Georgetown Bancorp 10-Q 2015 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2015

OR

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

For the transition period from            to

Commission File Number: 001-35595

GEORGETOWN BANCORP, INC.

(Exact name of registrant as specified in its charter)

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

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

(978) 352-8600

(Registrant’s telephone number, including area code)

None

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

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

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

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

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x

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

Indicate the number of shares outstanding of the registrant’s common stock, as of the latest practicable date:  Common Stock, $0.01 par value, 1,844,040 shares outstanding as of May 7, 2015.

Form 10-Q

GEORGETOWN BANCORP, INC.

Table of Contents

			Page
Part I. Financial Information
Item 1:	Financial Statements
	Consolidated Statements of Financial Condition at March 31, 2015 (unaudited) and December 31, 2014		1
	Consolidated Statements of Income for the Three Months Ended March 31, 2015 and 2014 (unaudited)		2
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2015 and 2014 (unaudited)		3
	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2015 and 2014 (unaudited)		4
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2014 (unaudited)		5
	Notes to Consolidated Financial Statements (unaudited)		7
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
Item 3:	Quantitative and Qualitative Disclosures About Market Risk		33
Item 4:	Controls and Procedures		33
Part II. Other Information
Item 1:		Legal Proceedings	33
Item 1A:		Risk Factors	33
Item 2:		Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3:		Defaults upon Senior Securities	33
Item 4:		Mine Safety Disclosures	33
Item 5:		Other Information	34
Item 6:		Exhibits	34
SIGNATURES			35

PART I—FINANCIAL INFORMATION

ITEM 1. Financial Statements

GEORGETOWN BANCORP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

	At			At
	March 31,			December 31,
	2015			2014
	(Unaudited)
	(In thousands, except share data)
ASSETS
Cash and due from banks	$	2,823		$	2,382
Short-term investments	4,400			2,536
Total cash and cash equivalents	7,223			4,918
Securities available for sale, at fair value	21,530			19,526
Securities held to maturity, at amortized cost	790			837
Federal Home Loan Bank stock, at cost	2,907			2,907
Loans held for sale	—			990
Loans, net of allowance for loan losses of $2,256 at March 31, 2015 and $2,229 at December 31, 2014	231,362			231,293
Premises and equipment, net	3,652			3,819
Accrued interest receivable	751			752
Bank-owned life insurance	3,024			2,999
Other assets	1,783			2,979
Total assets	$	273,022		$	271,020
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits	$	189,866		$	182,354
Short-term Federal Home Loan Bank advances	16,250			30,000
Long-term Federal Home Loan Bank advances	29,600			24,600
Mortgagors’ escrow accounts	1,454			1,194
Due to broker for investment purchase	2,544			—
Accrued expenses and other liabilities	2,334			2,160
Total liabilities	242,048			240,308
Commitments and contingencies	—			—
Stockholders’ equity:
Preferred stock, $0.01 par value per share: 50,000,000 shares authorized; none outstanding	—			—
Common stock, $0.01 par value per share: 100,000,000 shares authorized; 1,844,040 shares issued at March 31, 2015 and 1,827,131 shares issued at December 31, 2014	18			18
Additional paid-in capital	19,571			19,245
Retained earnings	12,770			12,593
Accumulated other comprehensive income	188			143
Unearned compensation - ESOP (85,076 shares unallocated at March 31, 2015 and 86,886 shares unallocated at December 31, 2014)	(898		)	(918		)
Unearned compensation - Restricted stock (44,866 shares non-vested at March 31, 2015 and 37,071 shares non-vested at December 31, 2014)	(675		)	(369		)
Total stockholders’ equity	30,974			30,712
Total liabilities and stockholders’ equity	$	273,022		$	271,020

See accompanying notes to consolidated financial statements.

1

GEORGETOWN BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	Three Months Ended
	March 31,
	2015		2014
	(In thousands, except share and per share data)
Interest and dividend income:
Loans, including fees	$	2,715	$	2,630
Securities	139		137
Short-term investments	2		1
Total interest and dividend income	2,856		2,768
Interest expense:
Deposits	236		194
Short-term Federal Home Loan Bank advances	13		15
Long-term Federal Home Loan Bank advances	149		130
Total interest expense	398		339
Net interest and dividend income	2,458		2,429
Provision for loan losses	27		—
Net interest and dividend income, after provision for loan losses	2,431		2,429
Non-interest income:
Customer service fees	169		170
Mortgage banking income, net	22		42
Income from bank-owned life insurance	25		25
Other	6		6
Total non-interest income	222		243
Non-interest expenses:
Salaries and employee benefits	1,228		1,239
Occupancy and equipment expenses	278		252
Data processing expenses	160		172
Professional fees	122		144
Advertising expenses	88		88
FDIC insurance	42		43
Other general and administrative expenses	336		299
Total non-interest expenses	2,254		2,237
Income before income taxes	399		435
Income tax provision	149		160
Net income	$	250	$	275
Weighted-average number of common shares outstanding:
Basic	1,747,833		1,738,534
Diluted	1,759,445		1,744,886
Earnings per share:
Basic	$	0.14	$	0.16
Diluted	$	0.14	$	0.16

See accompanying notes to consolidated financial statements.

2

GEORGETOWN BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

	Three Months Ended
	March 31,
	2015			2014
	(In thousands)
Net income	$	250		$	275
Net unrealized gain on securities available for sale	71			273
Income tax provision	(26		)	(98		)
Other comprehensive income, net of tax	45			175
Comprehensive income	$	295		$	450

See accompanying notes to consolidated financial statements.

3

GEORGETOWN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited)

									Accumulated
			Additional						Other			Unearned			Unearned
	Common		Paid-in			Retained			Comprehensive			Compensation-			Compensation-
	Stock		Capital			Earnings			(Loss) Income			ESOP			Restricted Stock			Total
	(In thousands)
Balance at December 31, 2013	$	18	$	19,212		$	11,388		$	(389	)	$	(1,001	)	$	(286	)	$	28,942
Net income	—		—			275			—			—			—			275
Other comprehensive income	—		—			—			175			—			—			175
Cash dividends paid ($0.04 per share)	—		—			(73		)	—			—			—			(73		)
Repurchased stock related to buyback program (17,000 shares)	—		(252		)	—			—			—			—			(252		)
Common stock held by ESOP allocated or committed to be allocated (1,810 shares)	—		6			—			—			21			—			27
Restricted stock granted in connection with equity incentive plan (22,000 shares)	—		329			—			—			—			(329		)	—
Purchased stock related to vested restricted stock (2,417 shares)	—		(36		)	—			—			—			—			(36		)
Share based compensation - options	—		14			—			—			—			—			14
Share based compensation - restricted stock	—		—			—			—			—			33			33
Balance at March 31, 2014	$	18	$	19,273		$	11,590		$	(214	)	$	(980	)	$	(582	)	$	29,105
Balance at December 31, 2014	$	18	$	19,245		$	12,593		$	143		$	(918	)	$	(369	)	$	30,712
Net income	—		—			250			—			—			—			250
Other comprehensive income	—		—			—			45			—			—			45
Cash dividends paid ($0.0425 per share)	—		—			(73		)	—			—			—			(73		)
Common stock held by ESOP allocated or committed to be allocated (1,810 shares)	—		11			—			—			20			—			31
Restricted stock granted in connection with equity incentive plans (20,000 shares)	—		351			—			—			—			(351		)	—
Purchased stock related to vested restricted stock (3,091 shares)	—		(54		)	—			—			—			—			(54		)
Share based compensation - options	—		18			—			—			—			—			18
Share based compensation - restricted stock	—		—			—			—			—			45			45
Balance at March 31, 2015	$	18	$	19,571		$	12,770		$	188		$	(898	)	$	(675	)	$	30,974

See accompanying notes to consolidated financial statements.

4

GEORGETOWN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Three Months Ended
	March 31,
	2015			2014
	(In thousands)
Cash flows from operating activities:
Net income	$	250		$	275
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses	27			—
Amortization of securities, net	32			30
Net change in deferred loan fees and costs	62			(38		)
Depreciation and amortization expense	95			80
Decrease in accrued interest receivable	1			14
Income from bank-owned life insurance	(25		)	(25		)
Stock-based compensation expense	94			74
Gain on sales of loans	(29		)	(13		)
Loans originated for sale	(1,158		)	(3,065		)
Proceeds from sales of loans, net of repurchases	2,177			2,316
Net change in other assets and liabilities	1,344			168
Net cash provided by (used in) operating activities	2,870			(184		)
Cash flows from investing activities:
Maturities, prepayments and calls of securities available for sale	578			418
Maturities, prepayments and calls of securities held to maturity	48			64
Loan originations, net	(158		)	(3,070		)
Purchase of premises and equipment	(5		)	(69		)
Proceeds from sale of premises and equipment	77			—
Net cash provided by (used in) investing activities	540			(2,657		)

(continued)

See accompanying notes to consolidated financial statements.

5

GEORGETOWN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(concluded)

	Three Months Ended
	March 31,
	2015			2014
	(In thousands)
Cash flows from financing activities:
Net change in deposits	7,512			5,489
Net change in Federal Home Loan Bank advances with maturities of three months or less	(13,750		)	(1,825		)
Proceeds from Federal Home Loan Bank advances with maturities greater than three months	5,000			1,000
Net change in mortgagors’ escrow accounts	260			308
Repurchase of common stock	(54		)	(288		)
Cash dividends paid on common stock	(73		)	(73		)
Net cash (used in) provided by financing activities	(1,105		)	4,611
Net change in cash and cash equivalents	2,305			1,770
Cash and cash equivalents at beginning of period	4,918			6,295
Cash and cash equivalents at end of period	$	7,223		$	8,065
Supplementary information:
Interest paid on deposit accounts	$	235		$	193
Interest paid on advances	159			141
Income taxes paid	73			54
Due to broker for investment purchase	2,544			—

See accompanying notes to consolidated financial statements.

6

GEORGETOWN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(1)Basis of Presentation

The accompanying unaudited financial statements of Georgetown Bancorp, Inc., a Maryland corporation, (the “Company”) were prepared in accordance with the instructions for Form 10-Q and with Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with generally accepted accounting principles. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the three-month period ended March 31, 2015 are not necessarily indicative of the results that may be expected for future periods, including the entire fiscal year. These financial statements should be read in conjunction with the financial statements and notes thereto included in the December 31, 2014 Consolidated Financial Statements presented in the Annual Report on Form 10-K of the Company filed with the Securities and Exchange Commission on March 30, 2015. The consolidated financial statements include the accounts of Georgetown Bank (the “Bank”) and its wholly owned subsidiary, Georgetown Securities Corporation, which engages in the buying, selling and holding of securities. All significant inter-company balances and transactions have been eliminated in consolidation. These consolidated financial statements consider events that occurred through the date the consolidated financial statements were issued.

(2)Corporate Structure

In conjunction with its reorganization into the mutual holding company structure, on January 5, 2005, the Bank (1) converted to a stock savings bank as the successor to the Bank in its mutual form; (2) organized Georgetown Bancorp, Inc. (“Georgetown Federal”) as a federally-chartered corporation that owned 100% of the common stock of the Bank (in stock form); and (3) organized Georgetown Bancorp, MHC as a federally-chartered mutual holding company that owned 56.7% of the common stock of Georgetown Federal as of June 30, 2012. On November 28, 2011, the Boards of Directors of Georgetown Federal, Georgetown Bancorp, MHC and the Bank each unanimously adopted a Plan of Conversion and Reorganization of the Mutual Holding Company pursuant to which Georgetown Bancorp, MHC undertook a “second-step” conversion and now ceases to exist. Georgetown Bancorp, MHC reorganized from a two-tier mutual holding company structure to a fully public stock holding company structure effective July 11, 2012, and, as a result, the Bank is now the wholly-owned subsidiary of the Company.

7

(3)Earnings Per Common Share

The Company has adopted the Earnings Per Share (“EPS”) guidance included in Accounting Standards Codification (“ASC”) 260-10. As presented below, basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. For purposes of computing diluted EPS, the treasury stock method is used.

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

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

	Three Months Ended
	March 31,
	2015			2014
	(In thousands, except share and per share data)
Net income available to common stockholders	$	250		$	275
Basic common shares:
Weighted average shares outstanding	1,793,805			1,791,850
Less: Weighted average unallocated ESOP shares	(86,250		)	(93,490		)
Add: Weighted average unvested restricted shares with non-forfeitable dividend rights	40,278			40,174
Basic weighted average common shares outstanding	1,747,833			1,738,534
Dilutive potential common shares	11,612			6,352
Diluted weighted average common shares outstanding	1,759,445			1,744,886
Basic earnings per share	$	0.14		$	0.16
Diluted earnings per share	$	0.14		$	0.16

Options to purchase 61,681 shares, representing outstanding options granted in 2010, 2011, 2012, 2013 and 2014, were included in the computation of diluted earnings per share for the three-month period ended March 31, 2015. Options to purchase 30,000 shares that were granted in 2015 were not included in the computation of diluted earnings per share for the three-month period ended March 31, 2015, because to do so would have been antidilutive. Options to purchase 52,924 shares, representing outstanding options that were granted in 2010, 2011, 2012 and 2013, were included in the computation of diluted earnings per share for the three-month period ended March 31, 2014. Options to purchase 22,000 shares that were granted in 2014 were not included in the computation of diluted earnings per share for the three-month period ended March 31, 2014, because to do so would have been antidilutive.

(4)Recent Accounting Pronouncements

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

In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis.”  The amendments in this ASU affect reporting entities that are required to evaluate whether they should consolidate certain legal entities.  Specifically, the amendments: (1) Modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities; (2) Eliminate the presumption that a general partner should consolidate a limited partnership; (3) Affect the consolidation

8

analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) Provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds.  ASU 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015.  The Company anticipates that the adoption of this ASU will not have a material impact on its consolidated financial statements.

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

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

9

(5)Securities

A summary of securities is as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In thousands)
At March 31, 2015
Securities available for sale
State and municipal	$	2,446	$	67	$	(5	)	$	2,508
Residential mortgage-backed securities	18,789		264		(31		)	19,022
Total securities available for sale	$	21,235	$	331	$	(36	)	$	21,530
Securities held to maturity
Residential mortgage-backed securities	$	790	$	75	$	—		$	865

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In thousands)
At December 31, 2014
Securities available for sale
State and municipal	$	2,458	$	54	$	(5	)	$	2,507
Residential mortgage-backed securities	16,844		234		(59		)	17,019
Total securities available for sale	$	19,302	$	288	$	(64	)	$	19,526
Securities held to maturity
Residential mortgage-backed securities	$	837	$	79	$	—		$	916

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

10

The amortized cost and estimated fair value of debt securities by contractual maturity at March 31, 2015 is as follows. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(In thousands)
Over ten years	$	2,446	$	2,508	$	—	$	—
Residential mortgage-backed securities	18,789		19,022		790		865
	$	21,235	$	21,530	$	790	$	865

There were no sales of securities for the three months ended March 31, 2015 and 2014.

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

	Less Than Twelve Months				Twelve Months or Greater
			Gross				Gross
	Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses
	(In thousands)
At March 31, 2015
Securities available for sale
State and municipal	$	—	$	—	$	516	$	(5	)
Residential mortgage-backed securities	—		—		5,377		(31		)
Total temporarily impaired securities	$	—	$	—	$	5,893	$	(36	)
At December 31, 2014
Securities available for sale
State and municipal	$	—	$	—	$	805	$	(5	)
Residential mortgage-backed securities	—		—		5,456		(59		)
Total temporarily impaired securities	$	—	$	—	$	6,261	$	(64	)

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

At March 31, 2015 five securities classified as available for sale had an unrealized loss with aggregate depreciation of 0.60% from the securities’ amortized cost basis.  The unrealized losses on the Company’s investments in state and municipal bonds and residential mortgage backed securities were primarily caused by changes in interest rates and not by credit quality.  Many of these investments are guaranteed by the U.S. Government or its agencies and as management has not decided to sell these securities, nor is it likely that the Company will be required to sell these securities, no declines are deemed to be OTTI.

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(6)Loans and Servicing

Loans

A summary of loans is as follows:

	At					At
	March 31,					December 31,
	2015					2014
	Amount			Percent		Amount			Percent
	(Dollars in thousands)
Residential loans:
One- to four-family	$	83,059		35.60	%	$	84,199		36.12	%
Home equity loans and lines of credit	16,676			7.15		16,499			7.08
Total residential mortgage loans	99,735			42.75		100,698			43.20
Commercial loans:
One- to four-family investment property	8,355			3.58		8,345			3.58
Multi-family real estate	16,607			7.12		15,020			6.44
Commercial real estate	63,942			27.41		62,227			26.69
Commercial business	18,309			7.85		17,838			7.65
Total commercial loans	107,213			45.96		103,430			44.36
Construction loans:
One- to four-family	13,194			5.65		13,056			5.60
Multi-family	7,972			3.42		10,842			4.65
Non-residential	4,907			2.10		4,828			2.07
Total construction loans	26,073			11.17		28,726			12.32
Consumer	280			0.12		289			0.12
Total loans	233,301			100.00	%	233,143			100.00	%
Other items:
Net deferred loan costs	317					379
Allowance for loan losses	(2,256		)			(2,229		)
Total loans, net	$	231,362				$	231,293

12

An analysis of the allowance for loan losses at and for the three months ended March 31, 2015 and 2014 and at December 31, 2014 is below. For additional information please refer to Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

	Residential						Commercial											Construction
	One- to four- family			Home equity loans and lines of credit			One- to four- family investment property			Multi-family real estate			Commercial real estate			Commercial business		One- to four- family			Multi-family			Non- residential			Consumer			Unallocated		Total
	(In thousands)
Allowance for loan losses
Three months ended March 31, 2015
Beginning Balance	$	273		$	249		$	46		$	113		$	943		$	311	$	117		$	97		$	77		$	3		$	—	$	2,229
Charge-offs	—			—			—			—			—			—		—			—			—			(1		)	—		(1		)
Recoveries	—			—			—			—			—			—		—			—			—			1			—		1
(Benefit) provision	(61		)	3			(1		)	11			28			4		(6		)	(30		)	(2		)	—			81		27
Ending Balance	$	212		$	252		$	45		$	124		$	971		$	315	$	111		$	67		$	75		$	3		$	81	$	2,256
Three months ended March 31, 2014
Beginning Balance	$	284		$	274		$	61		$	108		$	1,056		$	291	$	133		$	66		$	63		$	15		$	45	$	2,396
Charge-offs	—			—			—			—			(211		)	—		—			—			—			—			—		(211		)
Recoveries	—			—			—			—			—			—		—			—			—			—			—		—
(Benefit) provision	(3		)	(29		)	—			(4		)	16			—		(36		)	10			5			(3		)	44		—
Ending Balance	$	281		$	245		$	61		$	104		$	861		$	291	$	97		$	76		$	68		$	12		$	89	$	2,185
At March 31, 2015
Allowance for loan losses
Individually evaluated for impairment	$	7		$	—		$	—		$	—		$	—		$	—	$	—		$	—		$	—		$	—		$	—	$	7
Collectively evaluated for impairment	205			252			45			124			971			315		111			67			75			3			81		2,249
	$	212		$	252		$	45		$	124		$	971		$	315	$	111		$	67		$	75		$	3		$	81	$	2,256
Loans
Individually evaluated for impairment	$	315		$	26		$	—		$	—		$	294		$	135	$	—		$	—		$	—		$	—		$	—	$	770
Collectively evaluated for impairment	82,744			16,650			8,355			16,607			63,648			18,174		13,194			7,972			4,907			280			—		232,531
	$	83,059		$	16,676		$	8,355		$	16,607		$	63,942		$	18,309	$	13,194		$	7,972		$	4,907		$	280		$	—	$	233,301
At December 31, 2014
Allowance for loan losses
Individually evaluated for impairment	$	7		$	—		$	—		$	—		$	—		$	—	$	—		$	—		$	—		$	—		$	—	$	7
Collectively evaluated for impairment	266			249			46			113			943			311		117			97			77			3			—		2,222
	$	273		$	249		$	46		$	113		$	943		$	311	$	117		$	97		$	77		$	3		$	—	$	2,229
Loans
Individually evaluated for impairment	$	317		$	27		$	—		$	—		$	295		$	—	$	—		$	—		$	—		$	—		$	—	$	639
Collectively evaluated for impairment	83,882			16,472			8,345			15,020			61,932			17,838		13,056			10,842			4,828			289			—		232,504
	$	84,199		$	16,499		$	8,345		$	15,020		$	62,227		$	17,838	$	13,056		$	10,842		$	4,828		$	289		$	—	$	233,143

13

The following is a summary of past-due and non-accrual loans at March 31, 2015 and December 31, 2014. For additional information please refer to Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

	Loans delinquent for:												90 days
					90 days		Total		Total		Total		or more		Non-accrual
	30 - 59 Days		60 - 89 Days		or more		Past Due		Current		Loans		and accruing		Loans
	(In thousands)
At March 31, 2015
Residential loans:
One- to four-family	$	—	$	—	$	—	$	—	$	83,059	$	83,059	$	—	$	961
Home equity loans and lines of credit	31		—		—		31		16,645		16,676		—		—
Commercial loans:
One- to four-family investment property	—		—		—		—		8,355		8,355		—		—
Multi-family real estate	—		—		—		—		16,607		16,607		—		—
Commercial real estate	294		—		—		294		63,648		63,942		—		—
Commercial business	21		—		—		21		18,288		18,309		—		135
Construction loans:
One- to four-family	—		—		—		—		13,194		13,194		—		—
Multi-family	—		—		—		—		7,972		7,972		—		—
Non-residential	—		—		—		—		4,907		4,907		—		—
Consumer	—		—		—		—		280		280		—		—
Total	$	346	$	—	$	—	$	346	$	232,955	$	233,301	$	—	$	1,096
At December 31, 2014
Residential loans:
One- to four-family	$	—	$	620	$	641	$	1,261	$	82,938	$	84,199	$	—	$	951
Home equity loans and lines of credit	38		13		—		51		16,448		16,499		—		—
Commercial loans:
One- to four-family investment property	—		—		—		—		8,345		8,345		—		—
Multi-family real estate	—		—		—		—		15,020		15,020		—		—
Commercial real estate	295		—		—		295		61,932		62,227		—		—
Commercial business	—		—		—		—		17,838		17,838		—		—
Construction loans:
One- to four-family	—		—		—		—		13,056		13,056		—		—
Multi-family	—		—		—		—		10,842		10,842		—		—
Non-residential	—		—		—		—		4,828		4,828		—		—
Consumer	—		—		2		2		287		289		—		2
Total	$	333	$	633	$	643	$	1,609	$	231,534	$	233,143	$	—	$	953

14

The following is an analysis of impaired loans at March 31, 2015 and December 31, 2014.

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(In thousands)
At March 31, 2015
Impaired loans without a valuation allowance
Residential loans:
One- to four-family	$	—	$	—	$	—	$	—	$	—
Home equity loans and lines of credit	26		26		—		27		—
Commercial loans:
One- to four-family investment property	—		—		—		—		—
Multi-family real estate	—		—		—		—		—
Commercial real estate	294		294		—		294		4
Commercial business	135		135		—		207		5
Construction loans:
One- to four-family	—		—		—		—		—
Multi-family	—		—		—		—		—
Non-residential	—		—		—		—		—
Consumer	—		—		—		—		—
Total impaired with no related allowance	$	455	$	455	$	—	$	528	$	9
Impaired loans with a valuation allowance
Residential loans:
One- to four-family	$	315	$	315	$	7	$	316	$	4
Home equity loans and lines of credit	—		—		—		—		—
Commercial loans:
One- to four-family investment property	—		—		—		—		—
Multi-family real estate	—		—		—		—		—
Commercial real estate	—		—		—		—		—
Commercial business	—		—		—		—		—
Construction loans:
One- to four-family	—		—		—		—		—
Multi-family	—		—		—		—		—
Non-residential	—		—		—		—		—
Consumer	—		—		—		—		—
Total with an allowance recorded	$	315	$	315	$	7	$	316	$	4
At December 31, 2014
Impaired loans without a valuation allowance
Residential loans:
One- to four-family	$	—	$	—	$	—	$	—	$	—
Home equity loans and lines of credit	27		27		—		28		1
Commercial loans:
One- to four-family investment property	—		—		—		—		—
Multi-family real estate	—		—		—		—		—
Commercial real estate	295		295		—		298		18
Commercial business	—		—		—		—		—
Construction loans:
One- to four-family	—		—		—		—		—
Multi-family	—		—		—		—		—
Non-residential	—		—		—		—		—
Consumer	—		—		—		—		—
Total impaired with no related allowance	$	322	$	322	$	—	$	326	$	19
Impaired loans with a valuation allowance
Residential loans:
One- to four-family	$	317	$	317	$	7	$	319	$	16
Home equity loans and lines of credit	—		—		—		123		—
Commercial loans:
One- to four-family investment property	—		—		—		—		—
Multi-family real estate	—		—		—		—		—
Commercial real estate	—		—		—		426		8
Commercial business	—		—		—		—		—
Construction loans:
One- to four-family	—		—		—		—		—
Multi-family	—		—		—		—		—
Non-residential	—		—		—		—		—
Consumer	—		—		—		—		—
Total with an allowance recorded	$	317	$	317	$	7	$	868	$	24

15

There were two loan modifications made to the same borrower that resulted in the classification of a troubled debt restructuring (“TDR”) during the three months ended March 31, 2015, and the TDRs did not result in a material impact to the allowance for loan losses account.  The first loan, a commercial business loan with a pre-modification and post-modification balance of $131,000 at March 31, 2015, was restructured to extend the original maturity date for an additional 10 years and the interest rate was reduced.  The second loan, a commercial business loan with a pre-modification and post-modification balance of $4,000 at March 31, 2015, was restructured into a two year amortizing note and the interest rate was reduced.  There is no commitment to lend additional funds to the borrower whose loans were modified during the three months ended March 31, 2015. There were no loan modifications made that resulted in a TDR during the three months ended March 31, 2014.

At March 31, 2015 and December 31, 2014, there were no TDR loans in default of their modified terms.

16

The following table represents the Company’s loans by risk rating at March 31, 2015 and December 31, 2014. For additional information please refer to Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

	Residential				Commercial								Construction
	One- to four- family		Home equity loans and lines of credit		One- to four- family investment property		Multi-family real estate		Commercial real estate		Commercial business		One- to four- family		Multi-family		Non- residential		Consumer		Total
	(In thousands)
At March 31, 2015
Classification:
Not formally rated	$	81,169	$	16,676	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	280	$	98,125
Pass	—		—		8,355		16,607		63,942		18,174		13,194		7,972		4,907		—		133,151
Special mention	—		—		—		—		—		—		—		—		—		—		—
Substandard	1,890		—		—		—		—		135		—		—		—		—		2,025
Doubtful	—		—		—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—		—		—
Total loans	$	83,059	$	16,676	$	8,355	$	16,607	$	63,942	$	18,309	$	13,194	$	7,972	$	4,907	$	280	$	233,301
At December 31, 2014
Classification:
Not formally rated	$	82,311	$	16,499	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	287	$	99,097
Pass	—		—		8,345		15,020		62,227		17,838		13,056		10,842		4,828		—		132,156
Special mention	—		—		—		—		—		—		—		—		—		—		—
Substandard	1,888		—		—		—		—		—		—		—		—		2		1,890
Doubtful	—		—		—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—		—		—
Total loans	$	84,199	$	16,499	$	8,345	$	15,020	$	62,227	$	17,838	$	13,056	$	10,842	$	4,828	$	289	$	233,143

17

Credit Quality Information

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

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

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

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

Loans rated 8:  Loans in this category are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

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

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

Loans serviced for others and mortgage servicing rights

Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of mortgage loans serviced for others were $111.1 million and $113.4 million at March 31, 2015 and December 31, 2014, respectively.

The risks inherent in the mortgage servicing assets relate primarily to changes in prepayments that result from shifts in mortgage interest rates. The fair value of servicing rights was $1.2 million and $1.4 million at March 31, 2015 and December 31, 2014, respectively, and was determined using the moving average 10-year, U.S. Treasury rate plus 5.0%, adjusted to reflect the current credit spreads and conditions in the market as a discount rate. Prepayment assumptions, which are impacted by loan rates and terms, are calculated using a moving average of prepayment data published by the Securities Industry and Financial Markets Association and an independent third party proprietary analysis of prepayment rates embedded in liquid mortgage securities markets and modeled against the serviced loan portfolio by the independent third party valuation specialist.

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

	Three Months Ended
	March 31,
	2015			2014
	(In thousands)
Mortgage servicing rights:
Balance at beginning of period	$	840		$	1,084
Additions	11			24
Amortization	(85		)	(84		)
Balance at end of period	766			1,024
Valuation allowances:
Balance at beginning of period	6			26
Additions	13			—
Reductions	—			(17		)
Balance at end of period	19			9
Mortgage servicing assets, net	$	747		$	1,015
Fair value of mortgage servicing assets	$	1,166		$	1,392

18

(7)           Secured Borrowings and Collateral

Federal Home Loan Bank advances

At March 31, 2015 all Federal Home Loan Bank of Boston (“FHLB”) advances were secured by a blanket security agreement on qualified collateral, principally first mortgage loans on owner-occupied residential property in the amount of $72.1 million, and mortgage-backed securities with a fair value of $17.3 million.

(8)           Fair Value Measurements

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

Level l - Valuation is based on quoted prices in active markets for identical assets or liabilities. Level l assets and liabilities generally include debt and equity securities that are traded in an active exchange market. At March 31, 2015, the Company had no assets or liabilities valued using Level 1 measurements.

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

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

All of the Company’s securities that are measured at fair value are included in Level 2 and are based on pricing models from independent, third party pricing services that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data. There are no liabilities measured at fair value. All of the Company’s impaired loans that are measured at fair value are included in Level 3 and are based on the appraised value of the underlying collateral considering discounting factors, if deemed appropriate, and adjusted for selling costs. These appraised values may be discounted based on management’s historical knowledge, expertise or changes in market conditions from time of valuation. The Company did not have any significant transfers of assets or liabilities to or from Levels 1 and 2 of the fair value hierarchy during the three month period ended March 31, 2015.

19

Assets and liabilities measured at fair value on a recurring basis at March 31, 2015 and December 31, 2014 are summarized below.

							Assets
	Level 1		Level 2		Level 3		at Fair Value
	(In thousands)
At March 31, 2015
Assets
Securities available for sale
State and municipal	$	—	$	2,508	$	—	$	2,508
Residential mortgage-backed securities	—		19,022		—		19,022
Total securities available for sale	$	—	$	21,530	$	—	$	21,530
At December 31, 2014
Assets
Securities available for sale
State and municipal	$	—	$	2,507	$	—	$	2,507
Residential mortgage-backed securities	—		17,019		—		17,019
Total securities available for sale	$	—	$	19,526	$	—	$	19,526

The Company may also be required, from time to time, to measure certain other financial assets on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. Assets measured at fair value on a non-recurring basis at March 31, 2015 and December 31, 2014 are summarized below. The fair value adjustments relate to the amount of write-down recorded or related allowance recorded as of March 31, 2015 and December 31, 2014.

							Assets		Adjustments
	Level 1		Level 2		Level 3		at Fair Value		to Fair Value
					(In thousands)
At March 31, 2015
Impaired loans	$	—	$	—	$	308	$	308	$	(7	)
At December 31, 2014
Impaired loans	$	—	$	—	$	310	$	310	$	(7	)

20

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

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

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

Federal Home Loan Bank stock: Fair value is based on redemption provisions of the FHLB. The FHLB stock has no quoted market value.

Loans held for sale: Fair value is based on committed secondary market prices.

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

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

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

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

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

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

Off-balance-sheet instruments: The fair value of commitments to originate loans is estimated using the fees currently charged to enter similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties.  For fixed-rate loan commitments and the unadvanced portion of loans, fair value also considers the difference between current levels of interest rates and the committed rates.  The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligation with the counterparties at the reporting date.  At March 31, 2015 and December 31, 2014, the fair value of commitments outstanding is not significant since fees charged are not material.

21

The estimated fair values and related carrying amounts of the Company’s financial instruments at March 31, 2015 and December 31, 2014 are as follows.

	March 31, 2015
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Total
	(In thousands)
Financial assets:
Cash and cash equivalents	$	7,223	$	7,223	$	—	$	—	$	7,223
Securities available for sale	21,530		—		21,530		—		21,530
Securities held to maturity	790		—		865		—		865
FHLB stock	2,907		2,907		—		—		2,907
Loans, net	231,362		—		—		232,088		232,088
Accrued interest receivable	751		751		—		—		751
Capitalized mortgage servicing rights	747		—		1,166		—		1,166
Financial liabilities:
Deposits	$	189,866	$	—	$	190,332	$	—	$	190,332
Short-term FHLB advances	16,250		16,250		—		—		16,250
Long-term FHLB advances	29,600		—		29,884		—		29,884
Mortgagors’ escrow accounts	1,454		1,454		—		—		1,454
Accrued interest payable	56		56		—		—		56

	December 31, 2014
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Total
	(In thousands)
Financial assets:
Cash and cash equivalents	$	4,918	$	4,918	$	—	$	—	$	4,918
Securities available for sale	19,526		—		19,526		—		19,526
Securities held to maturity	837		—		916		—		916
FHLB stock	2,907		2,907		—		—		2,907
Loans held for sale	990		1,016		—		—		1,016
Loans, net	231,293		—		—		231,971		231,971
Accrued interest receivable	752		752		—		—		752
Capitalized mortgage servicing rights	834		—		1,335		—		1,335
Financial liabilities:
Deposits	$	182,354	$	—	$	182,799	$	—	$	182,799
Short-term FHLB advances	30,000		30,000		—		—		30,000
Long-term FHLB advances	24,600		—		24,847		—		24,847
Mortgagors’ escrow accounts	1,194		1,194		—		—		1,194
Accrued interest payable	52		52		—		—		52

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(9)           Equity Incentive Plans

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

The following table presents the activity for the 2009 and 2014 Equity Plans for the three months ended March 31, 2015.

	Stock Options
	Number of Shares		Weighted Average Exercise Price
Outstanding at beginning of year	61,681		$	12.13
Granted	30,000		$	17.55
Outstanding at end of period	91,681		$	13.91
Exercisable at end of period	36,823
Weighted average fair value of options granted during the period	$	5.91

Options Outstanding				Options Exercisable
Number	Weighted-Average	Weighted		Number	Weighted
Outstanding	Remaining	Average		Exercisable	Average
as of 03/31/2015	Contractual Life	Exercise Price		as of 03/31/2015	Exercise Price
9,612	4.90 Years	$	9.33	9,612	$	9.33
10,551	5.90 Years	$	9.55	9,290	$	9.55
9,092	6.90 Years	$	9.58	6,672	$	9.58
15,316	7.90 Years	$	14.00	7,106	$	14.00
17,110	8.90 Years	$	14.98	4,143	$	14.98
30,000	9.90 Years	$	17.55	—	$	—
91,681	8.10 Years	$	13.91	36,823	$	10.97

	Non-vested
	Restricted Stock
	Number of Shares		Weighted Average Grant Date Value
Outstanding at beginning of year	37,071		$	12.85
Granted	20,000		$	17.55
Vested	(12,205	)	$	11.89
Forfeited	—		$	—
Outstanding at end of period	44,866		$	15.21

As of March 31, 2015, unrecognized share-based compensation expense related to non-vested options amounted to $302,000 and the unrecognized share-based compensation expense related to non-vested restricted stock amounted to $675,000. The unrecognized expense related to the non-vested options and non-vested restricted stock will be recognized over a weighted average period of 3.7 and 3.6 years, respectively.

For the three months ended March 31, 2015, the Company recognized compensation expense for stock options of $18,000 with a related tax benefit of $2,000. The related tax benefit applies only to non-qualified stock options. For the three months ended March 31, 2015, the Company recognized compensation expense for restricted stock awards of $45,000 with a related tax benefit of $18,000.

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

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

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

Overview

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

We continued to maintain strong asset quality, as non-performing assets to total assets was 0.40% at March 31, 2015. Net income for the three months ended March 31, 2015 decreased $25,000, or 9.1% compared to the same period in 2014. The decrease in net income was driven by  the increase in the provision for loan losses and the decrease in non-interest income, partially offset by an increase in net interest and dividend income. Net interest and dividend income increased primarily due to an increase in average loans outstanding. The provision for loan losses totaled $27,000 for the three months ended March 31, 2015, compared to no provision for loan losses during the same period in 2014.  Non-interest income decreased $21,000, or 8.6%, primarily due to a decline in mortgage banking income. Mortgage banking income has declined, as the volume of residential loan sales has been negatively affected by a soft real estate market and lower loan refinancing volumes. The Company continues to focus on generating commercial loans, core deposit growth and increasing operating efficiencies, which we believe will build long-term stockholder value. To support the continued growth of our commercial loans, we opened a Loan Production Office (“LPO”) in southern New Hampshire during September 2014.

Critical Accounting Policies

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

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

The allowance for loan losses is evaluated on a monthly basis by management and is based upon management’s monthly review of the collectability of the loans in light of known and inherent risks in the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. Additionally, as part of the evaluation of the level of the allowance for loan losses, on a quarterly basis management analyzes several qualitative loan portfolio risk factors including, but not limited to, charge-off history, changes in management or underwriting policies, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower and results of internal and external loan reviews. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

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

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by

24

management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

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

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

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

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

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

Income Taxes. Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax basis of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws. A valuation allowance is established against deferred tax assets when, based upon the available evidence including historical and projected taxable income, it is more likely than not that some or all of the deferred tax assets will not be realized.

Comparison of Financial Condition at March 31, 2015 and December 31, 2014

Total assets increased $2.0 million, or 0.7%, to $273.0 million at March 31, 2015 from $271.0 million at December 31, 2014. The increase was primarily due to increases in cash and cash equivalents and securities available for sale, offset by decreases in loans held for sale and other assets.

Cash and cash equivalents increased 2.3 million, or 46.9%, to $7.2 million at March 31, 2015 from $4.9 million at December 31, 2014. This temporary increase resulted from the timing of normal cash flows.

Loans, net (excluding loans held for sale) increased $69,000 to $231.4 million at March 31, 2015 from $231.3 million at December 31, 2014, due primarily to an increase in commercial loans, partially offset by a decrease in residential mortgage loans and construction loans. Despite the current competitive market, we have decided to maintain our historically high underwriting standards instead of relaxing these standards, and we have not reduced loan rates below levels at which we could not operate profitably.  Commercial loans increased $3.8 million, or 3.7%, to $107.2 million at March 31, 2015 from $103.4 million at December 31, 2014, primarily due to a $1.7 million, or 2.8%, increase in commercial real estate loans, a $1.6 million, or 10.6%, increase in multi-family real estate loans and a $471,000, or 2.6%, increase in commercial business loans. Construction loans decreased by $2.7 million, or 9.2%, to $26.1 million at March 31, 2015 from $28.7 million at December 31, 2014, primarily due to a $2.9 million, or 26.5%, decrease in multi-family construction loans. The majority of our construction loans remain collateralized by residential real estate (81.2% at March 31, 2015 and 83.2% at December 31, 2014).  One- to four-family residential mortgage loans decreased $1.1 million, or 1.4%, to $83.1 million at March 31, 2015 from $84.2 million at December 31, 2014. Home equity loans increased $177,000, or 1.1%, to $16.7 million at March 31, 2015 from $16.5 million at December 31, 2014.

Our total securities portfolio increased $2.0 million, or 9.6%, to $22.3 million at March 31, 2015 from $20.4 million at December 31, 2014, as we invested primarily in available for sale mortgage-backed securities.

Deposits increased $7.5 million, or 4.1%, to $189.9 million at March 31, 2015 from $182.4 million at December 31, 2014. Money market accounts increased $3.5 million, or 6.7%, NOW accounts increased $1.3 million, or 4.4%, savings accounts increased $653,000, or 4.6%, and demand deposits increased $465,000, or 1.7%. Certificates of deposit increased $1.5 million, or 4.1%, as an increase of $3.5 million, or

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12.1%, in funds gathered through the use of a deposit listing service was partially offset by a decrease in retail certificates of deposit of $2.0 million, or 6.5%. Management continues to focus on the generation of core checking accounts.

Total FHLB advances decreased $8.8 million, or 16.0%, to $45.9 million at March 31, 2015 compared to $54.6 million at December 31, 2014. Short-term advances decreased $13.8 million and long-term advances increased $5.0 million during the three months ended March 31, 2015.  Management continued to extend the maturities of our short-term FHLB advances, reflecting expectations that short-term rates will increase in the near-term.

Stockholders’ equity increased $262,000, or 0.9%, to $31.0 million at March 31, 2015 from $30.7 million at December 31, 2014. The increase resulted primarily from net income of $250,000 for the three months ended March 31, 2015 and other comprehensive income, partially offset by dividend payments. The other comprehensive income, net of taxes, of $45,000 reflects the change in net unrealized gains/losses, net of taxes, on securities available for sale from a net unrealized gain of $143,000 at December 31, 2014 to a net unrealized gain of $188,000 at March 31, 2015. Dividend payments totaled $73,000 for the three months ended March 31, 2015.

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

	At					At
	March 31,					December 31,
	2015					2014
	Amount			Percent		Amount			Percent
	(Dollars in thousands)
Residential loans:
One- to four-family	$	83,059		35.60	%	$	84,199		36.12	%
Home equity loans and lines of credit	16,676			7.15		16,499			7.08
Total residential mortgage loans	99,735			42.75		100,698			43.20
Commercial loans:
One- to four-family investment property	8,355			3.58		8,345			3.58
Multi-family real estate	16,607			7.12		15,020			6.44
Commercial real estate	63,942			27.41		62,227			26.69
Commercial business	18,309			7.85		17,838			7.65
Total commercial loans	107,213			45.96		103,430			44.36
Construction loans:
One- to four-family	13,194			5.65		13,056			5.60
Multi-family	7,972			3.42		10,842			4.65
Non-residential	4,907			2.10		4,828			2.07
Total construction loans	26,073			11.17		28,726			12.32
Consumer	280			0.12		289			0.12
Total loans	233,301			100.00	%	233,143			100.00	%
Other items:
Net deferred loan costs	317					379
Allowance for loan losses	(2,256		)			(2,229		)
Total loans, net	$	231,362				$	231,293

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

	At March 31,			At December 31,
	2015			2014
	(Dollars in thousands)
Non-accrual loans:
Residential mortgage loans	$	961		$	951
Commercial loans	135			—
Construction loans	—			—
Consumer	—			2
Total non-accrual loans	1,096			953
Non-performing restructured loans	—			—
Total non-performing loans	1,096			953
Other real estate owned	—			—
Total non-performing assets	$	1,096		$	953
Ratios:
Non-performing loans to total loans	0.47		%	0.41		%
Non-performing assets to total assets	0.40		%	0.35		%
Allowance for loan losses to non-performing loans	205.84		%	233.89		%

Total delinquent loans decreased $1.3 million, from $1.6 million at December 31, 2014 to $346,000 at March 31, 2015, primarily in residential one- to four-family loans.

Non-performing assets increased $143,000 to $1.1 million at March 31, 2015 compared to $1.0 million at December 31, 2014. The increase was related to the restructuring of two commercial business loans to the same borrower. All of the non-performing assets at March 31, 2015 were current loans, which were classified as non-performing until consistent loan payment history is established. Total non-performing assets represented 0.40% of total assets at March 31, 2015 compared to 0.35% of total assets at December 31, 2014.

Loans classified as substandard increased $135,000 to $2.0 million at March 31, 2015 from $1.9 million at December 31, 2014. The increase in substandard loans was primarily due to the restructuring of two commercial business loans to the same borrower.

The allowance for loan losses increased $27,000 to $2.3 million at March 31, 2015 primarily due to the change in the mix of the loan portfolio. Loan charge-offs were $1,000 and recoveries were $1,000 for the three months ended March 31, 2015, as compared to loan charge-offs of $211,000 and no loan recoveries for the same period in 2014. The allowance represented 0.97% of total loans at March 31, 2015 and 0.96% of total loans at December 31, 2014. At these levels, the allowance for loan losses as a percentage of non-performing loans was 205.84% at March 31, 2015 and 233.89% at December 31, 2014.

Comparison of Operating Results for the Three Months Ended March 31, 2015 and 2014

General. Net income decreased $25,000, or 9.1%, to $250,000 for the three months ended March 31, 2015, compared to net income of $275,000 for the three months ended March 31, 2014. The decrease in net income was caused by a decrease in non-interest income and an increase in the provision for loan losses, partially offset by an increase in net interest and dividend income.

Interest and Dividend Income. Interest and dividend income increased $88,000, or 3.2%, to $2.9 million for the three months ended March 31, 2015, primarily due to an increase in interest income on loans. Interest income on loans increased $85,000, or 3.2%, to $2.7 million for the three months ended March 31, 2015, due to a $4.9 million, or 2.2%, increase in the average balance of loans and by a five basis point increase in yield to 4.66% for the three months ended March 31, 2015 from 4.61% for the three months ended March 31, 2014.

Interest and dividend income on investment securities increased $2,000, or 1.5%, to $139,000 for the three months ended March 31, 2015 from $137,000 for the three months ended March 31, 2014, due to a $1.0 million, or 4.6%, increase in the average balance of investment securities for the three months ended March 31, 2015, partially offset by an eight basis point decrease in yield to 2.41% for the three months ended March 31, 2015 from 2.49% for the three months ended March 31, 2014. The increase in investment securities was in residential mortgage-backed securities.

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Interest Expense. Interest expense increased $59,000, or 17.4%, to $398,000 for the three months ended March 31, 2015 from $339,000 for the three months ended March 31, 2014. Interest expense on deposits increased $42,000, or 21.6%, to $236,000 for the three months ended March 31, 2015 from $194,000 for the three months ended March 31, 2014, due to an increase in the average balance of interest-bearing deposits of $5.2 million, or 3.4%, to $158.8 million for the three months ended March 31, 2015 from $153.6 million for the three months ended March 31, 2014 and by an increase in the average rate we paid on interest-bearing deposits to 0.59% for the three months ended March 31, 2015 compared to 0.51% for the three months ended March 31, 2014.  The increase in interest expense on deposits was primarily due to money market deposits.  Interest expense on money market deposits increased $36,000, or 314.8%, to $48,000 for the three months ended March 31, 2015 from $12,000 for the three months ended March 31, 2014 due to an increase in the average balance in money market deposits of $10.3 million, or 23.7%, to $53.7 million for the three months ended March 31, 2015 from $43.4 million for the same period in 2014 and by an increase in the average rate we paid on money market deposits to 0.36% for the three months ended March 31, 2015 compared to 0.11% for the same period in 2014. We began to promote a new money market product during the second half of 2014.

Interest expense on FHLB advances increased $17,000, or 11.7%, to $162,000 for the three months ended March 31, 2015 from $145,000 for the three months ended March 31, 2014. The increase was primarily due to the average rate we paid, which increased nineteen basis points to 1.25% for the three months ended March 31, 2015 compared to 1.06% for the three months ended March 31, 2014, partially offset by a $2.8 million, or 5.1%, decrease in the average outstanding balance of advances to $51.8 million for the three months ended March 31, 2015 from $54.6 million for the three months ended March 31, 2014. The average outstanding balance of long-term advances increased $6.3 million, or 28.0%, to $28.8 million for the three months ended March 31, 2015 from $22.5 million for the three months ended March 31, 2014 and the average outstanding balance of short-term advances decreased $9.1 million, or 28.4%, to $23.0 million for the three months ended March 31, 2015 from $32.1 million for the same period in 2014, as we continued to extend the maturities of our short-term FHLB advances, reflecting expectations that short-term rates will increase in the near-term.

Net Interest and Dividend Income. Net interest and dividend income increased $29,000, or 1.2%, to $2.5 million for the three months ended March 31, 2015 compared to $2.4 million for the three months ended March 31, 2014. The increase in net interest income was primarily the result of a $5.3 million, or 11.5%, increase in net average interest-earning assets to $51.2 million for the three months ended March 31, 2015, from $45.9 million for the same period in 2014, partially offset by a six basis point decrease in net interest margin to 3.76% for the three months ended March 31, 2015 compared to 3.82% for the same period in 2014. Our net interest margin may compress in the future due to competitive pricing in our market area and due to a rising interest rate environment.

Provision for Loan Losses. We establish provisions for loan losses, which are charged to operations, at a level necessary to absorb known and inherent losses that are both probable and reasonably estimable at the date of the financial statements. In evaluating the level of the allowance for loan losses quarterly, management analyzes several quantitative and qualitative loan portfolio risk factors including but not limited to, charge-off history over a relevant period, changes in management or underwriting policies, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower and results of internal and external loan reviews. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. After an evaluation of these factors, we recorded a $27,000 provision for loan losses for the three months ended March 31, 2015 compared to no provision being recorded for the three months ended March 31, 2014. We recorded $1,000 in loan charge-offs and $1,000 in loan recoveries during the three months ended March 31, 2015, compared to $211,000 in loan charge-offs and no loan recoveries during the three months ended March 31, 2014. The allowance for loan losses was $2.3 million, or 0.97%, of total loans and 205.84% of non-performing loans at March 31, 2015, compared to an allowance for loan losses of $2.2 million, or 0.96%, of total loans and 233.89% of non-performing loans at December 31, 2014. For additional information please refer to Note 6 Loans and Servicing.

Non-interest Income. Non-interest income decreased $21,000, or 8.6%, to $222,000 for the three months ended March 31, 2015 from $243,000 for the three months ended March 31, 2014, primarily due to a decrease in mortgage banking income. Mortgage banking income decreased $20,000, or 47.6%, to $22,000 for the three months ended March 31, 2015 from $42,000 for the three months ended March 31, 2014.  Based on a change in our business strategy, we no longer intend to expand our residential mortgage banking operation.

Non-interest Expense. Non-interest expense increased $17,000, or 0.8%, to $2.3 million for the three months ended March 31, 2015 compared to $2.2 million for the same period in 2014. Salaries and benefits expense decreased $11,000, or 0.9%. Occupancy and equipment expense increased $26,000, or 10.3%, primarily due to expenses associated with our LPO which opened in September 2014. Data processing expenses decreased $12,000, or 7.0%, primarily due to a reduction in one-time implementation fees expensed during the three months ended March 31, 2015 compared to the three months ended March 31, 2014. Professional fees decreased $22,000, or 15.3%, primarily due to a reduction in legal expenses. Other general and administrative expenses increased $37,000, or 12.4%, and included $38,000 related to a legal settlement with a customer and $37,000 in recruitment expenses related to the hiring of additional commercial lending staff, partially offset by a $21,000 reduction in losses associated with fraudulent debit card transactions..

Income Tax Expense. The income before income taxes of $399,000 resulted in income tax expense of $149,000 for the three months ended March 31, 2015, compared to income before income taxes of $435,000 resulting in an income tax expense of $160,000 for the three months ended March 31, 2014. The effective income tax rate was 37.3% for the three months ended March 31, 2015 compared to 36.8% for the three months ended March 31, 2014.

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

	Three Months Ended March 31,
	2015							2014
	Average							Average
	Outstanding					Yield/		Outstanding					Yield/
	Balance		Interest (1)			Rate (1)		Balance		Interest (1)			Rate (1)
	(Dollars in thousands)
Interest-earning assets:
Loans (2)	$	233,216	$	2,715		4.66	%	$	228,282	$	2,630		4.61	%
Investment securities (1)	23,055		147			2.55	%	22,032		145			2.63	%
Short-term investments	5,513		2			0.15	%	3,796		1			0.11	%
Total interest-earning assets	261,784		2,864			4.38	%	254,110		2,776			4.37	%
Non-interest-earning assets	8,448		—					9,289		—
Total assets	$	270,232	2,864					$	263,399	2,776
Interest-bearing liabilities:
Savings deposits	$	14,608	1			0.03	%	$	14,314	1			0.03	%
NOW accounts	30,663		19			0.25	%	30,815		14			0.18	%
Money market accounts	53,729		48			0.36	%	43,430		12			0.11	%
Certificates of deposit	59,781		168			1.12	%	65,023		167			1.03	%
Total interest-bearing deposits	158,781		236			0.59	%	153,582		194			0.51	%
FHLB advances	51,783		162			1.25	%	54,588		145			1.06	%
Total interest-bearing liabilities	210,564		398			0.76	%	208,170		339			0.65	%
Non-interest-bearing liabilities:
Demand deposits	26,486							23,529
Other non-interest-bearing liabilities	3,052							2,805
Total liabilities	240,102							234,504
Stockholders’ equity	30,130							28,895
Total liabilities and stockholders’ equity	$	270,232						$	263,399
Net interest-earning assets (3)	$	51,220						$	45,940
Fully tax-equivalent net interest income			2,466							2,437
Less: tax-equivalent adjustments			(8		)					(8		)
Net interest income			$	2,458						$	2,429
Net interest rate spread (1)(4)						3.62	%						3.72	%
Net interest margin (1)(5)						3.77	%						3.84	%
Average of interest-earning assets to interest-bearing liabilities						124.33	%						122.07	%

(1)Interest and yield on investment securities, interest rate spread and net interest margin, are presented on a tax-equivalent basis. Tax-equivalent adjustments are deducted from tax-equivalent net interest income to agree to amounts reported in the consolidated statements of income.  For the three months ended March 31, 2015 and 2014 the yield on investment securities before tax-equivalent adjustments was 2.41% and 2.49%, respectively, and the yield on total interest-earning assets was 4.36% and 4.36%, respectively. Net interest rate spread before tax-equivalent adjustments for the three months ended March 31, 2015 and 2014 was 3.60% and 3.71%, respectively, while net interest margin before tax-equivalent adjustments was 3.76% and 3.82%, respectively. 

(2)Includes loans held for sale.

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

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

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

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

	For the Three Months Ended March 31, 2015
	Compared to the Three Months Ended
	March 31, 2014
	Increase (Decrease) Due to
	Volume			Rate			Net
	(In thousands)
Interest-earning assets:
Loans	$	57		$	28		$	85
Investment securities (1)	7			(5		)	2
Short-term investments	—			1			1
Total interest-earning assets	64			24			88
Interest-bearing liabilities:
Savings deposits	—			—			—
NOW accounts	—			5			5
Money market accounts	3			33			36
Certificates of deposit	(13		)	14			1
Total interest-bearing deposits	(10		)	52			42
FHLB advances	(7		)	24			17
Total interest-bearing liabilities	(17		)	76			59
Change in net interest income	$	81		$	(52	)	$	29

(1)Municipal securities income and net interest income are presented on a tax-equivalent basis using a tax rate of 34% resulting in an adjustment of $8,000 for the three months ended March 31, 2015 and 2014.

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

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

Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At March 31, 2015, cash and cash equivalents totaled $7.2 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $21.5 million at March 31, 2015. Our policies also allow for access to the wholesale funds market for up to 50.0% of total assets, or $136.5 million. At March 31, 2015, we had $45.9 million in FHLB advances outstanding, $31.3 million in certificates of deposit obtained through a listing service and $1.2 million in brokered certificates of deposit, allowing the Company access to an additional $58.1 million in wholesale funds based on policy guidelines.

At March 31, 2015 we had $6.0 million in loan commitments outstanding. In addition to commitments to originate loans, we had $35.5 million in unadvanced funds to borrowers

At March 31, 2015 we had $1.0 million in outstanding irrevocable stand-by letters of credit.  These letters of credit, which have terms of twelve months, collateralize specific municipal deposits.  The fair value of these letters of credit approximate contract values based on the nature of the fee arrangements with the FHLB.

Certificates of deposit due within one year of March 31, 2015 totaled $24.6 million, or 13.0% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit or other wholesale funding options. Depending on market conditions, we may be required to pay higher rates on such deposits or other advances than we currently pay on the certificates of deposit due on or before March 31, 2016. We believe, however, based on past experience that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

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

Our primary investing activities are the origination and purchase of loans and the purchase of securities. During the three months ended March 31, 2015, we originated $15.1 million in loans.

Financing activities consist primarily of activity in deposit accounts, FHLB advances and to a lesser extend the sale of residential mortgages. We experienced a net increase in total deposits of $7.5 million for the three months ended March 31, 2015. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits to be competitive. FHLB advances reflected a net decrease of $8.8 million during the three months ended March 31, 2015. FHLB advances have primarily been used to fund loan demand and deposit outflows. We sold $2.1 million in conforming residential mortgage loans for the three months ended March 31, 2015.

Capital Management.

In July 2013, the OCC and the other federal bank regulatory agencies issued a final rule that has 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 assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property.  The final rule also requires unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt-in or opt-out is exercised.  The rule limits a banking organization’s capital distributions and certain discretionary bonus payments to executive officers if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements.  The final rule also implements the Dodd-Frank Act’s directive to apply to savings and loan holding companies consolidated capital requirements that are not less stringent than those applicable to their subsidiary institutions.  The final rule was effective January 1, 2015.  The “capital conservation buffer” will be phased in from January 1, 2016 to January 1, 2019, when the full capital conservation buffer will be effective.

At March 31, 2015, Georgetown Bank met each of its capital requirements and was considered “well-capitalized”, and also met each of its capital requirements on a fully phased-in basis.

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Off-Balance Sheet Arrangements.For the three months ended March 31, 2015, we engaged in no off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

Not applicable to smaller reporting companies.

Item 4.Controls and Procedures

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

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

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

Item 1A. Risk Factors

Other than as set forth in prior filings with the Securities and Exchange Commission or this Quarterly Report on Form 10-Q, there have been no material changes to the Risk Factors set forth in the Annual Report on Form 10-K of the Company filed with the Securities and Exchange Commission on March 30, 2015.

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

a) Not applicable.

b) Not applicable.

c) The following table presents a summary of the Company’s share repurchases during the quarter ended March 31, 2015.

				Total Number of Shares	Maximum Number of
				Purchased as Part of	Shares That May Yet be
	Total Number of	Average Price Paid		Publicly Announced	Purchased Under the
Period	Shares Purchased	Per Share		Program (1)	Program (1)
January 1 through January 31, 2015	0	$	0.00	0	32,973
February 1 through February 28, 2015	3,091	$	17.55	0	32,973
March 1 through March 31, 2015	0	$	0.00	0	32,973

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

Item 3.Defaults Upon Senior Securities

None.

Item 4.Mine Safety Disclosures

Not applicable.

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Item 5.Other Information

a)  Not applicable.

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

Item 6.Exhibits

31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act

101      The following financial statements from Georgetown Bancorp Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed on May 12, 2015, formatted in XBRL: (1) Consolidated Statements of Financial Condition, (2) Consolidated Statements of Income, (3) Consolidated Statements of Comprehensive Income, (4) Consolidated Statements of Changes in Stockholders’ Equity, (5) Consolidated Statements of Cash Flows, (6) Notes to Consolidated Financial Statements.

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

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SIGNATURES

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

	GEORGETOWN BANCORP, INC.
	(Registrant)
Date: May 12, 2015	/s/ Robert E. Balletto
	Robert E. Balletto
	President and Chief Executive Officer
	(Principal Executive Officer)
Date: May 12, 2015	/s/ Joseph W. Kennedy
	Joseph W. Kennedy
	Senior Vice President, Chief Financial Officer and Treasurer
	(Principal Accounting and Financial Officer)

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