance to help defray the cost of our employee benefit plan obligations. Bank-owned life insurance also generally provides noninterest income that is nontaxable. At September 30, 2017, our investment in bank-owned life insurance was $36.68 million or an increase of $839,000 from $35.84 million at December 31, 2016. This increase was driven by $834,000 in income from bank-owned life insurance during the nine months ended September 30, 2017.

Federal Home Loan Bank Stock. The Company held an investment in Federal Home Loan Bank of Boston stock of $28.32 million as of September 30, 2017. This was an increase of $3.25 million or 12.9% from $25.07 million as of December 31, 2016. The FHLB is a cooperative that provides services to its member banking institutions. The primary reason for our FHLB of Boston membership is to gain access to a reliable source of wholesale funding, particularly term funding, as a tool to fund asset growth and manage interest rate risk. The purchase of stock in the FHLB is a requirement for a member to gain access to funding. The Company purchases FHLB stock proportional to the volume of funding received and views the purchases as a necessary long-term investment for the purposes of balance sheet liquidity and interest rate risk management.

Deposits.Deposits increased $245.34 million or 16.7% to $1.71 billion at September 30, 2017 from $1.47 billion at December 31, 2016. The increase in deposits was due to an increase of $114.94 million or 34.2% in certificates of deposit (“CDs”), an increase of $104.34 million or 13.3% in savings accounts and an increase of $32.46 million or 24.6% in interest-bearing checking accounts, partially offset by a decrease of $6.73 million or 3.2% in demand deposits. Core deposits, which we consider to include all deposits other than CDs, increased by $130.40 million or 11.5%. Consistent execution providing competitive retail deposit products, targeted business banking offerings and commercial relationship expansion continues to create new and existing customer deposit growth.

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The following table sets forth the Company’s deposit mix at the dates indicated (dollars in thousands):

	September 30, 2017					December 31, 2016
	Amount		Percent			Amount		Percent
	(unaudited)
Deposit type:
Demand deposits	$	201,357		11.74	%	$	208,082		14.16	%
Totalnon-interest-bearing accounts		201,357		11.74			208,082		14.16
Interest-bearing checking accounts		164,345		9.58			131,885		8.98
Savings accounts		889,894		51.90			785,557		53.46
Money market deposits		8,629		0.50			8,297		0.56
Certificate of deposit accounts		450,538		26.28			335,601		22.84
Total interest-bearing deposits		1,513,406		88.26			1,261,340		85.84
Total deposits	$	1,714,763		100.00	%	$	1,469,422		100.00	%

Borrowings. At September 30, 2017, borrowings consisted of advances from the Federal Home Loan Bank of Boston and securities sold to customers under agreements to repurchase, or “repurchase agreements.”

Total borrowings increased $78.28 million or 15.32% to $589.11 million at September 30, 2017, from $510.84 million at December 31, 2016. Advances from the Federal Home Loan Bank of Boston drove this increase as such advances increased $78.40 million to $587.25 million at September 30, 2017, from $508.85 million at December 31, 2016.

The following table sets forth the Company’s short-term borrowings and long-term debt for the dates indicated (in thousands):

	September 30, 2017		December 31, 2016
	(unaudited)
Long-term borrowed funds:
Federal Home Loan Bank of Boston long-term advances	$	432,250	$	377,250
		432,250		377,250
Short-term borrowed funds:
Federal Home Loan Bank of Boston short-term advances		155,000		131,600
Repurchase agreements		1,861		1,985
		156,861		133,585
Total borrowed funds	$	589,111	$	510,835

Stockholders’ Equity. Total stockholders’ equity increased $14.64 million or 9.1%, to $175.56 million at September 30, 2017 from $160.92 million as of December 31, 2016. This increase is primarily the result of earnings of $12.28 million and a $2.17 million increase in additionalpaid-in capital related to stock-based compensation.

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Non-Performing Assets.The following table sets forth the amounts and categories of ournon-performing assets at the dates indicated (dollars in thousands):

	At September 30,			At December 31,
	2017			2016
	(unaudited)
Non-accrual loans:
Real estate loans:
Residentialone-to-four family	$	1,626		$	1,804
Consumer loans:
Indirect auto loans		—			15
Totalnon-accrual loans	$	1,626		$	1,819
Totalnon-performing loans		1,626			1,819
Repossessed automobiles		18			3
Totalnon-performing assets (NPAs)	$	1,644		$	1,822
Troubled debt restructurings:
Troubled debt restructures included in NPAs	$	1,152		$	1,442
Troubled debt restructures not included in NPAs		4,419			4,656
Total troubled debt restructures	$	5,571		$	6,098
Ratios:
Non-performing loans to total loans		0.07	%		0.10	%
Non-performing assets to total assets		0.07	%		0.08	%

It is the general policy of the Bank to consider any loan onnon-accrual as an impaired loan. Exceptions to this policy can be made when, in the opinion of senior management, a loan is adequately secured, properly documented and in the process of collection. Any exceptions to policy are reviewed on a monthly basis and must be approved by senior management. At September 30, 2017 and December 31, 2016, there were no loans onnon-accrual that were determined to not be impaired. At September 30, 2017 and December 31, 2016 there were no loans delinquent 90 days or more and still accruing.

Troubled Debt Restructurings. We occasionally modify loans to extend the term or make other concessions to help a borrower stay current on their loan and to avoid foreclosure or collection activity. We generally do not forgive principal or interest on loans. At September 30, 2017, we had $5.57 million of troubled debt restructurings related to nine loans as compared to $6.10 million of troubled debt restructurings related to ten loans at December 31, 2016. The decrease in the balance was driven by principal payments.

Comparison of Operating Results for the Three Months Ended September 30, 2017 and 2016

General.Net income for the three months ended September 30, 2017 was $4.60 million compared to net income of $3.18 million for the three months ended September 30, 2016. Earnings per diluted share for the three months ended September 30, 2017 were $0.50 compared to earnings per diluted share for the three months ended September 30, 2016 of $0.35. The improvement in operating results of $1.42 million or 44.6% for the three months ended September 30, 2017 compared to the three months ended September 30, 2016 resulted from an increase in net interest and dividend income after the provision for loan losses of $2.06 million or 17.8%, an increase in noninterest income of $205,000 or 30.1% and a decrease in income tax expense of $17,000 or 0.8%, partially offset by an increase in noninterest expense of $863,000 or 12.2%.

Net Interest and Dividend Income. Net interest and dividend income increased $2.15 million or 17.9% to $14.18 million for the three months ended September 30, 2017 compared to $12.03 million for the three months ended September 30, 2016. The increase in net interest and dividend income was due to an increase in average net interest-earning assets of $29.97 million or 10.4% to $319.44 million for the three months ended September 30, 2017 from $289.47 million for the three months ended September 30, 2016, partially offset by a decrease in our net interest margin of 7 basis points to 2.36% during the three months ended September 30, 2017 from 2.43% during the three months ended September 30, 2016.

Interest and Dividend Income. Interest and dividend income increased $4.03 million or 25.6% to $19.76 million for the three months ended September 30, 2017 from $15.73 million for the three months ended September 30, 2016. The increase in interest and dividend income was primarily due to a $3.74 million increase in interest and fees on loans. The increase in interest and fees on loans

resulted primarily from an increase in the average balance of loans of $376.61 million to $2.11 billion for the three months ended September 30, 2017 from $1.73 billion for the three months ended September 30, 2016.

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Interest Expense.Interest expense increased $1.88 million or 50.8% to $5.58 million for the three months ended September 30, 2017 from $3.70 million for the three months ended September 30, 2016. The increase resulted from a $364.14 million or 22.1% increase in the average balance of interest-bearing liabilities to $2.01 billion for the three months ended September 30, 2017 from $1.65 billion for the three months ended September 30, 2016 as well as a 21 basis point increase in the cost of interest-bearing liabilities to 1.10% during the three months ended September 30, 2017 from 0.89% during the three months ended September 30, 2016.

Interest expense on interest-bearing deposits increased by $964,000 to $3.39 million for the three months ended September 30, 2017 from $2.43 million for the three months ended September 30, 2016. This increase was primarily due to an increase in the interest expense on CDs and savings accounts of $482,000 and $461,000, respectively. The increase in interest expense on CDs of $482,000 from $1.16 million to $1.64 million was driven by an increase in the average balance of $113.43 million as well as a 6 basis point increase in the cost of CD accounts to 1.52% from 1.46%. The increase in interest expense on savings accounts of $461,000 from $1.13 million to $1.59 million was driven by an increase in the average balance of $111.19 million as well as a 13 basis point increase in the cost of savings accounts to 0.74% from 0.61%. Recent increases in short term interest rates have increased the cost of our deposits.

Interest expense on total borrowings increased $916,000 to $2.19 million for the three months ended September 30, 2017 from $1.27 million for the three months ended September 30, 2016. This increase was primarily due to an increase in the average balance of FHLB advances of $137.35 million or 31.0% to $580.30 million for the three months ended September 30, 2017 from $442.96 million for the three months ended September 30, 2016 and an increase in the average cost of FHLB advances of 36 basis points to 1.50% for the three months ended September 30, 2017 from 1.14% for the three months ended September 30, 2016. Recent increases in short term interest rates have increased the cost of our short term FHLB advances. In addition, we have increased the balance of our long term advances to help manage interest rate risk.

Provision for Loan Losses.Based on our methodology for establishing the allowance for loan losses and provision for loan losses as discussed in Note 4 to the Consolidated Financial Statements included in this Form10-Q, we recorded a provision for loan losses of $535,000 for the three months ended September 30, 2017, compared to $443,000 for the three months ended September 30, 2016. The allowance for loan losses was $15.62 million or 0.72% of total loans at September 30, 2017, compared to $13.59 million or 0.73% of total loans at December 31, 2016.

Noninterest Income. Noninterest income increased by $205,000 to $885,000 for the three months ended September 30, 2017, from $680,000 for the three months ended September 30, 2016.

• Customer service fees decreased $37,000 or 15.3% primarily due to declines in NSF and other fees.

• Net gains on sales of loans increased $242,000 or 968.0% due to an increase in the number of loans sold.

• Loan servicing fee income increased $22,000 or 44.9% due to both an increase in the balance of loans that the Company services for others as well as an improvement in the value of the Company’s mortgage servicing rights asset.

• Other income decreased by $16,000 or 22.5% primarily due to a decrease in other loan related fee income.

Noninterest Expense.Noninterest expense increased $863,000 or 12.2% to $7.93 million for the three months ended September 30, 2017, from $7.07 million for the three months ended September 30, 2016.

• Salaries and employee benefits increased $812,000 or 18.3% primarily driven by cash-based incentive compensation, stock-based compensation related to grants made during the first quarter of 2017 and a slight increase in the number of employees.

• Director compensation increased $56,000 or 18.4% primarily driven by stock-based compensation related to grants made during the first quarter of 2017.

• Deposit insurance expense increased by $110,000 or 34.2% primarily driven by asset growth.

• Professional fees decreased by $39,000 or 15.1% primarily due to a decrease in consultant fees.

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• Marketing costs decreased by $42,000, or 19.1% primarily due to a higher proportion of our marketing budget being utilized in the first half of 2017 as part of the digital promotion of our market leading consumer lending products as well as additional support for our business banking segment strategy.

Our efficiency ratio improved to 52.6% for the three months ended September 30, 2017 from 55.6% for the three months ended September 30, 2016 as we continue to grow the balance sheet and manage costs. A talented and committed colleague team along with continued operational enhancements have contributed to the improvement in our efficiency ratio.

Income Tax Expense. We recorded income tax expense of $2.00 million for the three months ended September 30, 2017 compared to income tax expense of $2.02 million for the three months ended September 30, 2016. The effective tax rate for the three months ended September 30, 2017 was 30.3% compared to 38.8% for the three months ended September 30, 2016. The decrease in our effective tax rate was driven by tax benefits received from stock based compensation activity following the adoption of ASU2016-09 as discussed in Note 1. The Company anticipates the potential for increased periodic volatility in future effective tax rates based on the continued application of ASU2016-09.

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The following tables set forth average balances of assets and liabilities, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances.Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

	For the Three Months Ended September 30,
	(unaudited)
	2017							2016
	(Dollars in thousands)
	Average Outstanding Balance		Interest		Yield/Rate(1)			Average Outstanding Balance		Interest		Yield/Rate(1)
Interest-earning assets:
Total loans	$	2,111,327	$	18,432		3.46	%	$	1,734,721	$	14,696		3.37	%
Securities		162,022		836		2.05	%		157,046		784		1.99	%
Other		61,036		170		1.11	%		48,502		53		0.43	%
Total interest-earning assets(5)		2,334,385	$	19,438		3.30	%		1,940,269	$	15,533		3.18	%
Non-interest-earning assets		73,723							66,781
Total assets	$	2,408,108						$	2,007,050
Interest-bearing liabilities:
Savings accounts	$	856,098	$	1,594		0.74	%	$	744,905	$	1,133		0.61	%
Checking accounts		138,829		155		0.44	%		136,669		135		0.39	%
Money market accounts		8,040		1		0.05	%		8,494		—		0.00	%
Certificates of deposit		429,001		1,641		1.52	%		315,571		1,159		1.46	%
Total interest-bearing deposits		1,431,968		3,391		0.94	%		1,205,639		2,427		0.80	%
Federal Home Loan Bank advances		580,304		2,187		1.50	%		442,957		1,271		1.14	%
Securities sold under agreements to repurchase		2,671		1		0.15	%		2,203		1		0.18	%
Other borrowed funds		—		—		0.00	%		—		—		0.00	%
Total interest-bearing liabilities		2,014,943	$	5,579		1.10	%		1,650,799	$	3,699		0.89	%
Non-interest-bearing liabilities		219,572							200,504
Total liabilities		2,234,515							1,851,303
Stockholders’ Equity		173,593							155,747
Total liabilities and stockholders’ equity	$	2,408,108						$	2,007,050
Net interest income			$	13,859						$	11,834
Net interest rate spread(2)						2.20	%						2.29	%
Net interest-earning assets(3)	$	319,442						$	289,470
Net interest margin(4)						2.36	%						2.43	%
Average interest-earning assets to interest-bearing liabilities						115.85	%						117.54	%

(1) Yields and rates for the three-month periods ended September 30, 2017 and 2016 are annualized.

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

(3) Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

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

(5) FHLB stock dividends of $320,000 and $193,000 for the three months ended September 30, 2017 and 2016, respectively, are not included.

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

	Three Months Ended September 30, 2017 vs. 2016 (unaudited)
	Change Due to Volume		Change Due to Rate			Total Change
	(In thousands)
Income on interest-earning assets:
Loans	$	3,313	$	423		$	3,736
Securities		26		26			52
Other		17		100			117
Total interest-earning assets (1)		3,356		549			3,905
Expense on interest-bearing liabilities:
Savings accounts		186		275			461
Checking accounts		2		18			20
Money market accounts		—		1			1
Certificates of deposit		435		47			482
Total interest-bearing deposits		623		341			964
Federal Home Loan Bank advances		458		458			916
Total interest-bearing liabilities		1,081		799			1,880
Change in net interest income	$	2,275	$	(250	)	$	2,025

(1) Does not include dividends on FHLB stock of $320,000 and $193,000 for the three months ended September 30, 2017 and 2016, respectively.

Comparison of Operating Results for the Nine Months Ended September 30, 2017 and 2016

General.Net income for the nine months ended September 30, 2017 was $12.28 million compared to net income of $8.67 million for the nine months ended September 30, 2016. The improvement in operating results of $3.61 million or 41.6% for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 resulted from an increase in net interest and dividend income after the provision for loan losses of $6.09 million or 18.3% and an increase in noninterest income of $462,000 or 22.6%, partially offset by an increase in noninterest expense of $1.74 million or 8.2% and an increase in income tax expense of $1.20 million or 22.5%.

Net Interest and Dividend Income. Net interest and dividend income increased $6.37 million or 18.2% to $41.39 million for the nine months ended September 30, 2017 compared to $35.02 million for the nine months ended September 30, 2016. The increase in net interest and dividend income was primarily due to an increase in average net interest-earning assets of $20.07 million or 6.9% to $311.72 million for the nine months ended September 30, 2017, from $291.66 million for the nine months ended September 30, 2016, partially offset by a decrease in our net interest margin of 7 basis points to 2.41% during the nine months ended September 30, 2017 from 2.48% during the nine months ended September 30, 2016.

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Interest and Dividend Income. Interest and dividend income increased $10.70 million or 23.6% to $56.03 million for the nine months ended September 30, 2017, from $45.33 million for the nine months ended September 30, 2016. The increase in interest and dividend income was primarily due to a $10.08 million increase in interest and fees on loans. The increase in interest and fees on loans resulted primarily from an increase in the average balance of loans of $371.87 million to $2.03 billion for the nine months ended September 30, 2017 from $1.66 billion for the nine months ended September 30, 2016 as well as a 4 basis point increase in the average yield on loans to 3.45% for the nine months ended September 30, 2017 from 3.41% for the nine months ended September 30, 2016.

Interest Expense. Interest expense increased $4.33 million or 41.9% to $14.64 million for the nine months ended September 30, 2017 from $10.31 million for the nine months ended September 30, 2016. The increase resulted from a $365.47 million or 23.3% increase in the average balance of interest-bearing liabilities to $1.93 billion for the nine months ended September 30, 2017, from $1.57 billion for the nine months ended September 30, 2016 as well as a 13 basis point increase in the cost of interest-bearing liabilities to 1.01% during the nine months ended September 30, 2017 from 0.88% during the nine months ended September 30, 2016.

Interest expense on interest-bearing deposits increased by $2.09 million to $8.99 million for the nine months ended September 30, 2017 from $6.90 million for the nine months ended September 30, 2016. This increase was primarily due to an increase in the interest expense on savings accounts and CDs of $1.14 million and $958,000, respectively. The increase in interest expense on savings accounts of $1.14 million from $3.19 million to $4.33 million was driven by an increase in the average balance of $128.96 million and a 9 basis point increase in the cost of savings accounts to 0.68% from 0.59%. The increase in interest expense on CDs of $958,000 from $3.30 million to $4.26 million was driven by an increase in the average balance of $95.88 million, partially offset by a 4 basis point decrease in the cost of CD accounts to 1.46% from 1.50%.

Interest expense on total borrowings increased $2.23 million to $5.65 million for the nine months ended September 30, 2017 from $3.42 million for the nine months ended September 30, 2016. This increase was primarily due to an increase in the average balance of FHLB advances of $145.60 million or 35.6% to $555.03 million for the nine months ended September 30, 2017 from $409.43 million for the nine months ended September 30, 2016 and an increase in the average cost of FHLB advances of 25 basis points to 1.36% for the nine months ended September 30, 2017 from 1.11% for the nine months ended September 30, 2016. Recent increases in short term interest rates have increased the cost of our short term FHLB advances. In addition, we have increased the balance of our long term advances to help manage interest rate risk.

Provision for Loan Losses. Based on our methodology for establishing the allowance for loan losses and provision for loan losses as discussed in Note 4 to the Consolidated Financial Statements included in this Form10-Q, we recorded a provision for loan losses of $2.07 million for the nine months ended September 30, 2017 compared to $1.78 million for the nine months ended September 30, 2016. The allowance for loan losses was $15.62 million or 0.72% of total loans at September 30, 2017, compared to $13.59 million or 0.73% of total loans at December 31, 2016.

Noninterest Income. Noninterest income increased by $462,000 or 22.6% to $2.51 million for the nine months ended September 30, 2017, from $2.05 million for the nine months ended September 30, 2016.

• Customer service fees decreased by $105,000 or 15.2% primarily due to declines in NSF and other fees.

• Income from bank-owned life insurance increased by $72,000 or 9.4% primarily due to a purchase of $5.00 million in additional bank-owned life insurance policies at the end of the second quarter of 2016.

• Net gains on sales of loans increased by $422,000 or 220.9% due to an increase in the number of loans sold.

• Loan servicing fee income increased by $35,000 or 13.8% due to an improvement in the value of our mortgage servicing rights asset.

• Other income increased by $38,000 or 25.3% primarily due to increases in the values of investments held in a Rabbi Trust. Investments held in the Rabbi Trust are used to fund the executive and directornon-qualified deferred compensation plan. Corresponding deferred compensation expense is recorded within director compensation and salaries and employee benefits.

Noninterest Expense.Noninterest expense increased $1.74 million or 8.2% to $23.05 million for the nine months ended September 30, 2017, from $21.31 million for the nine months ended September 30, 2016.

• Salaries and employee benefits increased $1.33 million or 9.9% driven by stock-based compensation related to grants made during the first quarter of 2017, cash-based incentive compensation and a slight increase in the number of employees.

• Director compensation increased $234,000 or 29.8% primarily driven by stock-based compensation related to grants made during the first quarter of 2017.

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• Deposit insurance expense increased by $361,000 or 40.6% primarily driven by asset growth and the FDIC’s new assessment methodology that was first effective for the quarter ended September 30, 2016.

• Data processing fees decreased by $378,000 or 15.5% as we renegotiated certain contracts with service providers in late 2016.

• Professional fees increased by $98,000 or 14.4% primarily due to the timing of certain annual audit engagements as well as increased attorney and consultant fees.

• Marketing costs increased by $91,000, or 14.0% primarily due to an increase in digital promotion of our market leading consumer lending products as well as additional support for our business banking segment strategy.

Our efficiency ratio improved to 52.5% for the nine months ended September 30, 2017 from 57.5% for the nine months ended September 30, 2016 as we continue to grow the balance sheet and manage costs. A talented and committed colleague team along with continued operational enhancements have contributed to the improvement in our efficiency ratio.

Income Tax Expense. We recorded income tax expense of $6.50 million for the nine months ended September 30, 2017 compared to income tax expense of $5.30 million for the nine months ended September 30, 2016. The effective tax rate for the nine months ended September 30, 2017 was 34.6% compared to 38.0% for the nine months ended September 30, 2016. The decrease in our effective tax rate was driven by tax benefits received from stock based compensation activity following the adoption of ASU2016-09 as discussed in Note 1. The Company anticipates the potential for increased periodic volatility in future effective tax rates based on the continued application of ASU2016-09.

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The following tables set forth average balances of assets and liabilities, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances.Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

	For the Nine Months Ended September 30,
	(unaudited)
	2017							2016
	(Dollars in thousands)
	Average							Average
	Outstanding							Outstanding
	Balance		Interest		Yield/Rate(1)			Balance		Interest		Yield/Rate(1)
Interest-earning assets:
Total loans	$	2,029,094	$	52,328		3.45	%	$	1,657,220	$	42,247		3.41	%
Securities		159,083		2,469		2.08	%		157,128		2,413		2.05	%
Other		55,624		365		0.88	%		43,914		136		0.41	%
Total interest-earning assets(5)		2,243,801	$	55,162		3.29	%		1,858,262	$	44,796		3.22	%
Non-interest-earning assets		73,302							61,279
Total assets	$	2,317,103						$	1,919,541
Interest-bearing liabilities:
Savings accounts	$	847,131	$	4,326		0.68	%	$	718,171	$	3,187		0.59	%
Checking accounts		129,154		407		0.42	%		134,087		411		0.41	%
Money market accounts		8,238		1		0.02	%		8,314		1		0.02	%
Certificates of deposit		389,835		4,258		1.46	%		293,958		3,300		1.50	%
Total interest-bearing deposits		1,374,358		8,992		0.87	%		1,154,530		6,899		0.80	%
Federal Home Loan Bank advances		555,027		5,645		1.36	%		409,431		3,407		1.11	%
Securities sold under agreements to repurchase		2,695		3		0.15	%		2,311		3		0.17	%
Other borrowed funds		—		—		0.00	%		334		5		2.00	%
Total interest-bearing liabilities		1,932,080	$	14,640		1.01	%		1,566,606	$	10,314		0.88	%
Non-interest-bearing liabilities		216,410							200,853
Total liabilities		2,148,490							1,767,459
Stockholders’ Equity		168,613							152,082
Total liabilities and stockholders’ equity	$	2,317,103						$	1,919,541
Net interest income			$	40,522						$	34,482
Net interest rate spread(2)						2.28	%						2.34	%
Net interest-earning assets(3)	$	311,721						$	291,656
Net interest margin(4)						2.41	%						2.48	%
Average interest-earning assets to interest-bearing liabilities						116.13	%						118.62	%

(1) Yields and rates for the nine-month periods ended September 30, 2017 and 2016 are annualized.

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

(3) Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

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

(5) FHLB stock dividends of $866,000 and $534,000 for the nine months ended September 30, 2017 and 2016, respectively, are not included.

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The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). 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.

	Nine Months Ended September 30, 2017 vs. 2016 (unaudited)
	Change Due to Volume			Change Due to Rate			Total Change
	(In thousands)
Income on interest-earning assets:
Loans	$	9,547		$	534		$	10,081
Securities		29			27			56
Other		44			185			229
Total interest-earning assets (1)		9,620			746			10,366
Expense on interest-bearing liabilities:
Savings accounts		617			522			1,139
Checking accounts		(16	)		12			(4	)
Money market accounts		1			(1	)		—
Certificates of deposit		1,046			(88	)		958
Total interest-bearing deposits		1,648			445			2,093
Federal Home Loan Bank advances		1,375			863			2,238
Securities sold under agreements to repurchase		1			(1	)		—
Other borrowed funds		(3	)		(2	)		(5	)
Total interest-bearing liabilities		3,021			1,305			4,326
Change in net interest income	$	6,599		$	(559	)	$	6,040

(1) Does not include dividends on FHLB stock of $866,000 and $534,000 for the nine months ended September 30, 2017 and 2016, respectively.

Management of Market Risk

General. The Bank’s most significant form of market risk is interest rate risk because, as a financial institution, the majority of assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of the Bank’s operations is to manage interest rate risk and limit the exposure of the Bank’s financial condition and results of operations to changes in market interest rates. The Bank’s Asset/Liability Management Committee is responsible for evaluating the interest rate risk inherent in the Bank’s assets and liabilities, for determining the level of risk that is appropriate, given the Bank’s business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the policy and guidelines approved by our Board of Directors.

Exposure to interest rate risk is managed by Belmont Savings Bank through periodic evaluations of the current interest rate risk inherent in its rate-sensitive assets and liabilities, primarily deposits, borrowings, loans and investment securities, coupled with determinations of the level of risk considered appropriate given Belmont Savings Bank’s capital and liquidity requirements, business

strategy and performance objectives. Through such management, Belmont Savings Bank seeks to manage the vulnerability of its net interest income to changes in interest rates.

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Strategies used by Belmont Savings Bank to manage the potential volatility of its earnings may include:

• The origination and retention of adjustable rate residentialone-to-four family loans, adjustable rate home equity lines of credit, adjustable rate commercial loans, commercial real estate loans and indirect automobile loans;

• The sale of fixed rate loans;

• Investing in securities with relatively short maturities and/or expected average lives;

• Emphasizing growth inlow-cost core deposits; and

• Lengthening liabilities such as term certificates of deposit, brokered certificates of deposit and Federal Home Loan Bank of Boston borrowings as appropriate.

Net Interest Income Analysis.The Bank analyzes its sensitivity to changes in interest rates through a net interest income model. Net interest income (“NII”) is the difference between the interest income the Bank earns on its interest-earning assets, such as loans and securities, and the interest the Bank pays on its interest-bearing liabilities, such as deposits and borrowings. The Bank estimates what its NII would be for aone-year period based on current interest rates. The Bank then calculates what the NII would be for the same period under different interest rate assumptions. The Bank also estimates the impact over a five year time horizon. The following table shows the estimated impact on NII for theone-year period beginning September 30, 2017 resulting from potential changes in interest rates. These estimates require the Bank to make certain assumptions including loan and mortgage-related investment prepayment speeds, reinvestment rates, and deposit maturities and decay rates. These assumptions are inherently uncertain and, as a result, the Bank cannot precisely predict the impact of changes in interest rates on its net interest income. Although the NII table below provides an indication of the Bank’s interest rate risk exposure at a particular point in time, such estimates are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on its NII and will differ from actual results.

Change in Interest Rates (basis points) (1)	NII Change Year One (% Change From Year One Base)
Shock +300	-12.5%
Ramp +200	-4.3%
Ramp - 100	-1.4%

(1) The calculated change for a ramp-100 BPS and a ramp +200 BPS, assumes a gradual parallel shift across the yield curve over aone-year period. The calculated change for shock +300 assumes that market rates experience an instantaneous and sustained increase of 300 BPS.

The table above indicates that at September 30, 2017, in the event of an instantaneous and sustained 300 basis point increase in interest rates the Bank would experience a 12.5% decrease in NII. At the same date, in the event of a 200 basis point increase in interest rates over a one year period, assuming a gradual parallel shift across the yield curve over such period, the Bank would experience a 4.3% decrease in NII. At the same date, in the event of a 100 basis point decrease in interest rates over a one year period, assuming a gradual parallel shift across the yield curve over such period, the Bank would experience a 1.4% decrease in NII.

Economic Value of Equity Analysis.The Bank also analyzes the sensitivity of its financial condition to changes in interest rates through an economic value of equity model. This analysis measures the difference between predicted changes in the present value of its assets and predicted changes in the present value of its liabilities assuming various changes in current interest rates. The economic value of equity analysis as of September 30, 2017 estimated that, in the event of an instantaneous 200 basis point increase in interest rates, the Bank would experience a 21.1% decrease in the economic value of its equity. At the same date, the analysis estimated that, in the event of an instantaneous 100 basis point decrease in interest rates, the Bank would experience a 9.7% decrease in the economic value of its equity. The estimates of changes in the economic value of the Bank’s equity require management to make certain assumptions including loan and mortgage-related investment prepayment speeds, reinvestment rates, and deposit maturities and decay rates. These assumptions are inherently uncertain and, as a result, management cannot precisely predict the impact of changes in interest rates on the economic value of the Bank’s equity. Although the economic value of equity analysis provides an indication of the Bank’s interest rate risk exposure at a particular point in time, such estimates are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on the economic value of the Bank’s equity and will differ from actual results.

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Liquidity and Capital Resources. Liquidity is the ability to meet current and future financial obligations. Our primary sources of funds consist of deposit inflows, loan repayments, advances from the Federal Home Loan Bank of Boston, security repayments and loan sales. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. Our Asset/Liability Management Committee is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We believe that we had enough sources of liquidity at September 30, 2017 to satisfy our short- and long-term liquidity needs as of that date.

We regularly monitor and adjust our investments in liquid assets based on our assessment of:

• expected loan demand;

• expected deposit flows and borrowing maturities;

• yields available on interest-earning deposits and securities; and

• the objectives of our asset/liability management program.

Excess liquid assets are invested generally in interest-earning deposits and short-term securities and may also be used to pay off short-term borrowings.

Our most liquid assets are cash and cash equivalents. The level of these assets is dependent on our operating, financing, lending and investing activities during any given period. At September 30, 2017, cash and cash equivalents totaled $76.45 million.

Our cash flows are derived from operating activities, investing activities and financing activities as reported in our Consolidated Statements of Cash Flows included in our Consolidated Financial Statements.

At September 30, 2017, we had $113.47 million in loan commitments outstanding. In addition to commitments to originate and purchase loans, we had $291.39 million in unused lines of credit to borrowers and $16.42 million in unadvanced funds on construction loans.

Certificates of deposit due within one year of September 30, 2017 totaled $184.91 million, or 10.8%, of total deposits. If these deposits do not remain with us, we may be required to seek other sources of funds, including loan sales, brokered deposits, repurchase agreements and Federal Home Loan Bank advances. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before September 30, 2018. We believe, however, based on historical experience and current market interest rates that we will retain upon maturity a large portion of our certificates of deposit with maturities of one year or less as of September 30, 2017.

Our primary investing activity is originating and purchasing loans. During the nine months ended September 30, 2017 and the year ended December 31, 2016, we originated and purchased $567.51 million and $770.44 million of new loans, respectively.

Financing activities consist primarily of activity in deposit accounts, Federal Home Loan Bank advances and, to a lesser extent, brokered deposits. We experienced net increases in deposits of $245.34 million and $199.90 million for the nine months ended September 30, 2017 and for the year ended December 31, 2016, respectively. At September 30, 2017 and December 31, 2016, the levels of brokered deposits were $238.38 million and $156.57 million, respectively. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors, and by other factors.

Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Boston, which provide an additional source of funds. At September 30, 2017, we had $587.25 million of Federal Home Loan Bank advances. Based on available collateral at that date, we had the ability to borrow up to an additional $344.65 million from the Federal Home Loan Bank of Boston.

We are obligated to make future payments according to various contracts. As of September 30, 2017, our contractual obligations have not changed materially from those disclosed in our 2016 Annual Report on Form10-K as filed with the Securities and Exchange Commission on March 10, 2017.

BSB Bancorp, Inc. and Belmont Savings Bank are subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets andoff-balance sheet items to broad risk categories. At September 30, 2017, BSB Bancorp, Inc. and Belmont Savings Bank exceeded all regulatory capital requirements and Belmont Savings Bank is considered “well capitalized” under the prompt corrective action regulatory guidelines.

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The net proceeds from our stock offering completed in October 2011 had significantly increased our liquidity and capital resources however, over time, the level of liquidity has been reduced as net proceeds from the stock offering and additions to capital from income generated are used for general corporate purposes, including the funding of loans. We have seen our financial condition and results of operations enhanced by the continued investment of the net proceeds from the stock offering, resulting in increased net interest-earning assets and net interest and dividend income.

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

The Company’s total stockholders’ equity increased to $175.56 million at September 30, 2017 from $160.92 million at December 31, 2016. This increase is primarily the result of earnings of $12.28 million and a $2.17 million increase in additionalpaid-in capital related to stock-based compensation.

Basel III Capital Rules. In July 2013, the Federal Deposit Insurance Corporation and the other federal bank regulatory agencies issued a final rule that revised their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. Among other things, the rule 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 assigned a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The final rule also requires unrealized gains and losses on certain“available-for-sale” securities holdings to be included for purposes of calculating regulatory capital unless aone-timeopt-out is exercised. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. The final rule became effective for the Company and the Bank on January 1, 2015. The capital conservation buffer requirement started being phased in on January 1, 2016 and will continue to be phased in through January 1, 2019, when the full capital conservation buffer requirement will be effective.

The following table presents actual and required capital ratios as of September 30, 2017 and December 31, 2016 for the Company and the Bank under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of September 30, 2017 and December 31, 2016 based on thephase-in provisions of the Basel III Capital Rules and the minimum required capital levels as of January 1, 2019 when the Basel III Capital Rules have been fullyphased-in. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.

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											Minimum Capital Required					Minimum Capital Required					Minimum To Be Well
						Minimum Capital					For Capital Adequacy Plus					For Capital Adequacy Plus					Capitalized Under
						Required For					Capital Conservation Buffer					Capital Conservation Buffer					Prompt Corrective
	Actual					Capital Adequacy					Basel IIIPhase-In Schedule					Basel III Fully Phased In					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
											(Dollars in thousands)
As of September 30, 2017:
Total Capital (to Risk Weighted Assets)
Consolidated	$	191,047		11.53	%	$	132,556		8.00	%	$	153,268		9.25	%	$	173,980		10.50	%		N/A		N/A
Belmont Savings Bank		186,109		11.23	%		132,553		8.00	%		153,264		9.25	%		173,976		10.50	%	$	165,691		10.00	%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated	$	175,389		10.59	%	$	99,417		6.00	%	$	120,129		7.25	%	$	140,841		8.50	%		N/A		N/A
Belmont Savings Bank		170,451		10.29	%		99,415		6.00	%		120,126		7.25	%		140,837		8.50	%	$	132,553		8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets)
Consolidated	$	175,389		10.59	%	$	74,563		4.50	%	$	95,275		5.75	%	$	115,987		7.00	%		N/A		N/A
Belmont Savings Bank		170,451		10.29	%		74,561		4.50	%		95,272		5.75	%		115,984		7.00	%	$	107,699		6.50	%
Tier 1 Capital (to Average Assets)
Consolidated	$	175,389		7.28	%	$	96,319		4.00	%	$	96,319		4.00	%	$	96,319		4.00	%		N/A		N/A
Belmont Savings Bank		170,451		7.08	%		96,316		4.00	%		96,316		4.00	%		96,316		4.00	%	$	120,395		5.00	%

											Minimum Capital Required					Minimum Capital Required					Minimum To Be Well
						Minimum Capital					For Capital Adequacy Plus					For Capital Adequacy Plus					Capitalized Under
						Required For					Capital Conservation Buffer					Capital Conservation Buffer					Prompt Corrective
	Actual					Capital Adequacy					Basel IIIPhase-In Schedule					Basel III Fully Phased In					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
											(Dollars in thousands)
As of December 31, 2016:
Total Capital (to Risk Weighted Assets)
Consolidated	$	174,465		11.72	%	$	119,116		8.00	%	$	128,422		8.625	%	$	156,340		10.50	%		N/A		N/A
Belmont Savings Bank		169,499		11.38	%		119,114		8.00	%		128,420		8.625	%		156,337		10.50	%	$	148,893		10.00	%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated	$	160,817		10.80	%	$	89,337		6.00	%	$	98,643		6.625	%	$	126,561		8.50	%		N/A		N/A
Belmont Savings Bank		155,851		10.47	%		89,336		6.00	%		98,641		6.625	%		126,559		8.50	%	$	119,114		8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets)
Consolidated	$	160,817		10.80	%	$	67,003		4.50	%	$	76,309		5.125	%	$	104,227		7.00	%		N/A		N/A
Belmont Savings Bank		155,851		10.47	%		67,002		4.50	%		76,308		5.125	%		104,225		7.00	%	$	96,780		6.50	%
Tier 1 Capital (to Average Assets)
Consolidated	$	160,817		7.63	%	$	84,253		4.00	%	$	84,253		4.00	%	$	84,253		4.00	%		N/A		N/A
Belmont Savings Bank		155,851		7.40	%		84,251		4.00	%		84,251		4.00	%		84,251		4.00	%	$	105,314		5.00	%

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Off-Balance Sheet Arrangements

As a financial services provider, we routinely are a party to various financial instruments withoff-balance sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our potential future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. In addition, from time to time we enter into commitments to sell mortgage loans that we originate. For the nine months ended September 30, 2017, we engaged in nooff-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

The information required by this item is included in Item 2 of this report under “Management of Market Risk.”

Item 4. Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended, (1) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (2) is accumulated and communicated to our management, including our Principal Executive and Principal Financial officers as appropriate to allow timely discussions regarding required disclosures.

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

There were no changes in the Company’s internal control over financial reporting during the three months ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

Item 1A. Risk Factors.

For information regarding the Company’s risk factors, see “Risk Factors” in the Company’s Annual Report on Form10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission on March 10, 2017. As of September 30, 2017, the risk factors of the Company have not changed materially from those disclosed in the 2016 Form10-K.

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

(a) Unregistered Sales of Equity Securities.None

(b) Use of Proceeds. None

(c) Repurchase of Equity Securities.

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The following table provides certain information with regard to shares repurchased by the Company in the third quarter of 2017.

Period	(a) Total Number of Shares Purchased		(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)		(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(1)
July 1 - July 31		—	$	—		—		500,000
August 1 - August 31		—		—		—		500,000
September 1 - September 30		—		—		—		500,000
Total		—	$	—		—

(1) On June 22, 2013, the Company’s Board of Directors authorized a stock repurchase program to acquire up to 500,000 shares, or 5.5% of the Company’s then outstanding common stock. Repurchases may be made from time to time depending on market conditions and other factors, and will be conducted through open market or private transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with Rule10b5-1 of the Securities and Exchange Commission. There is no guarantee as to the exact number of shares to be repurchased by the Company.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None

Item 6. Exhibits

31.1	Rule13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
31.2	Rule13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
32.0	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer.*
101.0	The following data from the BSB Bancorp, Inc. Quarterly Report on Form10-Q for the quarter ended September 30, 2017 formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) the related notes.

* This information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

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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.

	BSB BANCORP, INC.
Date: November 3, 2017	By:	/s/ Robert M. Mahoney
		Robert M. Mahoney
		President, Chief Executive Officer and Director (Principal Executive Officer)
Date: November 3, 2017	By:	/s/ John A. Citrano
		John A. Citrano
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

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