Georgetown Bancorp 10-Q 2016 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2016

OR

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

For the transition period from            to          

Commission File Number: 001-35595

GEORGETOWN BANCORP, INC.

(Exact name of registrant as specified in its charter)

Maryland	80-0817763
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
2 East Main Street, Georgetown, MA	01833
(Address of principal executive office)	(Zip Code)

(978) 352-8600

(Registrant’s telephone number, including area code)

None

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

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

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

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

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

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

Indicate the number of shares outstanding of the registrant’s common stock, as of the latest practicable date:  Common Stock, $0.01 par value, 1,840,920 shares outstanding as of August 8, 2016.

Form 10-Q

GEORGETOWN BANCORP, INC.

Table of Contents

		Page
Part I. Financial Information
Item 1:	Financial Statements
	Consolidated Statements of Financial Condition at June 30, 2016 (unaudited) and December 31, 2015	1
	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2016 and 2015 (unaudited)	2
	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2016 and 2015 (unaudited)	3
	Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2016 and 2015 (unaudited)	4
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015 (unaudited)	5
	Notes to Consolidated Financial Statements (unaudited)	7
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4:	Controls and Procedures	40
Part II. Other Information
Item 1:	Legal Proceedings	41
Item 1A:	Risk Factors	41
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3:	Defaults upon Senior Securities	41
Item 4:	Mine Safety Disclosures	41
Item 5:	Other Information	42
Item 6:	Exhibits	42
SIGNATURES		43

PART I—FINANCIAL INFORMATION

ITEM 1. Financial Statements

GEORGETOWN BANCORP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

	At		At
	June 30,		December 31,
	2016		2015
	(Unaudited)
	(In thousands, except share data)
ASSETS
Cash and due from banks	$	1,794	$	1,927
Short-term investments		3,858		5,831
Total cash and cash equivalents		5,652		7,758
Securities available for sale, at fair value		19,947		19,028
Securities held to maturity, at amortized cost (fair value of $3,121 at June 30, 2016 and $3,128 at December 31, 2015)		3,011		3,112
Federal Home Loan Bank stock, at cost		2,011		2,933
Bankers Bank Northeast stock, at cost		60		60
Loans held for sale		184		—
Loans, net of allowance for loan losses of $2,483 at June 30, 2016 and $2,408 at December 31, 2015		259,221		253,983
Premises and equipment, net		4,243		3,837
Accrued interest receivable		783		799
Bank-owned life insurance		3,153		3,101
Other assets		1,630		1,891
Total assets	$	299,895	$	296,502
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits	$	232,878	$	207,726
Short-term Federal Home Loan Bank advances		5,500		23,500
Long-term Federal Home Loan Bank advances		25,600		27,100
Mortgagors’ escrow accounts		1,601		1,386
Due to broker for investment purchase		—		2,505
Accrued expenses and other liabilities		1,924		2,377
Total liabilities		267,503		264,594
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value per share: 50,000,000 shares authorized at June 30, 2016 and December 31, 2015; none outstanding		—		—
Common stock, $0.01 par value per share: 100,000,000 shares authorized, 1,840,920 shares issued at June 30, 2016 and 1,828,238 shares issued at December 31, 2015		18		18
Additional paid-in capital		19,738		19,402
Retained earnings		13,850		13,788
Accumulated other comprehensive income		286		46
Unearned compensation - ESOP (76,026 shares unallocated at June 30, 2016 and 79,645 shares unallocated at December 31, 2015)		(794)		(835)
Unearned compensation - Restricted stock (46,449 shares non-vested at June 30, 2016 and 44,866 shares non-vested at December 31, 2015)		(706)		(511)
Total stockholders’ equity		32,392		31,908
Total liabilities and stockholders’ equity	$	299,895	$	296,502

See accompanying notes to consolidated financial statements.

1

GEORGETOWN BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
	(In thousands, except share and per share data)
Interest and dividend income:
Loans, including fees	$	3,035	$	2,733	$	6,038	$	5,448
Securities		154		146		308		286
Short-term investments		5		2		11		4
Total interest and dividend income		3,194		2,881		6,357		5,738
Interest expense:
Deposits		456		249		867		485
Short-term Federal Home Loan Bank advances		8		7		28		21
Long-term Federal Home Loan Bank advances		140		152		283		301
Total interest expense		604		408		1,178		807
Net interest and dividend income		2,590		2,473		5,179		4,931
Provision for loan losses		—		—		74		27
Net interest and dividend income, after provision for loan losses		2,590		2,473		5,105		4,904
Non-interest income:
Customer service fees		171		181		355		350
Mortgage banking income, net		46		29		55		51
Gain on sale of SBA loans		—		—		15		—
Income from bank-owned life insurance		26		25		52		50
Other		12		8		20		14
Total non-interest income		255		243		497		465
Non-interest expenses:
Salaries and employee benefits		1,464		1,210		2,875		2,438
Occupancy and equipment expenses		264		253		529		531
Data processing expenses		167		165		381		325
Professional fees		268		120		559		242
Advertising expenses		88		88		175		176
FDIC insurance		47		42		91		84
Other general and administrative expenses		303		264		628		600
Total non-interest expenses		2,601		2,142		5,238		4,396
Income before income taxes		244		574		364		973
Income tax provision		92		211		132		360
Net income	$	152	$	363	$	232	$	613
Weighted-average number of common shares outstanding:
Basic		1,763,721		1,751,698		1,759,123		1,749,765
Diluted		1,773,852		1,758,442		1,766,325		1,758,672
Net income per share:
Basic	$	0.09	$	0.21	$	0.13	$	0.35
Diluted	$	0.09	$	0.21	$	0.13	$	0.35
Dividends paid per share	$	0.05	$	0.0475	$	0.0975	$	0.09

See accompanying notes to consolidated financial statements.

2

GEORGETOWN BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
	(In thousands)
Net income	$	152	$	363	$	232	$	613
Net unrealized gain (loss) on securities available for sale		134		(251)		372		(180)
Income tax (provision) benefit		(48)		89		(132)		63
Other comprehensive income (loss), net of tax		86		(162)		240		(117)
Comprehensive income	$	238	$	201	$	472	$	496

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		Income		ESOP		Restricted Stock		Total
	(In thousands)
Balance at December 31, 2014	$	18	$	19,245	$	12,593	$	143	$	(918)	$	(369)	$	30,712
Net income		—		—		613		—		—		—		613
Other comprehensive loss		—		—		—		(117)		—		—		(117)
Cash dividends paid ($0.09 per share)		—		—		(157)		—		—		—		(157)
Repurchased stock related to buyback program (17,000 shares)		—		(315)		—		—		—		—		(315)
Common stock held by ESOP allocated or committed to be allocated (3,620 shares)		—		24		—		—		41		—		65
Restricted stock granted in connection with equity incentive plan (20,000 shares)		—		351		—		—		—		(351)		—
Purchased stock related to vested restricted stock (3,091 shares)		—		(54)		—		—		—		—		(54)
Exercise of stock options (884 shares)		—		8		—		—		—		—		8
Share based compensation - options		—		42		—		—		—		—		42
Share based compensation - restricted stock		—		—		—		—		—		100		100
Balance at June 30, 2015	$	18	$	19,301	$	13,049	$	26	$	(877)	$	(620)	$	30,897
Balance at December 31, 2015	$	18	$	19,402	$	13,788	$	46	$	(835)	$	(511)	$	31,908
Net income		—		—		232		—		—		—		232
Other comprehensive income		—		—		—		240		—		—		240
Cash dividends paid ($0.0975 per share)		—		—		(170)		—		—		—		(170)
Common stock held by ESOP allocated or committed to be allocated (3,620 shares)		—		31		—		—		41		—		72
Restricted stock granted in connection with equity incentive plan (16,500 shares)		—		320		—		—		—		(320)		—
Purchased stock related to vested restricted stock (3,818 shares)		—		(74)		—		—		—		—		(74)
Share based compensation - options		—		59		—		—		—		—		59
Share based compensation - restricted stock		—		—		—		—		—		125		125
Balance at June 30, 2016	$	18	$	19,738	$	13,850	$	286	$	(794)	$	(706)	$	32,392

See accompanying notes to consolidated financial statements.

4

GEORGETOWN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Six Months Ended
	June 30,
	2016		2015
	(In thousands)
Cash flows from operating activities:
Net income	$	232	$	613
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		74		27
Amortization of securities, net		67		61
Net change in deferred loan fees and costs		(38)		94
Depreciation and amortization expense		205		191
Decrease (increase) in accrued interest receivable		16		(5)
Income from bank-owned life insurance		(52)		(50)
Stock-based compensation expense		256		207
Gain on sale of loans		(17)		(36)
Loans originated for sale		(436)		(1,334)
Proceeds from sales of loans		269		2,360
Net change in other assets and liabilities		(324)		1,202
Net cash provided by operating activities		252		3,330
Cash flows from investing activities:
Activity in securities available for sale:
Maturities, prepayments and calls		1,427		1,258
Purchases		(2,038)		(2,544)
Activity in securities held to maturity:
Maturities, prepayments and calls		87		116
Purchases		(2,494)		—
Redemption of Federal Home Loan Bank stock		922		—
Purchase of Bankers Bank Northeast stock		—		(60)
Loan originations, net		(946)		1,184
Principal balance of loans purchased		(4,328)		(2,443)
Purchase of premises and equipment		(611)		(65)
Proceeds from sale of premises and equipment		—		77
Net cash used by investing activities		(7,981)		(2,477)

(continued)

See accompanying notes to consolidated financial statements.

5

GEORGETOWN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(concluded)

	Six Months Ended
	June 30,
	2016		2015
	(In thousands)
Cash flows from financing activities:
Net change in deposits		25,152		12,905
Net change in Federal Home Loan Bank advances with maturities of three months or less		(18,500)		(15,750)
Proceeds from Federal Home Loan Bank advances with maturities greater than three months		3,500		5,000
Repayments of Federal Home Loan Bank advances with maturities greater than three months		(4,500)		(1,500)
Net change in mortgagors’ escrow accounts		215		(25)
Repurchase of common stock		(74)		(369)
Exercise of stock options		—		8
Cash dividends paid on common stock		(170)		(157)
Net cash provided by financing activities		5,623		112
Net change in cash and cash equivalents		(2,106)		965
Cash and cash equivalents at beginning of period		7,758		4,918
Cash and cash equivalents at end of period	$	5,652	$	5,883
Supplementary information:
Interest paid on deposit accounts	$	866	$	483
Interest paid on advances		324		323
Income taxes paid		431		604
Change in due to broker for investment purchases		(2,505)		—

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 U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions for Form 10-Q and with Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with GAAP. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the six-month period ended June 30, 2016 are not necessarily indicative of the results that may be expected for future periods, including the entire fiscal year. These financial statements should be read in conjunction with the financial statements and notes thereto included in the December 31, 2015 Consolidated Financial Statements presented in the Annual Report on Form 10-K of the Company filed with the Securities and Exchange Commission on March 29, 2016. The consolidated financial statements include the accounts of Georgetown Bank (the “Bank”) and its wholly owned subsidiary, Georgetown Securities Corporation, which engages in the buying, selling and holding of securities. All significant inter-company balances and transactions have been eliminated in consolidation. These consolidated financial statements consider events that occurred through the date the consolidated financial statements were issued.

Use of Estimates in the Preparation of Financial Statements

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

(2)Corporate Structure

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

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				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
	(In thousands, except share and per share data)
Net income available to common stockholders	$	152	$	363	$	232	$	613
Basic common shares:
Weighted average shares outstanding		1,794,469		1,791,270		1,791,237		1,792,537
Less: Weighted average unallocated ESOP shares		(77,199)		(84,440)		(78,104)		(85,345)
Add: Weighted average unvested restricted stock shares with non-forfeitable dividend rights		46,451		44,868		45,990		42,573
Basic weighted average common shares outstanding		1,763,721		1,751,698		1,759,123		1,749,765
Dilutive potential common shares		10,131		6,744		7,202		8,907
Diluted weighted average common shares outstanding		1,773,852		1,758,442		1,766,325		1,758,672
Basic earnings per share	$	0.09	$	0.21	$	0.13	$	0.35
Diluted earnings per share	$	0.09	$	0.21	$	0.13	$	0.35

Options to purchase 122,775 shares, representing all outstanding options, were included in the computation of diluted earnings per share for the three months and six months ended June 30, 2016. Options to purchase 90,797 shares, representing all outstanding options, were included in the computation of diluted earnings per share for the three and six months ended June 30, 2015. 

(4)Recent Accounting Pronouncements

In May 2014 and August 2015, respectively, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09 and 2015-14, “Revenue from Contracts with Customers (Topic 606).” The objective of ASU 2014-09 is to clarify principles for recognizing revenue and to develop a common revenue standard for GAAP and International Financial Reporting Standards. The guidance in ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principal of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2017, and interim periods within that period. Earlier application is permitted only as of an annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period.

8

The Company is currently reviewing ASUs 2014-09 and 2015-14 to determine if they will have an impact on its consolidated financial statements.

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

1.Require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

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

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

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

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

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

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

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

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

In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” This ASU includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. Some of the key provisions of this new ASU include: (1) companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement, and APIC pools will be eliminated. The guidance also eliminates the requirement that excess tax benefits be realized before companies can recognize them. In addition, the guidance requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity; (2) increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability

9

classification for shares used to satisfy the employer’s statutory income tax withholding obligation. The new guidance will also require an employer to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on its statement of cash flows (current guidance did not specify how these cash flows should be classified); and (3) permit companies to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards. Forfeitures can be estimated, as required today, or recognized when they occur. ASU 2016-09 is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted, but all of the guidance must be adopted in the same period. The Company is currently evaluating the provisions of ASU 2016-09 to determine the potential impact the new standard will have on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.”  This ASU includes provisions intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by the entity.  In order to achieve this objective, the amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires a broader range of reasonable and supportable information to inform credit loss estimates.  ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019.  Early adoption is permitted in interim and annual reporting periods beginning after December 15, 2018.  Any increase in the allowance for loan losses or expenses incurred to determine the appropriate level of allowance for loan losses may have a material adverse effect on the Company’s financial condition and results of operations. The Company is currently evaluating the provisions of ASU 2016-13 to determine the potential impact the new standard will have on its consolidated financial statements.

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(5)Securities

A summary of securities is as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In thousands)
At June 30, 2016
Securities available for sale
State and municipal	$	2,386	$	94	$	—	$	2,480
Residential mortgage-backed securities		17,114		353		—		17,467
Total securities available for sale	$	19,500	$	447	$	—	$	19,947
Securities held to maturity
State and municipal	$	571	$	43	$	—	$	614
Residential mortgage-backed securities		2,440		67		—		2,507
Total securities held to maturity	$	3,011	$	110	$	—	$	3,121
At December 31, 2015
Securities available for sale
State and municipal	$	2,410	$	62	$	(2)	$	2,470
Residential mortgage-backed securities		16,543		104		(89)		16,558
Total securities available for sale	$	18,953	$	166	$	(91)	$	19,028
Securities held to maturity
State and municipal	$	573	$	12	$	—	$	585
Residential mortgage-backed securities		2,539		4		—		2,543
Total securities held to maturity	$	3,112	$	16	$	—	$	3,128

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

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The amortized cost and estimated fair value of debt securities by contractual maturity at June 30, 2016 is shown in the table below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(In thousands)
After five years through ten years	$	533	$	552	$	—	$	—
Over ten years		1,853		1,928		571		614
		2,386		2,480		571		614
Residential mortgage-backed securities		17,114		17,467		2,440		2,507
	$	19,500	$	19,947	$	3,011	$	3,121

There were no sales of securities for the six months ended June 30, 2016 and 2015.

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

	Less Than Twelve Months				Twelve Months Or Longer
	Gross				Gross
	Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value
	(In thousands)
At December 31, 2015
Securities available for sale
State and municipal	$	—	$	—	$	(2)	$	244
Residential mortgage-backed securities		(20)		3,946		(69)		3,229
Total temporarily impaired securities	$	(20)	$	3,946	$	(71)	$	3,473

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

There were no securities with gross unrealized losses at June 30, 2016. 

The unrealized losses in the above table 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 issued by government sponsored enterprises and as management has not decided to sell these securities, nor is it likely that the Company will be required to sell these securities, no declines are deemed to be OTTI.

12

(6)Loans and Servicing

Loans

A summary of loans is as follows:

	At				At
	June 30,				December 31,
	2016				2015
	Amount		Percent		Amount		Percent
	(In thousands)
Residential loans:
One- to four-family	$	83,721	32.04	%	$	86,472	33.78	%
Home equity loans and lines of credit		17,238	6.60			18,263	7.13
Total residential mortgage loans		100,959	38.64			104,735	40.91
Commercial loans:
One- to four-family investment property		12,386	4.74			15,255	5.96
Multi-family real estate		28,988	11.09			30,709	12.00
Commercial real estate		76,583	29.31			67,152	26.23
Commercial business		19,555	7.48			17,548	6.85
Total commercial loans		137,512	52.62			130,664	51.04
Construction loans:
One- to four-family		13,266	5.08			12,967	5.07
Multi-family		2,328	0.89			1,486	0.58
Non-residential		6,997	2.68			5,925	2.31
Total construction loans		22,591	8.65			20,378	7.96
Consumer		227	0.09			237	0.09
Total loans		261,289	100.00	%		256,014	100.00	%
Other items:
Net deferred loan costs		415				377
Allowance for loan losses		(2,483)				(2,408)
Total loans, net	$	259,221			$	253,983

13

An analysis of the allowance for loan losses for the six months ended June 30, 2016 and 2015 and at June 30, 2016 and December 31, 2015 is below. For additional information please refer to Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

	Residential				Commercial								Construction
					One‑ to four‑
			Home equity		family
	One‑ to four‑		loans and		investment		Multi‑family		Commercial		Commercial		One‑ to four‑				Non-
	family		lines of credit		property		real estate		real estate		business		family		Multi‑family		residential		Consumer		Unallocated		Total
	(In thousands)
Allowance for loan losses
Six Months Ended June 30, 2016
Beginning Balance	$	197	$	276	$	90	$	233	$	1,021	$	305	$	113	$	12	$	91	$	2	$	68	$	2,408
Charge-offs		—		—		—		—		—		—		—		—		—		(2)		—		(2)
Recoveries		—		1		—		—		—		—		—		—		—		2		—		3
(Benefit) provision		(30)		(18)		(15)		(13)		128		38		—		7		16		—		(39)		74
Ending Balance	$	167	$	259	$	75	$	220	$	1,149	$	343	$	113	$	19	$	107	$	2	$	29	$	2,483
Six Months Ended June 30, 2015
Beginning Balance	$	273	$	249	$	46	$	113	$	943	$	311	$	117	$	97	$	77	$	3	$	—	$	2,229
Charge-offs		—		—		—		—		—		(22)		—		—		—		(3)		—		(25)
Recoveries		—		1		—		—		—		—		—	��	—		—		2		—		3
(Benefit) provision		(78)		7		7		44		(25)		18		13		(26)		17		1		49		27
Ending Balance	$	195	$	257	$	53	$	157	$	918	$	307	$	130	$	71	$	94	$	3	$	49	$	2,234
At June 30, 2016
Allowance for loan losses
Individually evaluated for impairment	$	—	$	—	$	7	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	7
Collectively evaluated for impairment		167		259		68		220		1,149		343		113		19		107		2		29		2,476
	$	167	$	259	$	75	$	220	$	1,149	$	343	$	113	$	19	$	107	$	2	$	29	$	2,483
Loans
Individually evaluated for impairment	$	1,564	$	103	$	87	$	—	$	284	$	—	$	—	$	—	$	—	$	—	$	—	$	2,038
Collectively evaluated for impairment		82,157		17,135		12,299		28,988		76,299		19,555		13,266		2,328		6,997		227		—		259,251
	$	83,721	$	17,238	$	12,386	$	28,988	$	76,583	$	19,555	$	13,266	$	2,328	$	6,997	$	227	$	—	$	261,289
At December 31, 2015
Allowance for loan losses
Individually evaluated for impairment	$	7	$	—	$	7	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	14
Collectively evaluated for impairment		190		276		83		233		1,021		305		113		12		91		2		68		2,394
	$	197	$	276	$	90	$	233	$	1,021	$	305	$	113	$	12	$	91	$	2	$	68	$	2,408
Loans
Individually evaluated for impairment	$	1,567	$	104	$	88	$	—	$	287	$	—	$	—	$	—	$	—	$	—	$	—	$	2,046
Collectively evaluated for impairment		84,905		18,159		15,167		30,709		66,865		17,548		12,967		1,486		5,925		237		—		253,968
	$	86,472	$	18,263	$	15,255	$	30,709	$	67,152	$	17,548	$	12,967	$	1,486	$	5,925	$	237	$	—	$	256,014

14

The following is a summary of past-due and non-accrual loans at June 30, 2016 and December 31, 2015. For additional information please refer to Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

	Loans delinquent for:												90 days
					90 days		Total		Total		Total		or more		Non-accrual
	30 - 59 Days		60 - 89 Days		or more		Past Due		Current		Loans		and accruing		Loans
	(In thousands)
At June 30, 2016
Residential loans:
One- to four-family	$	—	$	—	$	775	$	775	$	82,946	$	83,721	$	—	$	775
Home equity loans and lines of credit		—		31		—		31		17,207		17,238		—		157
Commercial loans:
One- to four-family investment property		—		—		—		—		12,386		12,386		—		—
Multi-family real estate		—		—		—		—		28,988		28,988		—		—
Commercial real estate		—		—		—		—		76,583		76,583		—		—
Commercial business		6		—		—		6		19,549		19,555		—		—
Construction loans:
One- to four-family		—		—		—		—		13,266		13,266		—		—
Multi-family		—		—		—		—		2,328		2,328		—		—
Non-residential		—		—		—		—		6,997		6,997		—		—
Consumer		—		—		—		—		227		227		—		—
Total	$	6	$	31	$	775	$	812	$	260,477	$	261,289	$	—	$	932

	Loans delinquent for:												90 days
					90 days		Total		Total		Total		or more		Non-accrual
	30 - 59 Days		60 - 89 Days		or more		Past Due		Current		Loans		and accruing		Loans
	(In thousands)
At December 31, 2015
Residential loans:
One- to four-family	$	—	$	—	$	649	$	649	$	85,823	$	86,472	$	—	$	776
Home equity loans and lines of credit		273		—		—		273		17,990		18,263		—		—
Commercial loans:
One- to four-family investment property		—		—		—		—		15,255		15,255		—		—
Multi-family real estate		—		—		—		—		30,709		30,709		—		—
Commercial real estate		—		—		—		—		67,152		67,152		—		—
Commercial business		12		—		—		12		17,536		17,548		—		—
Construction loans:
One- to four-family		—		—		—		—		12,967		12,967		—		—
Multi-family		—		—		—		—		1,486		1,486		—		—
Non-residential		—		—		—		—		5,925		5,925		—		—
Consumer		—		4		—		4		233		237		—		—
Total	$	285	$	4	$	649	$	938	$	255,076	$	256,014	$	—	$	776

15

The following is a summary of impaired loans at June 30, 2016 and December 31, 2015, and average and interest amounts for the six months and year then ended, respectively.

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(In thousands)
At June 30, 2016
Impaired loans without a valuation allowance
Residential loans:
One- to four-family	$	1,564	$	1,564	$	—	$	1,566	$	24
Home equity loans and lines of credit		103		103		—		104		2
Commercial loans:
One- to four-family investment property		—		—		—		—		—
Multi-family real estate		—		—		—		—		—
Commercial real estate		284		284		—		286		9
Commercial business		—		—		—		—		—
Construction loans:
One- to four-family		—		—		—		—		—
Multi-family		—		—		—		—		—
Non-residential		—		—		—		—		—
Consumer		—		—		—		—		—
Total impaired with no related allowance	$	1,951	$	1,951	$	—	$	1,956	$	35
Impaired loans with a valuation allowance
Residential loans:
One- to four-family	$	—	$	—	$	—	$	—	$	—
Home equity loans and lines of credit		—		—		—		—		—
Commercial loans:
One- to four-family investment property		87		87		7		87		2
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	$	87	$	87	$	7	$	87	$	2

16

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(In thousands)
At December 31, 2015
Impaired loans without a valuation allowance
Residential loans:
One- to four-family	$	1,255	$	1,255	$	—	$	236	$	12
Home equity loans and lines of credit		104		104		—		51		2
Commercial loans:
One- to four-family investment property		—		—		—		—		—
Multi-family real estate		—		—		—		—		—
Commercial real estate		287		287		—		292		17
Commercial business		—		—		—		74		9
Construction loans:
One- to four-family		—		—		—		—		—
Multi-family		—		—		—		—		—
Non-residential		—		—		—		—		—
Consumer		—		—		—		—		—
Total impaired with no related allowance	$	1,646	$	1,646	$	—	$	653	$	40
Impaired loans with a valuation allowance
Residential loans:
One- to four-family	$	312	$	312	$	7	$	314	$	16
Home equity loans and lines of credit		—		—		—		—		—
Commercial loans:
One- to four-family investment property		88		88		7		55		4
Multi-family real estate		—		—		—		—		—
Commercial real estate		—		—		—		—		—
Commercial business		—		—		—		—		—
Construction loans:
One- to four-family		—		—		—		—		—
Multi-family		—		—		—		—		—
Non-residential		—		—		—		—		—
Consumer		—		—		—		—		—
Total with an allowance recorded	$	400	$	400	$	14	$	369	$	20

The Company made no loan modifications that resulted in a troubled debt restructuring (“TDR”) during the six months ended June 30, 2016. The Company had two commercial business loans totaling $235,000 guaranteed by two individuals. During the six months ended June 30, 2015, the business was sold and net proceeds of $100,000 were applied to the outstanding balances leaving a combined deficiency or pre-modification balance of $135,000. The $135,000 balance was modified into two loans held individually by the personal guarantors of the original loans on a pro-rated basis based on their respective ownership percentages. The first loan had a $45,000 balance and the borrower made a $22,500 cash payment and the remaining $22,500 balance was charged off to the allowance for loan losses resulting in a post-modification balance of zero.  The remaining balance was modified into a one- to four-family investment property loan with a post modification balance of $90,000.  The troubled debt restructure (“TDR”) did not result in a material impact to the allowance for loan losses.

At June 30, 2016 and December 31, 2015, there were no TDR loans in default of their modified terms.

The Company has one residential loan in the process of foreclosure with a recorded balance of $649,000 at June 30, 2016.

17

The following table represents the Company’s loans by risk rating at June 30, 2016 and December 31, 2015. For additional information please refer to Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

	Residential				Commercial								Construction
					One‑ to four‑
			Home equity		family
	One‑ to four‑		loans and lines		investment		Multi‑family		Commercial		Commercial		One‑ to four‑				Non-
	family		of credit		property		real estate		real estate		business		family		Multi‑family		residential		Consumer		Total
	(In thousands)
At June 30, 2016
Classification:
Not formally rated	$	82,031	$	17,001	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	227	$	99,259
Pass		—		—		12,299		28,988		75,862		19,406		13,266		2,328		6,997		—		159,146
Special mention		—		—		—		—		—		—		—		—		—		—		—
Substandard		1,690		237		87		—		721		149		—		—		—		—		2,884
Doubtful		—		—		—		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—		—		—		—
Total loans	$	83,721	$	17,238	$	12,386	$	28,988	$	76,583	$	19,555	$	13,266	$	2,328	$	6,997	$	227	$	261,289
At December 31, 2015
Classification:
Not formally rated	$	84,778	$	18,183	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	237	$	103,198
Pass		—		—		15,167		30,709		66,420		17,454		12,967		1,486		5,925		—		150,128
Special mention		—		—		—		—		732		94		—		—		—		—		826
Substandard		1,694		80		88		—		—		—		—		—		—		—		1,862
Doubtful		—		—		—		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—		—		—		—
Total loans	$	86,472	$	18,263	$	15,255	$	30,709	$	67,152	$	17,548	$	12,967	$	1,486	$	5,925	$	237	$	256,014

18

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 $93.2 million and $100.5 million at June 30, 2016 and December 31, 2015, respectively.

The risks inherent in the mortgage servicing assets relate primarily to changes in prepayments that result from shifts in mortgage interest rates. The fair value of servicing rights was $712,000 and $1.1 million at June 30, 2016 and December 31, 2015, respectively, and was determined using the moving average 10-year, U.S. Treasury rate plus 5.0%, adjusted to reflect the current credit spreads and conditions in the market as a discount rate. Prepayment assumptions, which are impacted by loan rates and terms, are calculated using a moving average of prepayment data published by the Securities Industry and Financial Markets Association and an independent third party proprietary analysis of prepayment rates embedded in liquid mortgage securities markets and modeled against the serviced loan portfolio by the independent third party valuation specialist.

19

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

	Six Months Ended
	June 30,
	2016		2015
	(In thousands)
Mortgage servicing rights:
Balance at beginning of period	$	523	$	840
Additions		—		10
Amortization		(140)		(175)
Balance at end of period		383		675
Valuation allowance:
Balance at beginning of period		4		6
Additions		13		13
Reductions		—		(13)
Balance at end of period		17		6
Mortgage servicing rights, net	$	366	$	669
Fair value of mortgage servicing rights	$	712	$	1,157

(7)Secured Borrowings and Collateral

Federal Home Loan Bank advances

At June 30, 2016 all Federal Home Loan Bank of Boston (“FHLB”) advances were secured by a blanket security agreement on qualified collateral, principally first mortgage loans on owner-occupied residential property in the amount of $70.8 million, $24.5 million commercial real estate loans and mortgage-backed securities with a fair value of $20.0 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 June 30, 2016, the Company had no assets or liabilities valued using Level 1 measurements.

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

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

20

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 six month period ended June 30, 2016.

Assets and liabilities measured at fair value on a recurring basis at June 30, 2016 and December 31, 2015 are summarized below.

							Total
							Assets
	Level 1		Level 2		Level 3		at Fair Value
	(In thousands)
At June 30, 2016
Assets
Securities available for sale
State and municipal	$	—	$	2,480	$	—	$	2,480
Residential mortgage-backed securities		—		17,467		—		17,467
Total securities available for sale	$	—	$	19,947	$	—	$	19,947
At December 31, 2015
Assets
Securities available for sale
State and municipal	$	—	$	2,470	$	—	$	2,470
Residential mortgage-backed securities		—		16,558		—		16,558
Total securities available for sale	$	—	$	19,028	$	—	$	19,028

21

The Company may also be required, from time to time, to measure certain other financial assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. Assets measured at fair value on a non-recurring basis at June 30, 2016 and December 31, 2015 are summarized below. The fair value adjustments relate to the amount of write-down recorded or related allowance recorded as of June 30, 2016 and December 31, 2015.

							Assets		Adjustments
	Level 1		Level 2		Level 3		at Fair Value		to Fair Value
	(In thousands)
At June 30, 2016
Impaired loans	$	—	$	—	$	80	$	80	$	(7)

							Assets		Adjustments
	Level 1		Level 2		Level 3		At Fair Value		to Fair Value
	(In thousands)
At December 31, 2015
Impaired loans	$	—	$	—	$	386	$	386	$	(14)

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

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

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

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

Loans 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% 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

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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.

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

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

Off-balance-sheet instruments:  The fair value of commitments to originate loans is estimated using the fees currently charged to enter similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties.  For fixed-rate loan commitments and the unadvanced portion of loans, fair value also considers the difference between current levels of interest rates and the committed rates.  The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligation with the counterparties at the reporting date.  At June 30, 2016 and December 31, 2015, the fair value of commitments outstanding is not significant since fees charged are not material.

The estimated fair values and related carrying amounts of the Company’s financial instruments at June 30, 2016 and December 31, 2015 are as follows.

	June 30, 2016
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Total
	(In thousands)
Financial assets:
Cash and cash equivalents	$	5,652	$	5,652	$	—	$	—	$	5,652
Securities available for sale		19,947		—		19,947		—		19,947
Securities held to maturity		3,011		—		3,121		—		3,121
FHLB stock		2,011		2,011		—		—		2,011
BBN stock		60		60		—		—		60
Loans held for sale		184		187		—		—		187
Loans, net		259,221		—		—		260,382		260,382
Accrued interest receivable		783		783		—		—		783
Capitalized mortgage servicing rights		366		—		712		—		712
Financial liabilities:
Deposits	$	232,878	$	—	$	233,544	$	—	$	233,544
Short-term FHLB advances		5,500		5,500		—		—		5,500
Long-term FHLB advances		25,600		—		25,774		—		25,774
Mortgagors’ escrow accounts		1,601		1,601		—		—		1,601
Accrued interest payable		47		47		—		—		47

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	December 31, 2015
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Total
	(In thousands)
Financial assets:
Cash and cash equivalents	$	7,758	$	7,758	$	—	$	—	$	7,758
Securities available for sale		19,028		—		19,028		—		19,028
Securities held to maturity		3,112		—		3,128		—		3,128
FHLB stock		2,933		2,933		—		—		2,933
BBN stock		60		60		—		—		60
Loans, net		253,983		—		—		254,095		254,095
Accrued interest receivable		799		799		—		—		799
Capitalized mortgage servicing rights		519		—		1,100		—		1,100
Financial liabilities:
Deposits	$	207,726	$	—	$	207,894	$	—	$	207,894
Short-term FHLB advances		23,500		23,500		—		—		23,500
Long-term FHLB advances		27,100		—		27,255		—		27,255
Mortgagors’ escrow accounts		1,386		1,386		—		—		1,386
Accrued interest payable		59		59		—		—		59

(9)Equity Incentive Plans

At June 30, 2016 the Company had two equity incentive plans, the 2009 Equity Plan and the 2014 Equity Plan. Both plans were described more fully in Note 12 of the consolidated financial statements and notes thereto for the year ended December 31, 2015.

The following table presents the activity for the 2009 and 2014 Equity Plans for the six months ended June 30, 2016.

	Stock Options
	2016
			Weighted
			Average
	Number of		Exercise
	Shares		Price
Outstanding at beginning of year		89,275	$	14.02
Granted		33,500	$	19.40
Outstanding at end of period		122,775	$	15.49
Exercisable at end of period		51,740
Weighted average fair value of options granted during the period	$	6.07

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Options Outstanding					Options Exercisable			��
Number	Weighted-Average		Weighted		Number	Weighted
Outstanding	Remaining		Average		Exercisable	Average
as of 6/30/2016	Contractual Life		Exercise Price		as of 6/30/2016	Exercise Price
8,712	3.65	Years	$	9.33	8,712	$	9.33
9,683	4.65	Years	$	9.55	9,683	$	9.55
8,570	5.65	Years	$	9.58	7,359	$	9.58
15,200	6.65	Years	$	14.00	10,500	$	14.00
17,110	7.65	Years	$	14.98	8,286	$	14.98
30,000	8.65	Years	$	17.55	7,200	$	17.55
33,500	9.65	Years	$	19.40	—	$	—
122,775	7.66	Years	$	15.49	51,740	$	12.40

	Non-vested
	Restricted Stock
	2016
		Weighted
		Average
	Number of	Grant Date
	Shares	Value
Outstanding at beginning of year	44,866	$	15.21
Granted	16,500	$	19.40
Vested	(14,917)	$	14.27
Outstanding at end of period	46,449	$	17.00

As of June 30, 2016, unrecognized share-based compensation expense related to non-vested options amounted to $374,000 and the unrecognized share-based compensation expense related to non-vested restricted stock amounted to $706,000. The unrecognized expense related to the non-vested options and non-vested restricted stock will be recognized over a weighted average period of 3.4 years.

For the six months ended June 30, 2016, the Company recognized compensation expense for stock options of $59,000 with a related tax benefit of $8,000. The related tax benefit applies only to non-qualified stock options.  For the six months ended June 30, 2016, the Company recognized compensation expense for restricted stock awards of $125,000 with a related tax benefit of $50,000.

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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.

Net income for the six months ended June 30, 2016 decreased $381,000 compared to the same period in 2015. The decrease in net income was primarily due to an increase in non-interest expense and an increase in the provision for loan losses partially offset by an increase in net interest and dividend income and an increase in non-interest income. Net interest and dividend income increased primarily due to an increase in average loans outstanding. The provision for loan losses totaled $74,000 for the six months ended June 30, 2016, compared to a $27,000 provision for loan losses during the same period in 2015 and the increase was primarily due to loan growth.  Non-interest expenses increased $842,000, or 19.2%, to $5.2 million for the six months ended June 30, 2016, compared to $4.4 million for the six months ended June 30, 2015, primarily due to the cost associated with an increase in commercial lending support and regulatory compliance staff.  Non-interest income increased $32,000, or 6.9%, primarily due to an increase in gain on sale of Small Business Administration (“SBA”) loans. We continued to maintain strong asset quality, as non-performing assets to total assets was 0.31% at June 30, 2016. We converted our Loan Production Office (“LPO”) in southern New Hampshire to a full service office in June 2016.

Critical Accounting Policies

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

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

The allowance for loan losses is evaluated on a monthly basis by management and is based upon management’s monthly review of the collectability of the loans in light of known and inherent risks in the nature and volume of the loan

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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 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.

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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 June 30, 2016 and December 31, 2015

Total assets increased $3.4 million, or 1.14%, to $299.9 million at June 30, 2016 from $296.5 million at December 31, 2015. The increase was primarily due to an increase in loans, offset by a decrease in cash and cash equivalents.

Cash and cash equivalents decreased $2.1 million, or 27.1%, to $5.7 million at June 30, 2016 from $7.8 million at December 31, 2015. This decrease resulted from the timing of normal cash flows.

Loans, net of allowance for loan losses, increased $5.2 million, or 2.1%, to $259.2 million at June 30, 2016 from $254.0 million at December 31, 2015, due primarily to an increase in commercial loans and construction loans, partially offset by a decrease in residential mortgage loans. Despite the current competitive market, we have decided to maintain our historically high underwriting standards instead of relaxing these standards, and we have not reduced loan rates below levels at which we could not operate profitably.  Commercial loans increased $6.8 million, or 5.2%, to $137.5 million at June 30, 2016 from $130.7 million at December 31, 2015, primarily due to a $9.4 million, or 14.0%, increase in commercial real estate loans. Construction loans increased by $2.2 million, or 10.9%, to $22.6 million at June 30, 2016 from $20.4 million at December 31, 2015, primarily due to a $1.1 million, or 18.1%, increase in non-residential construction loans and an $842,000, or 56.7%, increase in multi-family construction loans. The majority of our construction loans remain collateralized by residential real estate (69.0% at June 30, 2016 and 70.9% at December 31, 2015).  One- to four-family residential mortgage loans decreased $2.8 million, or 3.2%, to $83.7 million at June 30, 2016 from $86.5 million at December 31, 2015, as a decrease in mortgage rates resulted in an increase in loan prepayments due to loan refinances out of the Bank. Home equity loans and lines of credit decreased $1.0 million, or 5.6%, to $17.2 million at June 30, 2016 from $18.3 million at December 31, 2015, primarily due to one loan payoff.

Our total securities portfolio increased $818,000, or 3.7%, to $23.0 million at June 30, 2016 from $22.1 million at December 31, 2015, due to the purchase of securities offset by principal payments received on mortgage-backed securities.

Deposits increased $25.2 million, or 12.1%, to $232.9 million at June 30, 2016 from $207.7 million at December 31, 2015. The increase in deposits was primarily due to an increase of $19.7 million, or 27.3%, in certificates of deposit, as promotional rates on 18 month and 30 month certificates were offered during most of the first quarter. Demand deposits increased $2.8 million, or 10.2%, and NOW accounts increased $2.4 million, or 7.9%. Management continues to focus on the generation of core checking accounts through use of the Haberfeld checking account acquisition program.

Total FHLB advances decreased $19.5 million, or 38.5%, to $31.1 million at June 30, 2016 compared to $50.6 million at December 31, 2015, primarily due to the inflow of deposits which were used to pay off maturing advances. Short-term advances decreased $18.0 million and long-term advances decreased $1.5 million during the six months ended June 30, 2016. 

Stockholders’ equity increased $484,000, or 1.5%, to $32.4 million at June 30, 2016 from $31.9 million at December 31, 2015. The increase resulted primarily from net income of $232,000 for the six months ended June 30, 2016 and other comprehensive income, partially offset by dividend payments and stock repurchases. Other comprehensive income, net of taxes, of $240,000 reflects the change in net unrealized gains/losses, net of taxes, on securities available for sale from a net unrealized gain of $46,000 at December 31, 2015 to a net unrealized gain of $286,000 at June 30, 2016.  Dividend payments totaled $170,000 for the six months ended June 30, 2016. We repurchased 3,818 shares at an average cost of $19.40 totaling $74,000 during the six months ended June 30, 2016.

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

	At				At
	June 30,				December 31,
	2016				2015
	Amount		Percent		Amount		Percent
	(Dollars in thousands)
Residential loans:
One- to four-family	$	83,721	32.04	%	$	86,472	33.78	%
Home equity loans and lines of credit		17,238	6.60			18,263	7.13
Total residential mortgage loans		100,959	38.64			104,735	40.91
Commercial loans:
One- to four-family investment property		12,386	4.74			15,255	5.96
Multi-family real estate		28,988	11.09			30,709	12.00
Commercial real estate		76,583	29.31			67,152	26.23
Commercial business		19,555	7.48			17,548	6.85
Total commercial loans		137,512	52.62			130,664	51.04
Construction loans:
One- to four-family		13,266	5.08			12,967	5.07
Multi-family		2,328	0.89			1,486	0.58
Non-residential		6,997	2.68			5,925	2.31
Total construction loans		22,591	8.65			20,378	7.96
Consumer		227	0.09			237	0.09
Total loans		261,289	100.00	%		256,014	100.00	%
Other items:
Net deferred loan costs		415				377
Allowance for loan losses		(2,483)				(2,408)
Total loans, net	$	259,221			$	253,983

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

	At June 30,			At December 31,
	2016			2015
	(Dollars in thousands)
Non-accrual loans:
Residential mortgage loans	$	932		$	776
Commercial loans		—			—
Construction loans		—			—
Consumer		—			—
Total non-accrual loans		932			776
Non-performing restructured loans		—			—
Total non-performing loans		932			776
Other real estate owned		—			—
Total non-performing assets	$	932		$	776
Ratios:
Non-performing loans to total loans		0.36	%		0.30	%
Non-performing assets to total assets		0.31	%		0.26	%
Allowance for loan losses to non-performing loans		266.42	%		310.31	%

Total delinquent loans decreased $126,000, from $938,000 at December 31, 2015 to $812,000 at June 30, 2016, primarily in home equity loans and lines of credit.

Non-performing assets totaled $932,000 and $776,000 at June 30, 2016 and December 31, 2015, respectively. One of the non-performing assets totaling $157,000 at June 30, 2016 was a loan that was current in payments; however, it has been classified as non-performing until a consistent loan payment is established. Total non-performing assets represented 0.31% and 0.26% of total assets at June 30, 2016 and December 31, 2015, respectively.

Loans classified as substandard increased $1.0 million, to $2.9 million at June 30, 2016 from $1.9 million at December 31, 2015, primarily due to two loans, a commercial real estate loan and a commercial business loan, being downgraded from the special mention classification to substandard.

The allowance for loan losses increased $75,000 to $2.5 million at June 30, 2016 primarily due to the growth in the commercial loan portfolio. Loan charge-offs were $2,000 and recoveries were $3,000 for the six months ended June 30, 2016, as compared to loan charge-offs of $25,000 and recoveries of $3,000 for the same period in 2015. The allowance represented 0.95% of total loans at June 30, 2016 and 0.94% of total loans at December 31, 2015. At these levels, the allowance for loan losses as a percentage of non-performing loans was 266.42% at June 30, 2016 and 310.31% at December 31, 2015.

Comparison of Operating Results for the Three Months Ended June 30, 2016 and 2015

General.  Net income decreased $211,000, or 58.1%, to $152,000 for the three months ended June 30, 2016, from $363,000 for the three months ended June 30, 2015. The decrease in net income was caused by an increase in non-interest expense, partially offset by increases in net interest and dividend income and in non-interest income.

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Interest and Dividend Income. Interest and dividend income increased $313,000, or 10.9%, to $3.2 million for the three months ended June 30, 2016, primarily due to an increase in interest income on loans. Interest income on loans increased $302,000, or 11.1%, to $3.0 million for the three months ended June 30, 2016, due to a $28.2 million, or 12.2%, increase in the average balance of loans, partially offset by a five basis point decrease in yield to 4.67% for the three months ended June 30, 2016 from 4.72% for the three months ended June 30, 2015.

Interest and dividend income on investment securities increased $8,000, or 5.5%, to $154,000 for the three months ended June 30, 2016 from $146,000 for the three months ended June 30, 2015, due to a $368,000, or 1.5%, increase in the average balance of investment securities and by a nine basis point increase in yield to 2.43% for the three months ended June 30, 2016 from 2.34% for the three months ended June 30, 2015.

Interest Expense. Interest expense increased $196,000, or 48.0%, to $604,000 for the three months ended June 30, 2016 from $408,000 for the three months ended June 30, 2015. Interest expense on deposits increased $207,000, or 83.1%, to $456,000 for the three months ended June 30, 2016 from $249,000 for the three months ended June 30, 2015, due to an increase in the average balance of interest-bearing deposits of $36.7 million, or 22.2%, to $201.7 million for the three months ended June 30, 2016 from $165.0 million for the three months ended June 30, 2015 and an increase in the average rate we paid on interest-bearing deposits to 0.90% for the three months ended June 30, 2016 compared to 0.60% for the three months ended June 30, 2015.  The increase in interest expense on deposits was primarily due to certificates of deposit, as promotional rates were offered during most of the first quarter of 2016. Interest expense on certificates of deposit increased $180,000, or 108.4%, to $346,000 for the three months ended June 30, 2016 from $166,000 for the three months ended June 30, 2015 due to an increase in the average balance in certificates of deposit of $30.9 million, or 51.2%, to $91.2 million for the three months ended June 30, 2016 from $60.3 million for the same period in 2015 and by an increase in the average rate we paid on certificates of deposit to 1.52% for the three months ended June 30, 2016 compared to 1.10% for the same period in 2015. Interest expense on money market deposits increased $24,000, or 39.3%, to $85,000 for the three months ended June 30, 2016 from $61,000 for the three months ended June 30, 2015 due to an increase in the average balance in money market deposits of $3.5 million, or 6.0%, to $61.7 million for the three months ended June 30, 2016 from $58.2 million for the same period in 2015 and by an increase in the average rate we paid on money market deposits to 0.55% for the three months ended June 30, 2016 compared to 0.42% for the same period in 2015.

Interest expense on FHLB advances decreased $11,000, or 6.9%, to $148,000 for the three months ended June 30, 2016 from $159,000 for the three months ended June 30, 2015. The decrease was primarily due to a $9.1 million, or 21.6%, decrease in the average outstanding balance of advances to $33.1 million for the three months ended June 30, 2016 from $42.2 million for the three months ended June 30, 2015, partially offset by the average rate we paid, which increased 28 basis points to 1.79% for the three months ended June 30, 2016 compared to 1.51% for the three months ended June 30, 2015. The average outstanding balance of long-term advances decreased $3.3 million, or 11.3%, to $26.1 million for the three months ended June 30, 2016 from $29.4 million for the three months ended June 30, 2015 and the average outstanding balance of short-term advances decreased $5.8 million, or 45.1%, to $7.0 million for the three months ended June 30, 2016 from $12.8 million for the same period in 2015, as we paid off advances with deposit increases. We expect the average balance of short-term FHLB advances to increase in the near term, as we fund current loan demand.

Net Interest and Dividend Income. Net interest and dividend income increased $117,000, or 4.7%, to $2.6 million for the three months ended June 30, 2016 compared to $2.5 million for the three months ended June 30, 2015. The increase in net interest and dividend income was primarily the result of a $1.9 million, or 3.6%, increase in net average interest-earning assets to $55.2 million for the three months ended June 30, 2016, from $53.3 million for the same period in 2015. Our net interest margin may compress in the future due to competitive pricing in our market area and due to a rising interest rate environment.

Provision for Loan Losses. We establish provisions for loan losses, which are charged to operations, at a level necessary to absorb known and inherent losses that are both probable and reasonably estimable at the date of the financial statements. In evaluating the level of the allowance for loan losses quarterly, management analyzes several quantitative and qualitative loan portfolio risk factors including but not limited to, charge-off history over a relevant period, changes in management or underwriting policies, current economic conditions, delinquency statistics, geographic

31

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 did not record a provision for loan losses for the three months ended June 30, 2016 and 2015. There were $2,000 in loan charge-offs and $2,000 in recoveries for the three months ended June 30, 2016, as compared to $24,000 in charge-offs and $2,000 in recoveries for the same period in 2015. The allowance for loan losses was $2.5 million, or 0.95%, of total loans and 266.42% of non-performing loans at June 30, 2016, compared to an allowance for loan losses of $2.4 million, or 0.94%, of total loans and 310.31% of non-performing loans at December 31, 2015. For additional information please refer to Note 6, Loans and Servicing.

Non-interest Income.  Non-interest income increased $12,000, or 4.9%, to $255,000 for the three months ended June 30, 2016 from $243,000 for the three months ended June 30, 2015, primarily due to an increase in mortgage banking income, net, offset by a decrease in customer service fees. Mortgage banking income, net, increased $17,000, or 58.6%, to $46,000 for the three months ended June 30, 2016 from $29,000 for the three months ended June 30, 2015.  The increase was primarily due to a higher level of residential loan origination volume.  Income from customer service fees decreased $10,000, or 5.5%, to $171,000 for the three months ended June 30, 2016 from $181,000 for the three months ended June 30, 2015. The decrease was primarily from the Company’s commercial customer base.

Non-interest Expenses. Non-interest expense increased $459,000, or 21.4%, to $2.6 million for the three months ended June 30, 2016, from $2.1 million for the three months ended June 30, 2015. Salaries and benefits expense increased $254,000, or 21.0%, primarily due to the costs associated with an increase in commercial lending support and regulatory compliance staff. Professional fees increased $148,000, or 123.3%, primarily due to the costs associated with enhancements to our regulatory compliance staff and compliance programs.  Other general and administrative expenses increased $39,000, or 14.8%, due to recruitment fees associated with the commercial lending staff.

Income Tax Expense. The income before income taxes of $244,000 resulted in income tax expense of $92,000 for the three months ended June 30, 2016, compared to income before income taxes of $574,000 resulting in an income tax expense of $211,000 for the three months ended June 30, 2015. The effective income tax rate was 37.7% for the three months ended June 30, 2016 compared to 36.8% for the three months ended June 30, 2015. The increase in the effective tax rate was primarily due to a tax credit program the Company participated in during the three months ended June 30, 2015.

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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 June 30,
	2016						2015
	Average						Average
	Outstanding				Yield/		Outstanding				Yield/
	Balance		Interest (1)		Rate (1)		Balance		Interest (1)		Rate (1)
	(Dollars in thousands)
Interest-earning assets:
Loans (2)	$	259,696	$	3,035	4.67	%	$	231,517	$	2,733	4.72	%
Investment securities (1)		25,348		164	2.58	%		24,980		153	2.45	%
Short-term investments		4,971		5	0.40	%		4,106		2	0.19	%
Total interest-earning assets		290,015		3,204	4.42	%		260,603		2,888	4.43	%
Non-interest-earning assets		8,777		—				8,332		—
Total assets	$	298,792		3,204			$	268,935		2,888
Interest-bearing liabilities:
Savings deposits	$	16,179		1	0.02	%	$	15,187		1	0.03	%
NOW accounts		32,516		24	0.30	%		31,309		21	0.27	%
Money market accounts		61,751		85	0.55	%		58,231		61	0.42	%
Certificates of deposit		91,225		346	1.52	%		60,316		166	1.10	%
Total interest-bearing deposits		201,671		456	0.90	%		165,043		249	0.60	%
FHLB advances		33,135		148	1.79	%		42,254		159	1.51	%
Total interest-bearing liabilities		234,806		604	1.03	%		207,297		408	0.79	%
Non-interest-bearing liabilities:
Demand deposits		29,562						27,323
Other non-interest-bearing liabilities		3,340						4,108
Total liabilities		267,708						238,728
Stockholders’ equity		31,084						30,207
Total liabilities and stockholders’ equity	$	298,792					$	268,935
Net interest-earning assets (3)	$	55,209					$	53,306
Fully tax-equivalent net interest income				2,600						2,480
Less: tax-equivalent adjustments				(10)						(7)
Net interest income			$	2,590					$	2,473
Net interest rate spread (1)(4)					3.39	%					3.64	%
Net interest margin (1)(5)					3.59	%					3.81	%
Average of interest-earning assets to interest-bearing liabilities					123.51	%					125.71	%

(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 June 30, 2016 and 2015 the yield on investment securities before tax-equivalent adjustments was 2.43% and 2.34%, respectively, and the yield on total interest-earning assets was 4.41% and 4.42%, respectively. Net interest rate spread before tax-equivalent adjustments for the three months ended June 30, 2016 and 2015 was 3.38% and 3.63%, respectively, while net interest margin before tax-equivalent adjustments was 3.57% and 3.80%, 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 June 30, 2016
	Compared to the Three Months Ended
	June 30, 2015
	Increase (Decrease) Due to
	Volume		Rate		Net
	(In thousands)
Interest-earning assets:
Loans	$	333	$	(31)	$	302
Investment securities (1)		2		9		11
Short-term investments		—		3		3
Total interest-earning assets		335		(19)		316
Interest-bearing liabilities:
Savings deposits		—		—		—
NOW accounts		1		2		3
Money market accounts		4		20		24
Certificates of deposit		85		95		180
Total interest-bearing deposits		90		117		207
FHLB advances		(34)		23		(11)
Total interest-bearing liabilities		56		140		196
Change in net interest income	$	279	$	(159)	$	120

(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 $10,000 and $7,000 for the three months ended June 30, 2016 and 2015, respectively.

Comparison of Operating Results for the Six Months Ended June 30, 2016 and 2015

General.  Net income decreased $381,000, or 62.2%, to $232,000 for the six months ended June 30, 2016, from $613,000 for the six months ended June 30, 2015. The decrease in net income was caused by increases in the provision for loan losses and non-interest expense, partially offset by increases in net interest and dividend income and in non-interest income.

Interest and Dividend Income. Interest and dividend income increased $619,000, or 10.8%, to $6.4 million for the six months ended June 30, 2016, primarily due to an increase in interest income on loans. Interest income on loans increased $590,000, or 10.8%, to $6.0 million for the six months ended June 30, 2016, due to a $27.8 million, or 12.0%, increase in the average balance of loans, partially offset by a five basis point decrease in yield to 4.64% for the six months ended June 30, 2016 from 4.69% for the six months ended June 30, 2015.

Interest and dividend income on investment securities increased $22,000, or 7.7%, to $308,000 for the six months ended June 30, 2016 from $286,000 for the six months ended June 30, 2015, due to a $980,000, or 4.1% increase

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in the average balance of investment securities and by an eight basis point increase in yield to 2.46% for the six months ended June 30, 2016 from 2.38% for the six months ended June 30, 2015.

Interest Expense. Interest expense increased $371,000, or 46.0%, to $1.2 million for the six months ended June 30, 2016 from $807,000 for the six months ended June 30, 2015. Interest expense on deposits increased $382,000, or 78.8%, to $867,000 for the six months ended June 30, 2016 from $485,000 for the six months ended June 30, 2015, due to an increase in the average balance of interest-bearing deposits of $35.9 million, or 22.2%, to $197.8 million for the six months ended June 30, 2016 from $161.9 million for the six months ended June 30, 2015 and an increase in the average rate we paid on interest-bearing deposits to 0.88% for the six months ended June 30, 2016 compared to 0.60% for the six months ended June 30, 2015.  The increase in interest expense on deposits was primarily due to certificates of deposit, as promotional rates were offered during most of the first quarter of 2016. Interest expense on certificates of deposit increased $317,000, or 94.6%, to $652,000 for the six months ended June 30, 2016 from $335,000 for the six months ended June 30, 2015 due to an increase in the average balance in certificates of deposit of $27.2 million, or 45.3%, to $87.3 million for the six months ended June 30, 2016 from $60.1 million for the same period in 2015 and by an increase in the average rate we paid on certificates of deposit to 1.49% for the six months ended June 30, 2016 compared to 1.12% for the same period in 2015. Interest expense on money market deposits increased $57,000, or 52.3%, to $166,000 for the six months ended June 30, 2016 from $109,000 for the six months ended June 30, 2015 due to an increase in the average balance in money market deposits of $5.5 million, or 9.9%, to $61.5 million for the six months ended June 30, 2016 from $56.0 million for the same period in 2015 and by an increase in the average rate we paid on money market deposits to 0.54% for the six months ended June 30, 2016 compared to 0.39% for the same period in 2015.

Interest expense on FHLB advances decreased $11,000, or 3.4%, to $311,000 for the six months ended June 30, 2016 from $322,000 for the six months ended June 30, 2015. The decrease was primarily due an $8.6 million, or 18.3%, decrease in the average outstanding balance of advances to $38.4 million for the six months ended June 30, 2016 from $47.0 million for the six months ended June 30, 2015, partially offset by the average rate we paid, which increased 25 basis points to 1.62% for the six months ended June 30, 2016 compared to 1.37% for the six months ended June 30, 2015. The average outstanding balance of long-term advances decreased $2.5 million, or 8.6%, to $26.6 million for the six months ended June 30, 2016 from $29.1 million for the six months ended June 30, 2015 and the average outstanding balance of short-term advances decreased $6.1 million, or 34.1%, to $11.8 million for the six months ended June 30, 2016 from $17.9 million for the same period in 2015, as we paid off advances with deposit increases. We expect the average balance of short-term FHLB advances to increase in the near term, as we fund current loan demand.

Net Interest and Dividend Income. Net interest and dividend income increased $248,000, or 5.0%, to $5.2 million for the six months ended June 30, 2016 compared to $4.9 million for the six months ended June 30, 2015. The increase in net interest and dividend income was primarily the result of a $2.2 million, or 4.3%, increase in net average interest-earning assets to $54.5 million for the six months ended June 30, 2016, from $52.3 million for the same period in 2015. Our net interest margin may compress in the future due to competitive pricing in our market area and due to a rising interest rate environment.

Provision for Loan Losses. We establish provisions for loan losses, which are charged to operations, at a level necessary to absorb known and inherent losses that are both probable and reasonably estimable at the date of the financial statements. In evaluating the level of the allowance for loan losses quarterly, management analyzes several quantitative and qualitative loan portfolio risk factors including but not limited to, charge-off history over a relevant period, changes in management or underwriting policies, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower and results of internal and external loan reviews. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. After an evaluation of these factors, we recorded a provision for loan losses of $74,000 for the six months ended June 30, 2016, compared to a provision for loan losses of $27,000 for the six months ended June 30, 2015. There were $2,000 in charge-offs and $3,000 in recoveries for the six months ended June 30, 2016, as compared to $25,000 in charge-offs and $3,000 in recoveries for the same period in 2015. The allowance for loan losses was $2.5 million, or 0.95%, of total loans and 266.42% of non-performing loans at June 30, 2016, compared to an allowance for loan losses of $2.4 million, or 0.94%, of total loans and 310.31% of non-performing loans at December 31, 2015. For additional information please refer to Note 6, Loans and Servicing.

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Non-interest Income.  Non-interest income increased $32,000, or 6.9%, to $497,000 for the six months ended June 30, 2016 from $465,000 for the six months ended June 30, 2015, primarily due to an increase in gain on sale of SBA loans and customer service fees. The gain on sale of SBA loans was $15,000 for the six months ended June 30, 2016, compared to no gains during the same period in 2015. Income from customer service fees increased $5,000, or 1.4%, to $355,000 for the six months ended June 30, 2016 from $350,000 for the six months ended June 30, 2015. The increase was primarily from the Company’s commercial customer base. Mortgage banking income, net increased $4,000, or 7.8%, to $55,000 for the six months ended June 30, 2016 from $51,000 for the six months ended June 30, 2015.  The increase was primarily due to an increased level of residential loan volume.

Non-interest Expenses. Non-interest expense increased $842,000, or 19.2%, to $5.2 million for the six months ended June 30, 2016, from $4.4 million for the six months ended June 30, 2015. Salaries and benefits expense increased $437,000, or 17.9%, primarily due to the costs associated with an increase in commercial lending support and regulatory compliance staff. Data processing expenses increased $56,000, or 17.2%, primarily due to one-time implementation fees of $66,000 expensed during the six months ended June 30, 2016. Professional fees increased $317,000, or 131.0%, primarily due to the costs associated with enhancements to our regulatory compliance staff and compliance programs.

Income Tax Expense. The income before income taxes of $364,000 resulted in income tax expense of $132,000 for the six months ended June 30, 2016, compared to income before income taxes of $973,000 resulting in an income tax expense of $360,000 for the six months ended June 30, 2015. The effective income tax rate was 36.2% for the six months ended June 30, 2016 compared to 37.0% for the six months ended June 30, 2015. The decrease in the effective tax rate was primarily due to a decrease in taxable income as a percentage of total income.

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

	Six Months Ended June 30,
	2016						2015
	Average						Average
	Outstanding				Yield/		Outstanding				Yield/
	Balance		Interest (1)		Rate (1)		Balance		Interest (1)		Rate (1)
	(Dollars in thousands)
Interest-earning assets:
Loans (2)	$	260,200	$	6,038	4.64	%	$	232,362	$	5,448	4.69	%
Investment securities (1)		25,003		327	2.62	%		24,023		301	2.51	%
Short-term investments		5,503		11	0.40	%		4,805		4	0.17	%
Total interest-earning assets		290,706		6,376	4.39	%		261,190		5,753	4.41	%
Non-interest-earning assets		9,000		—				8,390		—
Total assets	$	299,706		6,376			$	269,580		5,753
Interest-bearing liabilities:
Savings deposits	$	15,950		2	0.03	%	$	14,899		2	0.03	%
NOW accounts		33,119		47	0.28	%		30,988		39	0.25	%
Money market accounts		61,512		166	0.54	%		55,992		109	0.39	%
Certificates of deposit		87,253		652	1.49	%		60,050		335	1.12	%
Total interest-bearing deposits		197,834		867	0.88	%		161,929		485	0.60	%
FHLB advances		38,373		311	1.62	%		46,992		322	1.37	%
Total interest-bearing liabilities		236,207		1,178	1.00	%		208,921		807	0.77	%
Non-interest-bearing liabilities:
Demand deposits		28,736						26,907
Other non-interest-bearing liabilities		3,699						3,583
Total liabilities		268,642						239,411
Stockholders’ equity		31,064						30,169
Total liabilities and stockholders’ equity	$	299,706					$	269,580
Net interest-earning assets (3)	$	54,499					$	52,269
Fully tax-equivalent net interest income				5,198						4,946
Less: tax-equivalent adjustments				(19)						(15)
Net interest income			$	5,179					$	4,931
Net interest rate spread (1)(4)					3.39	%					3.64	%
Net interest margin (1)(5)					3.58	%					3.79	%
Average of interest-earning assets to interest-bearing liabilities					123.07	%					125.02	%

(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 six months ended June 30, 2016 and 2015 the yield on investment securities before tax-equivalent adjustments was 2.46% and 2.38%, respectively, and the yield on total interest-earning assets was 4.37% and 4.39%, respectively. Net interest rate spread before tax-equivalent adjustments for the six months ended June 30, 2016 and 2015 was 3.37% and 3.62%, respectively, while net interest margin before tax-equivalent adjustments was 3.56% and 3.78%, 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 Six Months Ended June 30, 2016
	Compared to the Six Months Ended
	June 30, 2015
	Increase (Decrease) Due to
	Volume		Rate		Net
	(In thousands)
Interest-earning assets:
Loans	$	653	$	(63)	$	590
Investment securities (1)		12		14		26
Short-term investments		1		6		7
Total interest-earning assets		666		(43)		623
Interest-bearing liabilities:
Savings deposits		—		—		—
NOW accounts		3		5		8
Money market accounts		11		46		57
Certificates of deposit		152		165		317
Total interest-bearing deposits		166		216		382
FHLB advances		(59)		48		(11)
Total interest-bearing liabilities		107		264		371
Change in net interest income	$	559	$	(307)	$	252

(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 $19,000 and $15,000 for the six months ended June 30, 2016 and 2015, respectively.

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

We regularly adjust our investments in liquid assets based upon our assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities, and (4) the objectives of our asset/liability management program. Excess liquid assets are 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 June 30, 2016, cash and cash equivalents totaled $5.7 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $19.9

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million at June 30, 2016. Our policies also allow for access to the wholesale funds market for up to 40.0% of total assets, or $120.0 million. At June 30, 2016, we had $31.1 million in FHLB advances outstanding, $30.2 million in certificates of deposit obtained through a listing service and $3.3 million in brokered certificates of deposit, allowing the Company access to an additional $55.3 million in wholesale funds based on policy guidelines.

At June 30, 2016 we had $11.3 million in loan commitments outstanding. In addition to commitments to originate loans, we had $44.2 million in unadvanced funds to borrowers.

At June 30, 2016 we had $2.0 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 June 30, 2016 totaled $33.0 million, or 14.2% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit or other wholesale funding options. Depending on market conditions, we may be required to pay higher rates on such deposits than we currently pay on the certificates of deposit due on or before June 30, 2017. We believe, however, based on past experience that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

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

Our primary investing activities are the origination and purchase of loans and the purchase of securities. During the six months ended June 30, 2016, we originated $42.5 million in loans, purchased $4.3 million of residential loans and purchased $4.5 million of investment securities. We expect to purchase additional residential mortgages to replace recent residential loan prepayments.

Financing activities consist primarily of activity in deposit accounts and FHLB advances.  We experienced a net increase in total deposits of $25.2 million for the six months ended June 30, 2016. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits to be competitive. FHLB advances decreased $19.5 million during the six months ended June 30, 2016 due to deposit growth. FHLB advances have primarily been used to fund loan demand and deposit outflows. We sold $210,000 of SBA loans and $247,000 of residential mortgages during the six months ended June 30, 2016.

Capital Management.

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

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At June 30, 2016, Georgetown Bank met each of its capital requirements and was considered “well-capitalized”, and also met each of its capital requirements on a fully phased-in basis.

Off-Balance Sheet Arrangements. For the six months ended June 30, 2016, we engaged in no off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

Not applicable to smaller reporting companies.

Item 4.Controls and Procedures

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

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PART II. OTHER INFORMATION

Item 1.Legal Proceedings

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

Item 1A.Risk Factors

In addition to the other information contained in this Quarterly Report on Form 10-Q, the following risk factor represents material updates and additions to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 as filed with the Securities and Exchange Commission on March 29, 2016. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations. Further, to the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk factor set forth below also is a cautionary statement identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.

A new accounting standard will likely require us to increase our allowance for loan losses and may have a material adverse effect on our financial condition and results of operations.

The Financial Accounting Standards Board has adopted a new accounting standard that will be effective for the Company and Bank for our first fiscal year after December 15, 2019.  This standard, referred to as Current Expected Credit Loss, or CECL, will require financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and recognize the expected credit losses as allowances for loan losses.  This will change the current method of providing allowances for loan losses that are probable, which may require us to increase our allowance for loan losses, and to greatly increase the types of data we would need to collect and review to determine the appropriate level of the allowance for loan losses.  Any increase in our allowance for loan losses or expenses incurred to determine the appropriate level of the allowance for loan losses may have a material adverse effect on our financial condition and results of operations.

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

a) Not applicable.

b) Not applicable.

c) There were no share repurchases during the quarter ended June 30, 2016.  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.  As of June 30, 2016, 15,973 shares remain available for repurchase under the repurchase program.

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

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

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

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

101The following financial statements from Georgetown Bancorp Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, filed on August 12, 2016, formatted in XBRL: (1) Consolidated Statements of Financial Condition, (2) Consolidated Statements of Income, (3) Consolidated Statements of Comprehensive Income, (4) Consolidated Statements of Changes in Stockholders’ Equity, (5) Consolidated Statements of Cash Flows, and (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: August 11, 2016	/s/ Robert E. Balletto
	Robert E. Balletto
	President and Chief Executive Officer
	(Principal Executive Officer)
Date: August 11, 2016	/s/ Joseph W. Kennedy
	Joseph W. Kennedy
	Senior Vice President, Chief Financial Officer and Treasurer
	(Principal Accounting and Financial Officer)

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