Georgetown Bancorp 10-Q 2017 Q1 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 March 31, 2017

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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

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

Indicate by check mark whether the registrant is a shell company (as defined in 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, 1,836,250 shares outstanding as of May 8, 2017.

Form 10-Q

GEORGETOWN BANCORP, INC.

Table of Contents

		Page
Part I. Financial Information
	Financial Statements
	Consolidated Statements of Financial Condition at March 31, 2017 (unaudited) and December 31, 2016	1
	Consolidated Statements of Income for the Three Months Ended March 31, 2017 and 2016 (unaudited)	2
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2017 and 2016 (unaudited)	3
	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2017 and 2016 (unaudited)	4
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016 (unaudited)	5
	Notes to Consolidated Financial Statements (unaudited)	7
	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
	Quantitative and Qualitative Disclosures About Market Risk	36
	Controls and Procedures	37
Part II. Other Information
	Legal Proceedings	38
	Risk Factors	38
	Unregistered Sales of Equity Securities and Use of Proceeds	38
	Defaults upon Senior Securities	38
	Mine Safety Disclosures	38
	Other Information	38
	Exhibits	38
SIGNATURES		40

PART I—FINANCIAL INFORMATION

ITEM 1. Financial Statements

GEORGETOWN BANCORP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

	At		At
	March 31,		December 31,
	2017		2016
	(Unaudited)
	(In thousands, except share data)
ASSETS
Cash and due from banks	$	2,452	$	2,945
Short-term investments		5,701		3,184
Total cash and cash equivalents		8,153		6,129
Securities available for sale, at fair value		18,847		19,772
Securities held to maturity, at amortized cost (fair value of $2,453 at March 31, 2017 and $2,490 at December 31, 2016)		2,462		2,503
Federal Home Loan Bank stock, at cost		2,751		2,341
Bankers Bank Northeast stock, at cost		60		60
Loans held for sale		—		271
Loans, net of allowance for loan losses of $2,642 at March 31, 2017 and $2,605 at December 31, 2016		279,567		277,371
Premises and equipment, net		4,035		4,133
Accrued interest receivable		826		816
Bank-owned life insurance		3,231		3,206
Other assets		1,930		2,030
Total assets	$	321,862	$	318,632
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits	$	240,530	$	240,508
Short-term Federal Home Loan Bank advances		21,000		17,250
Long-term Federal Home Loan Bank advances		23,600		24,600
Mortgagors’ escrow accounts		1,973		1,633
Accrued expenses and other liabilities		2,356		2,485
Total liabilities		289,459		286,476
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value per share: 50,000,000 shares authorized at March 31, 2017 and December 31, 2016; none outstanding		—		—
Common stock, $0.01 par value per share: 100,000,000 shares authorized, 1,836,250 shares issued at March 31, 2017 and 1,840,920 shares issued at December 31, 2016		18		18
Additional paid-in capital		19,809		19,871
Retained earnings		13,825		13,635
Accumulated other comprehensive loss		(5)		(41)
Unearned compensation - ESOP (70,595 shares unallocated at March 31, 2017 and 72,405 shares unallocated at December 31, 2016)		(733)		(753)
Unearned compensation - Restricted stock (30,076 shares non-vested at March 31, 2017 and 46,449 shares non-vested at December 31, 2016)		(511)		(574)
Total stockholders’ equity		32,403		32,156
Total liabilities and stockholders’ equity	$	321,862	$	318,632

See accompanying notes to consolidated financial statements.

1

GEORGETOWN BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	Three Months Ended
	March 31,
	2017		2016
	(In thousands, except share and per share data)
Interest and dividend income:
Loans, including fees	$	3,246	$	3,003
Securities		142		154
Short-term investments		7		6
Total interest and dividend income		3,395		3,163
Interest expense:
Deposits		494		411
Short-term Federal Home Loan Bank advances		47		20
Long-term Federal Home Loan Bank advances		121		143
Total interest expense		662		574
Net interest and dividend income		2,733		2,589
Provision for loan losses		39		74
Net interest and dividend income, after provision for loan losses		2,694		2,515
Non-interest income:
Customer service fees		165		184
Mortgage banking income, net		15		9
Gain on sale of SBA loans		—		15
Income from bank-owned life insurance		25		26
Other		11		8
Total non-interest income		216		242
Non-interest expenses:
Salaries and employee benefits		1,426		1,411
Occupancy and equipment expenses		254		265
Data processing expenses		172		214
Professional fees		204		291
Merger related expenses		96		—
Advertising expenses		3		87
FDIC insurance		53		44
ATM service charge expenses		34		32
Other general and administrative expenses		240		293
Total non-interest expenses		2,482		2,637
Income before income taxes		428		120
Income tax provision		150		40
Net income	$	278	$	80
Weighted-average number of common shares outstanding:
Basic		1,767,231		1,754,525
Diluted		1,805,521		1,759,031
Net income per share:
Basic	$	0.16	$	0.05
Diluted	$	0.15	$	0.05
Dividends paid per share	$	0.0500	$	0.0475

See accompanying notes to consolidated financial statements.

2

GEORGETOWN BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

	Three Months Ended
	March 31,
	2017		2016
	(In thousands)
Net income	$	278	$	80
Net unrealized gain on securities available for sale		58		238
Income tax provision		(22)		(84)
Other comprehensive income, net of tax		36		154
Comprehensive income	$	314	$	234

See accompanying notes to consolidated financial statements.

3

GEORGETOWN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited)

							Accumulated
			Additional				Other		Unearned		Unearned
	Common		Paid-in		Retained		Comprehensive		Compensation-		Compensation-
	Stock		Capital		Earnings		(Loss) Income		ESOP		Restricted Stock		Total
	(In thousands)
Balance at December 31, 2015	$	18	$	19,402	$	13,788	$	46	$	(835)	$	(511)	$	31,908
Net income		—		—		80		—		—		—		80
Other comprehensive income		—		—		—		154		—		—		154
Cash dividends paid ($0.0475 per share)		—		—		(83)		—		—		—		(83)
Common stock held by ESOP allocated or committed to be allocated (1,810 shares)		—		15		—		—		20		—		35
Restricted stock granted in connection with equity incentive plan (16,500 shares)		—		320		—		—		—		(320)		—
Purchased stock related to vested restricted stock (3,818 shares)		—		(74)		—		—		—		—		(74)
Share based compensation - options		—		27		—		—		—		—		27
Share based compensation - restricted stock		—		—		—		—		—		59		59
Balance at March 31, 2016	$	18	$	19,690	$	13,785	$	200	$	(815)	$	(772)	$	32,106
Balance at December 31, 2016	$	18	$	19,871	$	13,635	$	(41)	$	(753)	$	(574)	$	32,156
Net income		—		—		278		—		—		—		278
Other comprehensive income		—		—		—		36		—		—		36
Cash dividends paid ($0.05 per share)		—		—		(88)		—		—		—		(88)
Common stock held by ESOP allocated or committed to be allocated (1,810 shares)		—		27		—		—		20		—		47
Purchased stock related to vested restricted stock (4,670 shares)		—		(120)		—		—		—		—		(120)
Share based compensation - options		—		31		—		—		—		—		31
Share based compensation - restricted stock		—		—		—		—		—		63		63
Balance at March 31, 2017	$	18	$	19,809	$	13,825	$	(5)	$	(733)	$	(511)	$	32,403

See accompanying notes to consolidated financial statements.

4

GEORGETOWN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Three Months Ended
	March 31,
	2017		2016
	(In thousands)
Cash flows from operating activities:
Net income	$	278	$	80
Adjustments to reconcile net income to net cash provided by (used by) operating activities:
Provision for loan losses		39		74
Amortization of securities, net		41		31
Net change in deferred loan fees and costs		(56)		(10)
Depreciation and amortization expense		106		98
(Increase) decrease in accrued interest receivable		(10)		29
Income from bank-owned life insurance		(25)		(26)
Stock-based compensation expense		141		121
Excess tax benefit on share-based compensation		(42)		—
Gain on sale of loans		(4)		(15)
Loans originated for sale		—		(210)
Proceeds from sales of loans		275		225
Net change in other assets and liabilities		(9)		(891)
Net cash provided by (used by) operating activities		734		(494)
Cash flows from investing activities:
Activity in securities available for sale:
Maturities, prepayments and calls		947		577
Activity in securities held to maturity:
Maturities, prepayments and calls		36		48
Purchases		—		(2,494)
Purchase of Federal Home Loan Bank stock		(410)		—
Redemption of Federal Home Loan Bank stock		—		511
Loan originations, net		(456)		(5,451)
Principal balance of loans purchased		(1,723)		(3,131)
Purchase of premises and equipment		(8)		(358)
Net cash used by investing activities		(1,614)		(10,298)

(continued)

See accompanying notes to consolidated financial statements.

5

GEORGETOWN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(concluded)

	Three Months Ended
	March 31,
	2017		2016
	(In thousands)
Cash flows from financing activities:
Net change in deposits		22		28,089
Net change in Federal Home Loan Bank advances with maturities of three months or less		4,250		(15,250)
Repayments of Federal Home Loan Bank advances with maturities greater than three months		(1,500)		(1,000)
Net change in mortgagors’ escrow accounts		340		390
Repurchase of common stock		(120)		(74)
Cash dividends paid on common stock		(88)		(83)
Net cash provided by financing activities		2,904		12,072
Net change in cash and cash equivalents		2,024		1,280
Cash and cash equivalents at beginning of period		6,129		7,758
Cash and cash equivalents at end of period	$	8,153	$	9,038
Supplementary information:
Interest paid on deposit accounts	$	495	$	411
Interest paid on advances		163		167
Income taxes paid		176		111
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 three-month period ended March 31, 2017 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, 2016 Consolidated Financial Statements presented in the Annual Report on Form 10-K of the Company filed with the Securities and Exchange Commission on March 30, 2017. The consolidated financial statements include the accounts of Georgetown Bank (the “Bank”) and its wholly owned subsidiary, Georgetown Securities Corporation. 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.

On October 5, 2016, Salem Five Bancorp, a Massachusetts mutual holding company, Bright Star, Inc., a Maryland corporation and wholly-owned subsidiary of Salem Five Bancorp, and the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which Bright Star, Inc. will merge with and into the Company.  Shareholders of the Company will receive $26.00 in cash in exchange for each share of Company common stock they own.  Salem Five Bancorp has received all regulatory approvals to allow it to proceed with the acquisition of the Company.  The transaction is expected to be completed by May 23, 2017.  Immediately following this, the Bank will merge with and into Salem Five Bancorp’s wholly-owned subsidiary, Salem Five Cents Savings Bank (“Salem Five Bank”).  Immediately following the merger of the two banks, the Company shall dissolve and liquidate into Salem Five Bancorp. 

7

(3)Earnings Per Common Share

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

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

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

	Three Months Ended
	March 31,
	2017		2016
	(In thousands, except share and per share data)
Net income available to common stockholders	$	278	$	80
Basic common shares:
Weighted average shares outstanding		1,799,280		1,788,005
Less: Weighted average unallocated ESOP shares		(71,769)		(79,009)
Add: Weighted average unvested restricted stock shares with non-forfeitable dividend rights		39,720		45,529
Basic weighted average common shares outstanding		1,767,231		1,754,525
Dilutive potential common shares		38,290		4,506
Diluted weighted average common shares outstanding		1,805,521		1,759,031
Basic earnings per share	$	0.16	$	0.05
Diluted earnings per share	$	0.15	$	0.05

Options to purchase 122,775 shares, representing all outstanding options, were included in the computation of diluted earnings per share for the three months ended March 31, 2017 and 2016.

(4)Recent Accounting Pronouncements

In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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.

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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 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. Under this ASU, 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. The guidance will increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding obligation. The new guidance will also require an employer to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on its statement of cash flows (current guidance did not specify how these cash flows should be classified) and 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. The Company realized a $42,000 tax benefit during the three months ended March 31, 2017 related to share based compensation.

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

9

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.

In March 2017, the FASB issued ASU 2017-08, “Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20):  Premium Amortization on Purchased Callable Debt Securities.”  This ASU amends the amortization period for certain callable debt securities held at a premium. The amendment shortens the amortization period for the premium to the earliest call date. Under current generally accepted accounting principles, the premium is generally amortized as an adjustment of yield over the contractual life of the instrument. The amendments in this ASU are effective for public entities for fiscal years beginning after December 31, 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.

10

(5)Securities

A summary of securities is as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In thousands)
At March 31, 2017
Securities available for sale
State and municipal	$	2,350	$	48	$	(3)	$	2,395
Residential mortgage-backed securities		16,501		71		(120)		16,452
Total securities available for sale	$	18,851	$	119	$	(123)	$	18,847
Securities held to maturity
State and municipal	$	569	$	—	$	(5)	$	564
Residential mortgage-backed securities		1,893		2		(6)		1,889
Total securities held to maturity	$	2,462	$	2	$	(11)	$	2,453
At December 31, 2016
Securities available for sale
State and municipal	$	2,362	$	27	$	(4)	$	2,385
Residential mortgage-backed securities		17,472		57		(142)		17,387
Total securities available for sale	$	19,834	$	84	$	(146)	$	19,772
Securities held to maturity
State and municipal	$	570	$	—	$	(5)	$	565
Residential mortgage-backed securities		1,933		3		(11)		1,925
Total securities held to maturity	$	2,503	$	3	$	(16)	$	2,490

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

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The amortized cost and estimated fair value of debt securities by contractual maturity at March 31, 2017 is as follows. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(In thousands)
After five years through ten years	$	525	$	537	$	—	$	—
Over ten years		1,825		1,858		569		564
		2,350		2,395		569		564
Residential mortgage-backed securities		16,501		16,452		1,893		1,889
	$	18,851	$	18,847	$	2,462	$	2,453

There were no sales of securities for the three months ended March 31, 2017 and 2016.

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

	Less Than Twelve Months				Twelve Months Or Longer
	Gross				Gross
	Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value
	(In thousands)
At March 31, 2017
Securities available for sale
State and municipal	$	(3)	$	239	$	—	$	—
Residential mortgage-backed securities		(120)		8,245		—		—
Total securities available for sale		(123)		8,484		—		—
Securities held to maturity
State and municipal		(5)		564		—		—
Residential mortgage-backed securities		(6)		1,869		—		—
Total securities held to maturity		(11)		2,433		—		—
Total temporarily impaired securities	$	(134)	$	10,917	$	—	$	—
At December 31, 2016
Securities available for sale
State and municipal	$	(4)	$	512	$	—	$	—
Residential mortgage-backed securities		(142)		8,718		—		—
Total securities available for sale		(146)		9,230		—		—
Securities held to maturity
State and municipal		(5)		565		—		—
Residential mortgage-backed securities		(11)		1,898		—		—
Total securities held to maturity		(16)		2,463		—		—
Total temporarily impaired securities	$	(162)	$	11,693	$	—	$	—

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.

The Company believes that the unrealized losses on ten securities at March 31, 2017 in the table above were primarily caused by changes in interest rates and not by credit quality.  Seven of the investments are guaranteed by the U.S. Government or its agencies and the three remaining municipal securities were issued by the city of New York, and the school districts of Circleville and Fremont, Ohio.  Management has not decided to sell these securities, nor is it likely that the Company will be required to sell the securities; as such no declines are deemed to be other-than-temporary.

13

(6)Loans and Servicing

Loans

A summary of loans is as follows:

	At				At
	March 31,				December 31,
	2017				2016
	Amount		Percent		Amount		Percent
	(Dollars in thousands)
Residential loans:
One- to four-family	$	92,869	32.97	%	$	90,190	32.27	%
Home equity loans and lines of credit		15,468	5.49			15,879	5.68
Total residential mortgage loans		108,337	38.46			106,069	37.95
Commercial loans:
One- to four-family investment property		14,400	5.11			13,081	4.68
Multi-family real estate		30,214	10.73			30,748	11.00
Commercial real estate		83,390	29.60			83,583	29.90
Commercial business		23,851	8.47			20,675	7.40
Total commercial loans		151,855	53.91			148,087	52.98
Construction loans:
One- to four-family		9,368	3.33			12,599	4.51
Multi-family		4,505	1.60			5,725	2.05
Non-residential		7,454	2.65			6,830	2.44
Total construction loans		21,327	7.58			25,154	9.00
Consumer		150	0.05			182	0.07
Total loans		281,669	100.00	%		279,492	100.00	%
Other items:
Net deferred loan costs		540				484
Allowance for loan losses		(2,642)				(2,605)
Total loans, net	$	279,567			$	277,371

14

An analysis of the allowance for loan losses for the three months ended March 31, 2017 and 2016 and at March 31, 2017 and December 31, 2016 is below. For additional information please refer to Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

	Residential				Commercial								Construction
					One‑ to four‑
			Home equity		family
	One‑ to four‑		loans and		investment		Multi‑family		Commercial		Commercial		One‑ to four‑				Non-
	family		lines of credit		property		real estate		real estate		business		family		Multi‑family		residential		Consumer		Unallocated		Total
	(In thousands)
Allowance for loan losses
Three Months Ended March 31, 2017
Beginning Balance	$	171	$	238	$	79	$	234	$	1,262	$	364	$	104	$	47	$	104	$	2	$	—	$	2,605
Charge-offs		—		—		—		—		—		—		—		—		—		(3)		—		(3)
Recoveries		—		1		—		—		—		—		—		—		—		—		—		1
Provision (benefit)		5		(7)		7		(4)		(3)		55		(22)		(10)		10		2		6		39
Ending Balance	$	176	$	232	$	86	$	230	$	1,259	$	419	$	82	$	37	$	114	$	1	$	6	$	2,642
Three Months Ended March 31, 2016
Beginning Balance	$	197	$	276	$	90	$	233	$	1,021	$	305	$	113	$	12	$	91	$	2	$	68	$	2,408
Charge-offs		—		—		—		—		—		—		—		—		—		—		—		—
Recoveries		—		1		—		—		—		—		—		—		—		—		—		1
(Benefit) provision		(17)		(17)		(7)		(7)		105		33		26		2		6		—		(50)		74
Ending Balance	$	180	$	260	$	83	$	226	$	1,126	$	338	$	139	$	14	$	97	$	2	$	18	$	2,483
At March 31, 2017
Allowance for loan losses
Individually evaluated for impairment	$	—	$	—	$	7	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	7
Collectively evaluated for impairment		176		232		79		230		1,259		419		82		37		114		1		6		2,635
	$	176	$	232	$	86	$	230	$	1,259	$	419	$	82	$	37	$	114	$	1	$	6	$	2,642
Loans
Individually evaluated for impairment	$	1,529	$	296	$	85	$	—	$	278	$	—	$	—	$	—	$	—	$	—	$	—	$	2,188
Collectively evaluated for impairment		91,340		15,172		14,315		30,214		83,112		23,851		9,368		4,505		7,454		150		—		279,481
	$	92,869	$	15,468	$	14,400	$	30,214	$	83,390	$	23,851	$	9,368	$	4,505	$	7,454	$	150	$	—	$	281,669
At December 31, 2016
Allowance for loan losses
Individually evaluated for impairment	$	—	$	—	$	7	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	7
Collectively evaluated for impairment		171		238		72		234		1,262		364		104		47		104		2		—		2,598
	$	171	$	238	$	79	$	234	$	1,262	$	364	$	104	$	47	$	104	$	2	$	—	$	2,605
Loans
Individually evaluated for impairment	$	1,543	$	143	$	85	$	—	$	281	$	—	$	—	$	—	$	—	$	—	$	—	$	2,052
Collectively evaluated for impairment		88,647		15,736		12,996		30,748		83,302		20,675		12,599		5,725		6,830		182		—		277,440
	$	90,190	$	15,879	$	13,081	$	30,748	$	83,583	$	20,675	$	12,599	$	5,725	$	6,830	$	182	$	—	$	279,492

15

The following is a summary of past-due and non-accrual loans at March 31, 2017 and December 31, 2016. For additional information please refer to Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

	Loans delinquent for:												90 days
					90 days		Total		Total		Total		or more		Non-accrual
	30 - 59 Days		60 - 89 Days		or more		Past Due		Current		Loans		and accruing		Loans
	(In thousands)
At March 31, 2017
Residential loans:
One- to four-family	$	—	$	—	$	742	$	742	$	92,127	$	92,869	$	—	$	742
Home equity loans and lines of credit		40		157		—		197		15,271		15,468		—		195
Commercial loans:
One- to four-family investment property		—		—		—		—		14,400		14,400		—		—
Multi-family real estate		—		—		—		—		30,214		30,214		—		—
Commercial real estate		—		—		—		—		83,390		83,390		—		—
Commercial business		—		—		—		—		23,851		23,851		—		—
Construction loans:
One- to four-family		—		—		—		—		9,368		9,368		—		—
Multi-family		—		—		—		—		4,505		4,505		—		—
Non-residential		—		—		—		—		7,454		7,454		—		—
Consumer		—		—		—		—		150		150		—		—
Total	$	40	$	157	$	742	$	939	$	280,730	$	281,669	$	—	$	937

	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, 2016
Residential loans:
One- to four-family	$	—	$	—	$	755	$	755	$	89,435	$	90,190	$	—	$	755
Home equity loans and lines of credit		191		20		41		252		15,627		15,879		—		198
Commercial loans:
One- to four-family investment property		—		—		—		—		13,081		13,081		—		—
Multi-family real estate		—		—		—		—		30,748		30,748		—		—
Commercial real estate		—		—		—		—		83,583		83,583		—		—
Commercial business		—		—		—		—		20,675		20,675		—		—
Construction loans:
One- to four-family		—		—		—		—		12,599		12,599		—		—
Multi-family		—		—		—		—		5,725		5,725		—		—
Non-residential		—		—		—		—		6,830		6,830		—		—
Consumer		7		3		—		10		172		182		—		—
Total	$	198	$	23	$	796	$	1,017	$	278,475	$	279,492	$	—	$	953

16

The following is a summary of impaired loans at March 31, 2017 and December 31, 2016, and for the threee months and year then ended, respectively.

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(In thousands)
At March 31, 2017
Impaired loans without a valuation allowance
Residential loans:
One- to four-family	$	1,529	$	1,549	$	—	$	1,536	$	14
Home equity loans and lines of credit		296		296		—		220		1
Commercial loans:
One- to four-family investment property		—		—		—		—		—
Multi-family real estate		—		—		—		—		—
Commercial real estate		278		278		—		280		4
Commercial business		—		—		—		—		—
Construction loans:
One- to four-family		—		—		—		—		—
Multi-family		—		—		—		—		—
Non-residential		—		—		—		—		—
Consumer		—		—		—		—		—
Total impaired with no related allowance	$	2,103	$	2,123	$	—	$	2,036	$	19
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		85		85		7		85		1
Multi-family real estate		—		—		—		—		—
Commercial real estate		—		—		—		—		—
Commercial business		—		—		—		—		—
Construction loans:
One- to four-family		—		—		—		—		—
Multi-family		—		—		—		—		—
Non-residential		—		—		—		—		—
Consumer		—		—		—		—		—
Total with an allowance recorded	$	85	$	85	$	7	$	85	$	1

17

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(In thousands)
At December 31, 2016
Impaired loans without a valuation allowance
Residential loans:
One- to four-family	$	1,543	$	1,555	$	—	$	1,560	$	42
Home equity loans and lines of credit		143		143		—		109		5
Commercial loans:
One- to four-family investment property		—		—		—		—		—
Multi-family real estate		—		—		—		—		—
Commercial real estate		281		281		—		284		17
Commercial business		—		—		—		—		—
Construction loans:
One- to four-family		—		—		—		—		—
Multi-family		—		—		—		—		—
Non-residential		—		—		—		—		—
Consumer		—		—		—		—		—
Total impaired with no related allowance	$	1,967	$	1,979	$	—	$	1,953	$	64
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		85		85		7		87		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	$	85	$	85	$	7	$	87	$	4

The Company made no loan modifications that resulted in a troubled debt restructuring (“TDR”) during the three months ended March 31, 2017 and 2016.  At March 31, 2017, there were no commitments to lend additional funds to borrowers whose loans were previously modified in TDRs.

At March 31, 2017 and December 31, 2016, 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 $157,000 at March 31, 2017.

18

The following table represents the Company’s loans by risk rating at March 31, 2017 and December 31, 2016. For additional information please refer to Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

	Residential				Commercial								Construction
					One‑ to four‑
			Home equity		family
	One‑ to four‑		loans and lines		investment		Multi‑family		Commercial		Commercial		One‑ to four‑				Non-
	family		of credit		property		real estate		real estate		business		family		Multi‑family		residential		Consumer		Total
	(In thousands)
At March 31, 2017
Classification:
Not formally rated	$	91,216	$	15,193	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	150	$	106,559
Pass		—		—		14,315		30,214		82,360		23,467		9,368		4,505		7,454		—		171,683
Special mention		—		—		—		—		—		—		—		—		—		—		—
Substandard		1,653		275		85		—		1,030		384		—		—		—		—		3,427
Doubtful		—		—		—		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—		—		—		—
Total loans	$	92,869	$	15,468	$	14,400	$	30,214	$	83,390	$	23,851	$	9,368	$	4,505	$	7,454	$	150	$	281,669
At December 31, 2016
Classification:
Not formally rated	$	88,522	$	15,601	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	182	$	104,305
Pass		—		—		12,996		30,748		82,873		20,526		12,599		5,725		6,830		—		172,297
Special mention		—		—		—		—		—		—		—		—		—		—		—
Substandard		1,668		278		85		—		710		149		—		—		—		—		2,890
Doubtful		—		—		—		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—		—		—		—
Total loans	$	90,190	$	15,879	$	13,081	$	30,748	$	83,583	$	20,675	$	12,599	$	5,725	$	6,830	$	182	$	279,492

19

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 with a one-obligor exposure greater than $350,000.  In addition, a complete financial review is performed for any commercial relationship (regardless of one-obligor exposure) reporting a revolving line of credit facility greater than $150,000.  More frequent reviews shall be performed depending on the quality rating of the relationship. For commercial relationships which report a current one-obligor exposure equal to or less than $350,000, and have a “Pass” risk rating, the annual review shall be more limited in scope.

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 $80.9 million and $83.2 million at March 31, 2017 and December 31, 2016, 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 $580,000 and $601,000 at March 31, 2017 and December 31, 2016, 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.

20

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

	Three Months Ended
	March 31,
	2017		2016
	(In thousands)
Mortgage servicing rights:
Balance at beginning of period	$	242	$	523
Additions		—		—
Amortization		(53)		(78)
Balance at end of period		189		445
Valuation allowance:
Balance at beginning of period		6		4
Additions		1		12
Reductions		—		—
Balance at end of period		7		16
Mortgage servicing rights, net	$	182	$	429
Fair value of mortgage servicing rights	$	580	$	799

(7)Secured Borrowings and Collateral

Federal Home Loan Bank advances

At March 31, 2017, 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 of $79.4 million, commercial real estate loans in the amount of $23.8 million and mortgage-backed securities with a fair value of $18.3 million.

(8)Fair Value Measurements

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

Level l - Valuation is based on quoted prices in active markets for identical assets or liabilities. Level l assets and liabilities generally include debt and equity securities that are traded in an active exchange market. At March 31, 2017, 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.

21

All of the Company’s securities that are measured at fair value are included in Level 2 and are based on pricing models from independent, third party pricing services that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data. There are no liabilities measured at fair value. All of the Company’s impaired loans that are measured at fair value are included in Level 3 and are based on the appraised value of the underlying collateral considering discounting factors, if deemed appropriate, and adjusted for selling costs. These appraised values may be discounted based on management’s historical knowledge, expertise or changes in market conditions from time of valuation. The Company did not have any significant transfers of assets or liabilities to or from Levels 1 and 2 of the fair value hierarchy during the three-month period ended March 31, 2017.

Assets and liabilities measured at fair value on a recurring basis at March 31, 2017 and December 31, 2016 are summarized below.

							Total
							Assets
	Level 1		Level 2		Level 3		at Fair Value
	(In thousands)
At March 31, 2017
Assets
Securities available for sale
State and municipal	$	—	$	2,395	$	—	$	2,395
Residential mortgage-backed securities		—		16,452		—		16,452
Total securities available for sale	$	—	$	18,847	$	—	$	18,847
At December 31, 2016
Assets
Securities available for sale
State and municipal	$	—	$	2,385	$	—	$	2,385
Residential mortgage-backed securities		—		17,387		—		17,387
Total securities available for sale	$	—	$	19,772	$	—	$	19,772

22

The Company may also be required, from time to time, to measure certain other financial assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. Assets measured at fair value on a non-recurring basis at March 31, 2017 and December 31, 2016 are summarized below. The fair value adjustments relate to the amount of write-down recorded or related allowance recorded as of March 31, 2017 and December 31, 2016.

							Assets		Adjustments
	Level 1		Level 2		Level 3		at Fair Value		to Fair Value
	(In thousands)
At March 31, 2017
Impaired loans	$	—	$	—	$	78	$	78	$	(7)

							Assets		Adjustments
	Level 1		Level 2		Level 3		At Fair Value		to Fair Value
	(In thousands)
At December 31, 2016
Impaired loans	$	—	$	—	$	78	$	78	$	(7)

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

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

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

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

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

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

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

23

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

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

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

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

Off-balance-sheet instruments:  The fair value of commitments to originate loans is estimated using the fees currently charged to enter similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties.  For fixed-rate loan commitments and the unadvanced portion of loans, fair value also considers the difference between current levels of interest rates and the committed rates.  The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligation with the counterparties at the reporting date.  At March 31, 2017 and December 31, 2016, the fair value of commitments outstanding is not significant since fees charged are not material.

The estimated fair values and related carrying amounts of the Company’s financial instruments at March 31, 2017 and December 31, 2016 are as follows.

	March 31, 2017
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Total
	(In thousands)
Financial assets:
Cash and cash equivalents	$	8,153	$	8,153	$	—	$	—	$	8,153
Securities available for sale		18,847		—		18,847		—		18,847
Securities held to maturity		2,462		—		2,453		—		2,453
FHLB stock		2,751		2,751		—		—		2,751
BBN stock		60		60		—		—		60
Loans, net		279,567		—		—		277,713		277,713
Accrued interest receivable		826		826		—		—		826
Capitalized mortgage servicing rights		182		—		580		—		580
Financial liabilities:
Deposits	$	240,530	$	—	$	241,273	$	—	$	241,273
Short-term FHLB advances		21,000		21,000		—		—		21,000
Long-term FHLB advances		23,600		—		23,679		—		23,679
Mortgagors’ escrow accounts		1,973		1,973		—		—		1,973
Accrued interest payable		62		62		—		—		62

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	December 31, 2016
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Total
	(In thousands)
Financial assets:
Cash and cash equivalents	$	6,129	$	6,129	$	—	$	—	$	6,129
Securities available for sale		19,772		—		19,772		—		19,772
Securities held to maturity		2,503		—		2,490		—		2,490
FHLB stock		2,341		2,341		—		—		2,341
BBN stock		60		60		—		—		60
Loans held for sale		271		275		—		—		275
Loans, net		277,371		—		—		275,824		275,824
Accrued interest receivable		816		816		—		—		816
Capitalized mortgage servicing rights		236		—		601		—		601
Financial liabilities:
Deposits	$	240,508	$	—	$	241,264	$	—	$	241,264
Short-term FHLB advances		17,250		17,250		—		—		17,250
Long-term FHLB advances		24,600		—		24,699		—		24,699
Mortgagors’ escrow accounts		1,633		1,633		—		—		1,633
Accrued interest payable		58		58		—		—		58

(9)Equity Incentive Plans

At March 31, 2017, 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 for the year ended December 31, 2016.

The following tables present the activity for the 2009 and 2014 Equity Plans as of and for the three months ended March 31, 2017.

	Stock Options
	2017
			Weighted
			Average
	Number of		Exercise
	Shares		Price
Outstanding at beginning of year		122,775	$	15.49
Outstanding at end of period		122,775	$	15.49
Exercisable at end of period		74,477
Aggregate intrinsic value of outstanding options at end of period	$	1,278,000

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Options Outstanding						Options Exercisable
Number		Weighted-Average		Weighted		Number	Weighted
Outstanding		Remaining		Average		Exercisable	Average
as of 3/31/2017		Contractual Life		Exercise Price		as of 3/31/2017	Exercise Price
	��
8,712		2.90	Years	$	9.33	8,712	$	9.33
9,683		3.90	Years	$	9.55	9,683	$	9.55
8,570		4.90	Years	$	9.58	8,570	$	9.58
15,200		5.90	Years	$	14.00	12,850	$	14.00
17,110		6.90	Years	$	14.98	12,446	$	14.98
30,000		7.90	Years	$	17.55	14,400	$	17.55
33,500		8.90	Years	$	19.40	7,816	$	19.40
122,775		6.91	Years	$	15.49	74,477	$	13.78

	Non-vested
	Restricted Stock
	2017
		Weighted
		Average
	Number of	Grant Date
	Shares	Value
Outstanding at beginning of year	46,449	$	17.00
Vested	(16,373)	$	15.99
Outstanding at end of period	30,076	$	17.56

As of March 31, 2017, unrecognized share-based compensation expense related to non-vested options amounted to $278,000 and the unrecognized share-based compensation expense related to non-vested restricted stock amounted to $511,000. The unrecognized expense related to the non-vested options and non-vested restricted stock will be recognized over a weighted average period of 3.0 and 2.8 years, respectively.

For the three months ended March 31, 2017, the Company recognized compensation expense for stock options of $31,000 with a related tax benefit of $4,000. The related tax benefit applies only to non-qualified stock options.  For the three months ended March 31, 2017, the Company recognized compensation expense for restricted stock awards of $63,000 with a related tax benefit of $25,000.

The Company declared a quarterly cash dividend of $0.05 per share of common stock on April 24, 2017.  The dividend will be paid on or about May 22, 2017, to stockholders of record as of the close of business on May 8, 2017.

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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,” “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, competition, real estate values in our market area, 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. The Company’s non-interest expense primarily consists of employee compensation and benefits, occupancy and equipment expense, advertising, data processing, professional fees and other operating expenses.

Net income for the three months ended March 31, 2017 increased $198,000 compared to the same period in 2016. The increase was primarily due to an increase in net interest and dividend income and a reduction in non-interest expenses.  Net interest and dividend income increased $144,000, or 5.6%, primarily due to the increase in commercial loans and residential loans outstanding, partially offset by increased interest expense on deposits.  Non-interest expense decreased $155,000, or 5.9%, due primarily to a reduction in overhead.  The reduction in overhead was primarily due to a reduction in marketing and recruitment expenses.  Included in non-interest expense for the three months ended March 31, 2017 was $96,000 in merger related expenses, the majority of which are not tax deductible.  The provision for loan losses totaled $39,000 for the three months ended March 31, 2017, compared to a $74,000 provision for loan losses during the same period in 2016.  Non-interest income decreased $26,000, or 10.7%, primarily due to a decrease in customer service fees and gain on sale of Small Business Administration (“SBA”) loans. We continued to maintain strong asset quality, as non-performing assets to total assets were 0.29% at March 31, 2017.

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 size and composition of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying

27

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 more affected by adverse conditions in the real estate market or the economy.

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

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

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

28

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

Comparison of Financial Condition at March 31, 2017 and December 31, 2016

Total assets increased $3.3 million, or 1.01%, to $321.9 million at March 31, 2017 from $318.6 million at December 31, 2016. The increase was primarily due to an increase in loans and cash and cash equivalents.

Cash and cash equivalents increased $2.1 million, or 33.0%, to $8.2 million at March 31, 2017 from $6.1 million at December 31, 2016. This temporary increase resulted from the timing of normal cash flows.

Loans, net of allowance for loan losses, increased $2.2 million, or 0.8%, to $279.6 million at March 31, 2017 from $277.4 million at December 31, 2016, due primarily to an increase in residential mortgage loans and commercial loans, partially offset by a decrease in construction loans. Despite the current competitive market, we have decided to maintain our historically high underwriting standards instead of relaxing these standards, and we have not reduced loan rates below levels at which we could not operate profitably.  Residential mortgage loans increased $2.2 million, or 2.1%, to $108.3 million at March 31, 2017 from $106.1 million at December 31, 2016, primarily due to a $2.7 million, or 3.0%, increase in one- to-four family loans to $92.9 million at March 31, 2017 from $90.2 million at December 31, 2016.  Commercial loans increased $3.8 million, or 2.5%, to $151.9 million at March 31, 2017 from $148.1 million at December 31, 2016, primarily due to a $3.2 million, or 15.4%, increase in commercial business loans. Construction loans decreased by $3.9 million, or 15.2%, to $21.3 million at March 31, 2017 from $25.2 million at December 31, 2016, primarily due to a $3.2 million, or 25.6%, decrease in one- to four-family construction loans.

Our total securities portfolio decreased $966,000, or 4.3%, to $21.3 million at March 31, 2017 from $22.3 million at December 31, 2016, due to the principal payments received on mortgage-backed securities.

Deposits remained flat at $240.5 million at March 31, 2017 and December 31, 2016. Money market accounts increased $3.4 million, or 5.3%, to $69.7 million at March 31, 2017 from $66.3 million at December 31, 2016.  Certificates of deposit decreased $3.9 million, or 4.1%, to $89.6 million at March 31, 2017 from $93.5 million at December 31, 2016, primarily due to a $3.2 million, or 12.5%, decrease in certificates of deposit accounts obtained through a broker or listing service.  Demand deposits decreased $294,000, or 0.9%, NOW accounts increased $678,000, or 1.1%, and savings accounts increased $371,000, or 2.3%. Management continues to focus on the generation of core checking accounts.

Total FHLB advances increased $2.7 million, or 6.6%, to $44.6 million at March 31, 2017 compared to $41.9 million at December 31, 2016, primarily due to advances used to fund loan growth. Short-term advances increased $3.7 million and long-term advances decreased $1.0 million during the three months ended March 31, 2017. 

Stockholders’ equity increased $247,000, or 0.8%, to $32.4 million at March 31, 2017 from $32.2 million at December 31, 2016. The increase resulted primarily from net income of $278,000 for the three months ended March 31, 2017 and other comprehensive income, partially offset by dividend payments and stock repurchases. Other comprehensive income, net of taxes, of $36,000 reflects the change in net unrealized gains/losses, net of taxes, on securities available for sale from a net unrealized loss of $41,000 at December 31, 2016 to a net unrealized loss of $5,000 at March 31, 2017.  Dividend payments totaled $88,000 for the three months ended March 31, 2017. We repurchased 4,670 shares at an average cost of $25.80 totaling $120,000 during the three months ended March 31, 2017.

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

	At				At
	March 31,				December 31,
	2017				2016
	Amount		Percent		Amount		Percent
	(Dollars in thousands)
Residential loans:
One- to four-family	$	92,869	32.97	%	$	90,190	32.27	%
Home equity loans and lines of credit		15,468	5.49			15,879	5.68
Total residential mortgage loans		108,337	38.46			106,069	37.95
Commercial loans:
One- to four-family investment property		14,400	5.11			13,081	4.68
Multi-family real estate		30,214	10.73			30,748	11.00
Commercial real estate		83,390	29.60			83,583	29.90
Commercial business		23,851	8.47			20,675	7.40
Total commercial loans		151,855	53.91			148,087	52.98
Construction loans:
One- to four-family		9,368	3.33			12,599	4.51
Multi-family		4,505	1.60			5,725	2.05
Non-residential		7,454	2.65			6,830	2.44
Total construction loans		21,327	7.58			25,154	9.00
Consumer		150	0.05			182	0.07
Total loans		281,669	100.00	%		279,492	100.00	%
Other items:
Net deferred loan costs		540				484
Allowance for loan losses		(2,642)				(2,605)
Total loans, net	$	279,567			$	277,371

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

	At March 31,			At December 31,
	2017			2016
	(Dollars in thousands)
Non-accrual loans:
Residential mortgage loans	$	937		$	953
Commercial loans		—			—
Construction loans		—			—
Consumer		—			—
Total non-accrual loans		937			953
Non-performing restructured loans		—			—
Total non-performing loans		937			953
Other real estate owned		—			—
Total non-performing assets	$	937		$	953
Ratios:
Non-performing loans to total loans		0.33	%		0.34	%
Non-performing assets to total assets		0.29	%		0.30	%
Allowance for loan losses to non-performing loans		281.96	%		273.35	%

Total delinquent loans decreased $78,000, from $1.0 million at December 31, 2016 to $939,000 at March 31, 2017, primarily in residential loans.

Non-performing assets totaled $937,000 and $953,000 at March 31, 2017 and December 31, 2016, respectively. Total non-performing assets represented 0.29% and 0.30% of total assets at March 31, 2017 and December 31, 2016, respectively.

Loans classified as substandard increased $537,000, to $3.4 million at March 31, 2017 from $2.9 million at December 31, 2016, primarily in commercial real estate loans and commercial business loans.

The allowance for loan losses increased $37,000 to $2.6 million at March 31, 2017 primarily due to the growth in the commercial loan portfolio. There were $3,000 of loan charge-offs and $1,000 in recoveries for the three months ended March 31, 2017, as compared to no loan charge-offs and $1,000 in recoveries for the same period in 2016. The allowance represented 0.94% and 0.93% of total loans at March 31, 2017 and December 31, 2016, respectively. At these levels, the allowance for loan losses as a percentage of non-performing loans was 281.96% at March 31, 2017 and 273.35% at December 31, 2016.

Comparison of Operating Results for the Three Months Ended March 31, 2017 and 2016

General.  Net income increased $198,000, or 247.5%, to $278,000 for the three months ended March 31, 2017, from $80,000 for the three months ended March 31, 2016. The increase in net income was caused by an increase in net interest and dividend income and decreases in the provision for loan losses and non-interest expense, partially offset by a decrease in non-interest income.

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Interest and Dividend Income. Interest and dividend income increased $232,000, or 7.3%, to $3.4 million for the three months ended March 31, 2017, primarily due to an increase in interest income on loans. Interest income on loans increased $243,000, or 8.1%, to $3.2 million for the three months ended March 31, 2017, due to a $22.4 million, or 8.6%, increase in the average balance of loans, partially offset by a two basis point decrease in yield to 4.59% for the three months ended March 31, 2017 from 4.61% for the three months ended March 31, 2016.

Interest and dividend income on investment securities decreased $12,000, or 7.8%, to $142,000 for the three months ended March 31, 2017 from $154,000 for the three months ended March 31, 2016, due to a $143,000, or 0.6% decrease in the average balance of investment securities and by an 18 basis point decrease in yield to 2.32% for the three months ended March 31, 2017 from 2.50% for the three months ended March 31, 2016.

Interest Expense. Interest expense increased $88,000, or 15.3%, to $662,000 for the three months ended March 31, 2017 from $574,000 for the three months ended March 31, 2016. Interest expense on deposits increased $83,000, or 20.2%, to $494,000 for the three months ended March 31, 2017 from $411,000 for the three months ended March 31, 2016, due to an increase in the average balance of interest-bearing deposits of $13.3 million, or 6.9%, to $207.3 million for the three months ended March 31, 2017 from $194.0 million for the three months ended March 31, 2016 and an increase in the average rate we paid on interest-bearing deposits to 0.95% for the three months ended March 31, 2017 compared to 0.85% for the three months ended March 31, 2016.  The increase in interest expense on deposits was primarily due to certificates of deposit and money market accounts. Interest expense on certificates of deposit increased $60,000, or 19.6%, to $366,000 for the three months ended March 31, 2017 from $306,000 for the three months ended March 31, 2016 due to an increase in the average balance in certificates of deposit of $8.0 million, or 9.6%, to $91.3 million for the three months ended March 31, 2017 from $83.3 million for the same period in 2016 and by an increase in the average rate we paid on certificates of deposits to 1.60% for the three months ended March 31, 2017 compared to 1.47% for the same period in 2016. Interest expense on money market deposits increased $24,000, or 29.6%, to $105,000 for the three months ended March 31, 2017 from $81,000 for the three months ended March 31, 2016 due to an increase in the average balance in money market deposits of $6.3 million, or 10.4%, to $67.6 million for the three months ended March 31, 2017 from $61.3 million for the same period in 2016 and by an increase in the average rate we paid on money market deposits to 0.62% for the three months ended March 31, 2017 compared to 0.53% for the same period in 2016.

Interest expense on FHLB advances increased $5,000, or 3.1%, to $168,000 for the three months ended March 31, 2017 from $163,000 for the three months ended March 31, 2016. The increase was primarily due to an increase in the average outstanding balance of advances of $4.0 million, or 9.3%, to $47.6 million for the three months ended March 31, 2017 from $43.6 million for the three-month period ended March 31, 2016, partially offset by the average rate we paid, which decreased nine basis points to 1.41% for the three months ended March 31, 2017 compared to 1.50% for the three months ended March 31, 2016. The average outstanding balance of short-term advances increased $7.3 million, or 44.4%, to $23.8 million for the three months ended March 31, 2017 from $16.5 million for the three months ended March 31, 2016 and the average outstanding balance of long-term advances decreased $3.3 million, or 12.2%, to $23.8 million for the three months ended March 31, 2017 from $27.1 million for the same period in 2016. 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 $144,000, or 5.6%, to $2.7 million for the three months ended March 31, 2017 compared to $2.6 million for the three months ended March 31, 2016. The increase in net interest and dividend income was primarily the result of a $3.0 million, or 5.6%, increase in net average interest-earning assets to $56.8 million for the three months ended March 31, 2017, from $53.8 million for the same period in 2016. 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

32

to significant revision as more information becomes available. After an evaluation of these factors, we recorded a provision for loan losses of $39,000 for the three months ended March 31, 2017, compared to a provision for loan losses of $74,000 for the three months ended March 31, 2016. There were $3,000 in loan charge-offs and $1,000 of recoveries for the three months ended March 31, 2017, as compared to no charge-offs and $1,000 in recoveries for the same period in 2016. The allowance for loan losses was $2.6 million, or 0.94% of total loans and 281.96% of non-performing loans at March 31, 2017, compared to an allowance for loan losses of $2.6 million, or 0.93% of total loans and 273.35% of non-performing loans at December 31, 2016. For additional information please refer to Note 6, Loans and Servicing.

Non-interest Income.  Non-interest income decreased $26,000, or 10.7%, to $216,000 for the three months ended March 31, 2017 from $242,000 for the three months ended March 31, 2016, primarily due to a decrease in gain on sale of SBA loans and customer service fees. There were no gains on sale of SBA loans for the three months ended March 31, 2017, compared to $15,000 during the same period in 2016. Income from customer service fees decreased $19,000, or 10.3%, to $165,000 for the three months ended March 31, 2017 from $184,000 for the three months ended March 31, 2016. The decrease was primarily from a reduction in overdraft fees, ATM service charges, and account service charges. Mortgage banking income, net increased $6,000, or 66.7%, to $15,000 for the three months ended March 31, 2017 from $9,000 for the three months ended March 31, 2016. 

Non-interest Expense. Non-interest expense decreased $155,000, or 5.9%, to $2.5 million for the three months ended March 31, 2017, from $2.6 million for the three months ended March 31, 2016, due primarily to decreases in data processing expenses, professional fees, advertising expenses and other general and administrative expenses, partially offset by merger related expenses. Data processing expenses decreased $42,000, or 19.6%, primarily due to a reduction in one-time implementation fees.  Professional fees decreased $87,000, or 29.9%, primarily due to a reduction in the costs associated with enhancements to our regulatory compliance staff and compliance programs made during 2016.  Advertising expenses decreased $84,000, or 96.6%, as no new marketing initiatives have been committed to during the three months ended March 31, 2017.  Other general and administrative expenses decreased $53,000, or 18.1%, to $240,000 for the three months ended March 31, 2017 from $293,000 for the same period in 2016, primarily due to a reduction in recruitment related expenses. Merger related expenses totaled $96,000 during the three months ended March 31, 2017, of which $57,000 were not deductible for income tax purposes.

Income Tax Expense. The income before income taxes of $428,000 resulted in income tax expense of $150,000 for the three months ended March 31, 2017, compared to income before income taxes of $120,000 resulting in an income tax expense of $40,000 for the three months ended March 31, 2016. The effective income tax rate was 35.1% for the three months ended March 31, 2017 compared to 33.3% for the three months ended March 31, 2016. The increase in the effective tax rate was primarily due to an increase in taxable income as a percentage of total income, and $57,000 of merger related expenses that were not tax deductible for income tax purposes, partially offset by an excess tax benefit realized on share based compensation.

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

	Three Months Ended March 31,
	2017						2016
	Average						Average
	Outstanding				Yield/		Outstanding				Yield/
	Balance		Interest (1)		Rate (1)		Balance		Interest (1)		Rate (1)
	(Dollars in thousands)
Interest-earning assets:
Loans (2)	$	283,146	$	3,246	4.59	%	$	260,704	$	3,003	4.61	%
Investment securities (1)		24,514		152	2.48	%		24,657		163	2.65	%
Short-term investments		4,074		7	0.69	%		6,035		6	0.40	%
Total interest-earning assets		311,734		3,405	4.37	%		291,396		3,172	4.35	%
Non-interest-earning assets		8,742		—				9,224		—
Total assets	$	320,476		3,405			$	300,620		3,172
Interest-bearing liabilities:
Savings deposits	$	16,331		1	0.02	%	$	15,720		1	0.03	%
NOW accounts		32,062		22	0.27	%		33,722		23	0.27	%
Money market accounts		67,639		105	0.62	%		61,273		81	0.53	%
Certificates of deposit		91,251		366	1.60	%		83,280		306	1.47	%
Total interest-bearing deposits		207,283		494	0.95	%		193,995		411	0.85	%
FHLB advances		47,647		168	1.41	%		43,612		163	1.50	%
Total interest-bearing liabilities		254,930		662	1.04	%		237,607		574	0.97	%
Non-interest-bearing liabilities:
Demand deposits		30,554						27,912
Other non-interest-bearing liabilities		4,012						4,056
Total liabilities		289,496						269,575
Stockholders’ equity		30,980						31,045
Total liabilities and stockholders’ equity	$	320,476					$	300,620
Net interest-earning assets (3)	$	56,804					$	53,789
Fully tax-equivalent net interest income				2,743						2,598
Less: tax-equivalent adjustments				(10)						(9)
Net interest income			$	2,733					$	2,589
Net interest rate spread (1)(4)					3.33	%					3.38	%
Net interest margin (1)(5)					3.52	%					3.57	%
Average of interest-earning assets to interest-bearing liabilities					122.28	%					122.64	%

(1) Interest and yield on investment securities, interest rate spread and net interest margin are presented on a tax-equivalent basis. Tax-equivalent adjustments are deducted from tax-equivalent net interest income to agree to amounts reported in the consolidated statements of income.  For the three months ended March 31, 2017 and 2016, the yield on investment securities before tax-equivalent adjustments was 2.32% and 2.50%, respectively, and the yield on total interest-earning assets was 4.36% and 4.34%, respectively. Net interest rate spread before tax-equivalent adjustments for the three months ended March 31, 2017 and 2016 was 3.32% and 3.37%, respectively, while net interest margin before tax-equivalent adjustments was 3.51% and 3.55%, respectively.

(2) Includes loans held for sale.

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

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

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

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

	For the Three Months Ended March 31, 2017
	Compared to the Three Months Ended
	March 31, 2016
	Increase (Decrease) Due to
	Volume		Rate		Net
	(In thousands)
Interest-earning assets:
Loans	$	259	$	(16)	$	243
Investment securities (1)		(1)		(10)		(11)
Short-term investments		(2)		3		1
Total interest-earning assets		256		(23)		233
Interest-bearing liabilities:
Savings deposits		—		—		—
NOW accounts		(1)		—		(1)
Money market accounts		8		16		24
Certificates of deposit		29		31		60
Total interest-bearing deposits		36		47		83
FHLB advances		15		(10)		5
Total interest-bearing liabilities		51		37		88
Change in net interest income	$	205	$	(60)	$	145

(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 $9,000 for the three months ended March 31, 2017 and 2016, respectively.

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

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

Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At March 31, 2017, cash and cash equivalents totaled $8.2 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $18.8 million at March 31, 2017. Our policies also allow for access to the wholesale funds market for up to 40.0% of total

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assets, or $128.7 million. At March 31, 2017, we had $44.6 million in FHLB advances outstanding, $21.0 million in certificates of deposit obtained through a listing service and $1.2 million in brokered certificates of deposit, allowing the Company access to an additional $61.9 million in wholesale funds based on policy guidelines.

At March 31, 2017 we had $4.5 million in loan commitments outstanding. In addition to commitments to originate loans, we had $42.1 million in unadvanced funds to borrowers.

Certificates of deposit due within one year of March 31, 2017 totaled $33.1 million, or 13.8% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit or other wholesale funding options. Depending on market conditions, we may be required to pay higher rates on such deposits than we currently pay on the certificates of deposit due on or before March 31, 2018. We believe, however, based on past experience that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

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

Our primary investing activities are the origination and purchase of loans and the purchase of securities. During the three months ended March 31, 2017, we originated $15.3 million in loans and purchased $1.7 million of residential loans. 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 $22,000 for the three months ended March 31, 2017. 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 increased $2.8 million during the three months ended March 31, 2017 due to loan growth. FHLB advances have primarily been used to fund loan demand and deposit outflows. We sold $271,000 of mortgage loans during the three months ended March 31, 2017.

Capital Management.  Effective January 1, 2015 (with a phase-in period of two to four years for certain components), the Bank became subject to capital regulations adopted by the Board of Governors of the Federal Reserve System (“FRB”) and the FDIC, which implement the Basel III regulatory capital reforms and the changes required by the Dodd-Frank Act.  The regulations require a common equity Tier 1 (“CET1”) capital ratio of 4.5%, a minimum Tier 1 capital to risk-weighted assets ratio of 6.0%, a minimum total capital to risk-weighted assets ratio of 8.0% and a minimum Tier 1 leverage ratio of 4.0%.  CET1 generally consists of common stock and retained earnings, subject to applicable adjustments and deductions. Under new prompt corrective action regulations, in order to be considered “well capitalized,” the Bank must maintain a CET1 capital ratio of 6.5%, a Tier 1 risk based capital ratio of 8.0%,  a total risk based capital ratio of 10.0%  and a Tier 1 leverage ratio of 5.0%.  In addition, the regulations establish a capital conservation buffer above the required capital ratios that began phasing in on January 1, 2016 at 0.625% of risk-weighted assets and increases each year by 0.625% until it is fully phased in at 2.5% effective January 1, 2019.  Failure to maintain the capital conservation buffer will limit the ability of the Bank to pay dividends, repurchase shares or pay discretionary bonuses. 

At March 31, 2017, 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, including the capital conservation buffer.

Off-Balance Sheet Arrangements. For the three months ended March 31, 2017, 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.

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Item 4.Controls and Procedures

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

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PART II. OTHER INFORMATION

Item 1.Legal Proceedings

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

Item 1A.Risk Factors

Other than as set forth in prior filings with the Securities and Exchange Commission or this Quarterly Report on Form 10-Q, there have been no material changes to the Risk Factors set forth in the Annual Report on Form 10-K of the Company filed with the Securities and Exchange Commission on March 30, 2017.

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

a) Not applicable.

b) Not applicable.

c) There were 4,670 shares repurchased during the quarter ended March 31, 2017, not related to a repurchase program.  On July 23, 2013, the Company announced that its Board of Directors had authorized a second 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 March 31, 2017, 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.

Item 5.Other Information

a) Not applicable.

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

Item 6.Exhibits

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

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

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

101        The following financial statements from Georgetown Bancorp Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, filed on May 12, 2017, formatted in XBRL: (1) Consolidated Statements of Financial Condition, (2) Consolidated Statements of Income, (3) Consolidated Statements of Comprehensive Income,

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(4) Consolidated Statements of Changes in Stockholders’ Equity, (5) Consolidated Statements of Cash Flows, (6) Notes to Consolidated Financial Statements.

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

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SIGNATURES

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

	GEORGETOWN BANCORP, INC.
	(Registrant)
Date: May 12, 2017	/s/ Robert E. Balletto
	Robert E. Balletto
	President and Chief Executive Officer
	(Principal Executive Officer)
Date: May 12, 2017	/s/ Joseph W. Kennedy
	Joseph W. Kennedy
	Senior Vice President, Chief Financial Officer and Treasurer
	(Principal Accounting and Financial Officer)

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