Meetinghouse Bancorp (MTGB) 10-Q 2013 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended June 30, 2013

OR

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

For the transition period from                    to                  

Commission file number:  0-54779

MEETINGHOUSE BANCORP, INC.

(Exact name of registrant as specified in its charter)

Maryland	45-4640630
(State or other jurisdiction of incorporation or	(I.R.S. Employer Identification No.)
organization)
2250 Dorchester Avenue, Dorchester, Massachusetts	02124
(Address of principal executive offices)	(Zip Code)

(617) 298-2250

(Registrant’s telephone number, including area code)

Not Applicable

(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 Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x  No o

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

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x
(Do not check if a smaller reporting company)

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

The Registrant had 661,250 shares of common stock, par value $0.01 per share, outstanding as of June 30, 2013.

MEETINGHOUSE BANCORP, INC.

FORM 10-Q

Table of Contents

		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements (unaudited)
	Consolidated Balance Sheets as of June 30, 2013 (unaudited) and September 30, 2012	3
	Consolidated Statements of (Loss) Income for the Three and Nine Months Ended June 30, 2013 and 2012 (unaudited)	4
	Consolidated Statements of Comprehensive (Loss) Income for the Three and Nine Months Ended June 30, 2013 and 2012 (unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended June 30, 2013 and 2012 (unaudited)	6
	Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2013 and 2012 (unaudited)	7
	Notes to Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30
Part II. OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	31
Item 4.	Mine Safety Disclosures	31
Item 5.	Other Information	31
Item 6.	Exhibits	31
Signatures		32

2

PART I.  FINANCIAL INFORMATION

Item 1.   Consolidated Financial Statements

MEETINGHOUSE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

	June 30,			September 30,
	2013			2012
	(Unaudited)
ASSETS
Cash and due from banks	$	2,549		$	5,110
Federal funds sold	179			322
Interest-bearing demand deposits with other banks	46			4,745
Cash and cash equivalents	2,774			10,177
Interest-bearing time deposits in other banks	4,891			3,951
Investments in available-for-sale securities (at fair value)	5,526			5,444
Federal Home Loan Bank stock, at cost	282			401
Loans held-for-sale	6,832			6,794
Loans, net of allowance for loan losses of $403 as of June 30, 2013 and $334 as of September 30, 2012	52,911			43,368
Premises and equipment	1,886			1,439
Investment in real estate	957			972
Cooperative Central Bank deposit	427			427
Accrued interest receivable	197			173
Other assets	440			938
Total assets	$	77,123		$	74,084
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	10,474		$	14,713
Interest-bearing	54,328			53,584
Total deposits	64,802			68,297
Deferred income tax liability, net	127			197
Federal Home Loan Bank advances	1,500			—
Other liabilities	223			172
Total liabilities	66,652			68,666
Stockholders’ equity:
Preferred stock, 500,000 shares authorized; none outstanding	—			—
Common stock, $.01 par value; 5,000,000 shares authorized; 661,250 shares issued and outstanding at June 30, 2013; none issued at September 30, 2012	7			—
Additional paid-in capital	5,645			—
Retained earnings	5,252			5,256
Unearned Compensation - ESOP (45,795 shares unallocated at June 30, 2013)	(482		)	—
Accumulated other comprehensive income	49			162
Total stockholders’ equity	10,471			5,418
Total liabilities and stockholders’ equity	$	77,123		$	74,084

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

3

MEETINGHOUSE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF (LOSS) INCOME

(Dollars in thousands, except per share data)

	Three months ended June 30,						Nine months ended June 30,
	2013			2012			2013			2012
	(Unaudited)						(Unaudited)
Interest and dividend income:
Interest and fees on loans	$	627		$	558		$	1,802		$	1,727
Interest and dividends on securities	34			51			114			194
Other interest	9			8			36			16
Total interest and dividend income	670			617			1,952			1,937
Interest expense:
Interest on deposits	131			145			396			454
Total interest expense	131			145			396			454
Net interest and dividend income	539			472			1,556			1,483
Provision for loan losses	27			8			72			20
Net interest and dividend income after provision for loan losses	512			464			1,484			1,463
Noninterest income:
Gain on secondary market activities	190			111			714			411
Customer service fees	75			73			225			224
Other income	11			9			44			26
Total noninterest income	276			193			983			661
Noninterest expense:
Salaries and employee benefits	428			380			1,297			1,079
Occupancy and equipment expense	117			59			275			176
Professional fees	143			49			315			142
Data processing	57			58			197			164
Deposit insurance expense	44			14			48			27
Advertising	12			12			48			33
Supplies	17			15			46			41
Other real estate owned expense	—			11			—			30
Other expense	91			65			262			196
Total noninterest expense	909			663			2,488			1,888
(Loss) Income before income tax (benefit)expense	(121		)	(6		)	(21		)	236
Income tax (benefit) expense	(49		)	(3		)	(17		)	94
Net (loss) income	$	(72	)	$	(3	)	$	(4	)	$	142
Loss per share:
Basic	$	(0.12	)	N/A			$	(0.01	)	N/A
Diluted	$	(0.12	)	N/A			$	(0.01	)	N/A
Weighted average shares outstanding
Basic	615,455			N/A			615,363			N/A
Diluted	615,455			N/A			615,363			N/A

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

4

MEETINGHOUSE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Dollars in thousands)

	Three months ended June 30,
	2013			2012
	(Unaudited)
Net loss	$	(72	)	$	(3	)
Other comprehensive (loss) income, net of tax:
Net change in unrealized holding gain on available-for-sale securities	(55		)	3
Other comprehensive (loss) income, net of tax	(55		)	3
Comprehensive (loss) income	$	(127	)	$	—

	Nine months ended June 30,
	2013			2012
	(Unaudited)
Net (loss) income	$	(4	)	$	142
Other comprehensive loss, net of tax:
Net change in unrealized holding gain on available-for-sale securities	(113		)	(37		)
Other comprehensive loss, net of tax	(113		)	(37		)
Comprehensive (loss) income	$	(117	)	$	105

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

5

MEETINGHOUSE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Nine Months Ended June 30, 2013 and 2012

(Dollars in thousands)

(Unaudited)

												Accumulated
				Additional					Unearned			Other
	Common Stock			paid-in		Retained			compensation			Comprehensive
	Shares	Amount		capital		Earnings			- ESOP			Income			Total
Balance, September 30, 2011	—	$	—	$	—	$	4,983		$	—		$	182		$	5,165
Net income	—	—		—		142			—			—			142
Other comprehensive loss	—	—		—		—			—			(37		)	(37		)
Balance, June 30, 2012	—	$	—	$	—	$	5,125		$	—		$	145		$	5,270
Balance, September 30, 2012	—	$	—	$	—	$	5,256		$	—		$	162		$	5,418
Net loss	—	—		—		(4		)	—			—			(4		)
Other comprehensive loss	—	—		—		—			—			(113		)	(113		)
Issuance of common stock for initial public offering, net of offering costs of $961	661,250	7		5,645		—			—			—			5,652
Common stock acquired by ESOP (46,287 shares)	—	—		—		—			(487		)	—			(487		)
Common stock released by ESOP (492 shares)	—	—		—		—			5			—			5
Balance, June 30, 2013	661,250	$	7	$	5,645	$	5,252		$	(482	)	$	49		$	10,471

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

6

MEETINGHOUSE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

	Nine Months Ended June 30,
	2013			2012
	(Unaudited)
Cash flows from operating activities:
Net (loss) income	$	(4	)	$	142
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Amortization of securities, net	25			39
Provision for loan losses	72			20
Change in deferred loan costs, net	(164		)	(66		)
Loans originated for sale	(93,065		)	(66,069		)
Proceeds from sale of loans	93,741			63,971
Gain on sales of loans	(714		)	(411		)
Depreciation and amortization	95			59
(Increase) decrease in accrued interest receivable	(24		)	6
Decrease (increase) in other assets	498			(488		)
Deferred tax expense	—			76
Increase (decrease) in accrued expenses and other liabilities	56			(63		)
Net cash provided by (used in) operating activities	516			(2,784		)
Cash flows from investing activities:
Purchases of interest-bearing time deposits in other banks	(1,992		)	(2,059		)
Proceeds from maturities of interest-bearing time deposits in other banks	1,052			249
Purchases of available-for-sale securities	(2,181		)	(1,770		)
Proceeds from maturities of available-for-sale securities	1,891			1,248
Loan originations and principal collections, net	(9,451		)	(1,929		)
Redemption of Federal Home Loan Bank stock	119			126
Capital expenditures	(527		)	(314		)
Investment in real estate	—			(467		)
Net cash used in investing activities	(11,089		)	(4,916		)
Cash flows from financing activities:
Net (decrease) increase in demand deposits, NOW and savings accounts	(2,493		)	5,180
Net (decrease) increase in time deposits	(1,002		)	1,872
Net change in short-term advances from Federal Home Loan Bank	1,500			—
Proceeds from common stock offering	6,613			—
Costs of common stock offering	(961		)	—
Common stock acquired by ESOP	(487		)	—
Net cash provided by financing activities	3,170			7,052
Net decrease in cash and cash equivalents	(7,403		)	(648		)
Cash and cash equivalents at beginning of period	10,177			8,513
Cash and cash equivalents at end of period	$	2,774		$	7,865
Supplemental disclosures:
Interest paid	$	396		$	454
Income taxes (received) paid	(13		)	256

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

7

Meetinghouse Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

NOTE 1 - BASIS OF PRESENTATION

The consolidated condensed interim financial statements include the accounts of Meetinghouse Bancorp, Inc. (the “Company”) and its wholly-owned subsidiary, Meetinghouse Bank (the “Bank”), and the Bank’s wholly-owned subsidiaries, Meetinghouse Securities Corporation and Richmond Realty Trust.  All significant intercompany accounts and transactions have been eliminated in the consolidation.

On January 17, 2012, the Board of Directors of the Bank adopted a plan of conversion under which the Bank would convert from a Massachusetts-chartered mutual co-operative bank to a Massachusetts-chartered stock co-operative bank and become the wholly-owned subsidiary of a newly chartered stock holding company, Meetinghouse Bancorp, Inc. (“the Company”). The conversion was subject to approval by the Federal Reserve Board and the Massachusetts Division of Banks, non-objection by the Federal Deposit Insurance Corporation, and approval by the depositors of the Bank, and included the filing of a registration statement with the U.S. Securities and Exchange Commission. Such approvals and non-objections were obtained and, effective November 19, 2012, the Company completed its initial public offering in connection with the conversion transaction by selling a total of 661,250 shares of common stock at a purchase price of $10.00 per share in a subscription offering, of which 27,700 shares were purchased by the Company’s employee stock ownership plan (the “ESOP”).  An additional 18,587 shares were purchased by the ESOP in the open market subsequent to the initial public offering.

The cost of conversion and issuing the capital stock has been deducted from the proceeds of the offering. The Company incurred approximately $961,000 (unaudited) in conversion costs which were netted against the proceeds of the initial public offering.

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and the instructions for Form 10-Q and Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  In the opinion of management the information reflects all adjustments (consisting solely for normal recurring adjustments) that are necessary for a fair presentation.  The results shown for the interim period ended June 30, 2013 are not necessarily indicative of the results to be obtained for a full year.  These consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended September 30, 2012 included in the Company’s Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission (“SEC”).

In preparing the consolidated condensed interim financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, as of the date of the statement of financial condition and reported amounts of revenues and expenses for the periods presented.  Actual results could differ from those estimates.  Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and deferred income taxes.

NOTE 2 - NATURE OF OPERATIONS

The Bank, a Massachusetts co-operative bank, is headquartered in Dorchester, Massachusetts.  The Bank is engaged principally in the business of attracting deposits from the general public and investing those deposits in residential and commercial real estate loans, construction loans, and in consumer and small business loans.

NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS

In June 2011, Financial Accounting Standards Board (“FASB”) issued ASU 2011-05, “Comprehensive Income (Topic 220), Presentation of Comprehensive Income.”  This update amends the disclosure requirements for the presentation of comprehensive income. The amended guidance eliminates the option to present components of other comprehensive income (OCI) as part of the statement of changes in stockholders’ equity. Under the amended guidance, all changes in OCI are to be presented either in a single continuous statement of comprehensive income or in two separate but consecutive financial statements. The changes, as modified by ASU 2011-12, are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. This guidance did not have a material impact on the Company’s consolidated financial statements.

In December 2011, the FASB issued ASU 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.”  The amendments in this update defer those changes in ASU 2011-05 that relate to the presentation of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented.  All other requirements in ASU 2011-05 are not affected by this update.  The amendments are effective during interim and annual periods beginning after December 15, 2011.   The guidance did not have a material impact on the Company’s consolidated financial statements.

8

In October 2012, the FASB issued ASU 2012-06, “Business Combinations (Topic 805): Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution.”  The amendments in this update clarify the applicable guidance for subsequently measuring an indemnification asset recognized as a result of a government-assisted acquisition of a financial institution.  For public and nonpublic entities, the amendments in this update are effective for fiscal years, and interim periods within those years beginning on or after December 15, 2012.  The guidance did not have a material impact on the Company’s consolidated financial statements.

In February 2013, the FASB issued ASU 2013-04, “Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date.”  The objective of the amendments in this ASU is to provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. generally accepted accounting principles (GAAP).  Examples of obligations within the scope of this ASU include debt arrangements, other contractual obligations, and settled litigation and judicial rulings.  The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013; and should be applied retrospectively to all prior periods presented for those obligations resulting from joint and several liability arrangements within the ASU scope that exist at the beginning of an entity’s fiscal year of adoption.  The Company anticipates that the adoption of this guidance will not have a material impact on its consolidated financial statements.

In April 2013, the FASB issued ASU 2013-07, “Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting.”  The amendments in this ASU are being issued to clarify when an entity should apply the liquidation basis of accounting.  The guidance provides principles for the recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation basis of accounting.  Additionally, the amendments require disclosures about an entity’s plan for liquidation, the methods and significant assumptions used to measure assets and liabilities, the type and amount of costs and income accrued, and the expected duration of the liquidation process.  The amendments are effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein.  Entities should apply the requirements prospectively from the day that liquidation becomes imminent.  Early adoption is permitted.  The Company anticipates that the adoption of this guidance will not have a material impact on its consolidated financial statements.

In July 2013, the FASB issued ASU 2013-10, “Derivatives and Hedging (Topic 815) — Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes.”  The amendments in this ASU permit the Fed Funds Effective Swap Rate (OIS) to be used as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815, in addition to Treasury Obligations of the U.S. government (UST) and the London Interbank Offered Rate (LIBOR).  The amendments also remove the restriction on using different benchmark rates for similar hedges.  The amendments apply to all entities that elect to apply hedge accounting of the benchmark interest rate under Topic 815.  The amendments are effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013.  The adoption of this ASU is not expected to have a material impact on the Company’s results of operations or financial position.

In July 2013, the FASB issued ASU 2013-11, “Income Taxes — Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.”  The amendments in this ASU provide guidance for the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists.  The amendments in this ASU are expected to reduce diversity in practice by providing guidance on the presentation of unrecognized tax benefits and will better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist.  The amendments apply to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013.  The adoption of this guidance is not expected to have a material impact on the Company’s results of operations or financial position.

NOTE 4 — Earnings (Loss) Per Share

Basic earnings (loss) per share (“EPS”) excludes dilution and is calculated by dividing net income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted EPS is computed in a manner similar to that of basic EPS except that the weighted-average number of common shares outstanding is increased to include the number of incremental common shares that would have been outstanding if all potentially dilutive common stock equivalents were issued during the period. Unallocated common shares held by the ESOP are shown as a reduction in stockholders’ equity and are included in the weighted-average number of common shares outstanding for both basic and diluted EPS calculations as they are committed to be released.

Earnings (loss) per share for the three and nine months ended June 30, 2013 and 2012 have been computed as follows (in thousands):

9

	Three months ended June 30,
	2013			2012
	(unaudited)
Net loss applicable to common stock	$	(72	)	N/A
Average number of shares issued	661,250			N/A
Less: average unallocated ESOP shares	45,795			N/A
Average number of common shares outstanding used to calculate basic and diluted earnings per share	615,455			N/A
Basic loss per share	$	(0.12	)	N/A
Diluted loss per share	$	(0.12	)	N/A

	Nine months ended June 30,
	2013			2012
	(unaudited)
Net loss applicable to common stock	$	(4	)	N/A
Average number of shares issued	661,250			N/A
Less: average unallocated ESOP shares	45,887			N/A
Average number of common shares outstanding used to calculate basic and diluted earnings per share	615,363			N/A
Basic loss per share	$	(0.01	)	N/A
Diluted loss per share	$	(0.01	)	N/A

Because the Company’s initial public offering was not completed until November 19, 2012, EPS data is not applicable for the three and nine months ended June 30, 2012.

NOTE 5 - INVESTMENTS IN AVAILABLE-FOR-SALE SECURITIES

The amortized cost and estimated fair value of securities available-for-sale, with gross unrealized gains and losses, are as follows (in thousands):

	Amortized		Gross		Gross
	Cost		Unrealized		Unrealized		Fair
	Basis		Gains		Losses		Value
June 30, 2013 (unaudited)
U.S. agencies	$	800	$	—	$	9	$	791
Mortgage-backed securities	4,645		120		30		4,735
	$	5,445	$	120	$	39	$	5,526
September 30, 2012
Corporate debt securities	$	300	$	20	$	—	$	320
U.S. agencies	52		—		—		52
Mortgage-backed securities	4,827		245		—		5,072
	$	5,179	$	265	$	—	$	5,444

10

The amortized cost and estimated fair value of available-for-sale securities, segregated by contractual maturity at June 30, 2013

are presented below (in thousands):

	Amortized		Fair
(unaudited)	Cost Basis		Value
Due after one year through five years	$	749	$	740
Due after ten years	51		51
Mortgage-backed securities	4,645		4,735
	$	5,445	$	5,526

There were no sales of available-for-sale securities for the three and nine months ended June 30, 2013 and 2012.

Information pertaining to securities with gross unrealized losses at June 30, 2013, aggregated by investment category and length of time that individual securities have been in a continuous loss position, are as follows (in thousands):

	Less than 12 Months				12 Months or Longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Loss		Value		Losses
June 30, 2013 (unaudited)
U.S. agencies	$	800	$	9	$	—	$	—	$	800	$	9
Mortgage-backed securities	2,205		30		—		—		2,205		30
Total temporarily impaired securities	$	3,005	$	39	$	—	$	—	$	3,005	$	39

The Company did not have any securities with gross unrealized losses at September 30, 2012.

Management conducts, at least on a quarterly basis, a review of our investment securities to determine if the value of any security has declined below its cost or amortized cost and whether such decline represents other-than-temporary impairment.  The investments in the Company’s investment portfolio that are temporarily impaired as of June 30, 2013 consist of two debt securities issued by U.S. Government federal agencies and seven mortgage-backed securities.  The unrealized loss at June 30, 2013 is attributable to changes in market interest rates since the Company acquired the securities.  As management has the ability and the intent to hold debt securities until recovery, the declines are deemed to be not other-than-temporary.

11

NOTE 6 - LOANS

Loans consist of the following:

	June 30,					September 30,
	2013					2012
	(unaudited)
	(Dollars in thousands)
Real estate loans:
Residential	$	34,587		65.25	%	$	28,171		64.68	%
Commercial	8,908			16.80		7,080			16.25
Construction	321			0.61		332			0.76
Multi-family	1,722			3.25		1,168			2.68
Total real estate	45,538			85.91		36,751			84.37
Commercial	1,762			3.32		1,550			3.56
Consumer loans:
Home equity	5,007			9.45		4,545			10.43
Other	699			1.32		712			1.64
Total consumer	5,706			10.77		5,257			12.07
				100.00	%				100.00	%
Total loans	53,006					43,558
Allowance for loan losses	(403		)			(334		)
Deferred loan costs, net	308					144
Net loans	$	52,911				$	43,368

The following table sets forth information regarding the allowance for loan losses by portfolio segment as of and for the nine months ended June 30, 2013 (unaudited):

	Real Estate												Consumer
	1-4 Family		1-4 Family
	Owner		Non-Owner
(in thousands)	Occupied		Occupied		Multifamily		Commercial		Construction		Commercial		Home Equity			Other			Total
Allowance for loan losses:
Beginning balance	$	135	$	55	$	12	$	67	$	3	$	14	$	33		$	15		$	334
Charge-offs	—		—		—		—		—		—		—			(3		)	(3		)
Recoveries	—		—		—		—		—		—		—			—			—
Provision (benefit)	30		8		5		14		—		1		(2		)	16			72
Ending Balance	$	165	$	63	$	17	$	81	$	3	$	15	$	31		$	28		$	403
Allowance for loan losses:
Ending balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—		$	—		$	—
Ending balance:
Collectively evaluated for impairment	165		63		17		81		3		15		31			28			403
Total allowance for loan losses ending balance	$	165	$	63	$	17	$	81	$	3	$	15	$	31		$	28		$	403
Loans:
Ending balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—		$	—		$	—
Ending balance:
Collectively evaluated for impairment	24,888		9,699		1,722		8,908		321		1,762		5,007			699			53,006
Total loans ending balance	$	24,888	$	9,699	$	1,722	$	8,908	$	321	$	1,762	$	5,007		$	699		$	53,006

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The following table sets forth information regarding the allowance for loan losses by portfolio segment as of and for the nine months ended June 30, 2012 (unaudited):

	Real Estate																Consumer
	1-4 Family		1-4 Family
	Owner		Non-Owner
(in thousands)	Occupied		Occupied			Multifamily		Commercial			Construction			Commercial			Home Equity			Other		Total
Allowance for loan losses:
Beginning balance	$	108	$	53		$	9	$	66		$	9		$	19		$	48		$	4	$	316
Charge-offs	—		—			—		—			—			—			—			—		—
Recoveries	—		—			—		—			—			—			—			—		—
Provision (benefit)	47		(2		)	2		(4		)	(3		)	(6		)	(19		)	5		20
Ending Balance	$	155	$	51		$	11	$	62		$	6		$	13		$	29		$	9	$	336

The following table sets forth information regarding the allowance for loan losses by portfolio segment as of September 30, 2012.

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	Real Estate												Consumer
	1-4 Family		1-4 Family
	Owner		Non-Owner
(in thousands)	Occupied		Occupied		Multifamily		Commercial		Construction		Commercial		Home Equity		Other		Total
Allowance for loan losses:
Ending balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Ending balance:
Collectively evaluated for impairment	135		55		12		67		3		14		33		15		334
Total allowance for loan losses ending balance	$	135	$	55	$	12	$	67	$	3	$	14	$	33	$	15	$	334
Loans:
Ending balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Ending balance:
Collectively evaluated for impairment	19,751		8,420		1,168		7,080		332		1,550		4,545		712		43,558
Total loans ending balance	$	19,751	$	8,420	$	1,168	$	7,080	$	332	$	1,550	$	4,545	$	712	$	43,558

The following table sets forth information regarding nonaccrual loans and past-due loans as of June 30, 2013 (unaudited):

					90 Days								90 Days or
	30–59 Days		60–89 Days		or More		Total		Total		Total		More Past Due
(in thousands)	Past Due		Past Due		Past Due		Past Due		Current		Loans		and Accruing		Nonaccrual
June 30, 2013:
Real estate:
Residential one-to-four family	$	705	$	216	$	—	$	921	$	33,666	$	34,587	$	—	$	—
Commercial	—		—		—		—		8,908		8,908		—		—
Construction	—		—		—		—		321		321		—		—
Multi-family	—		—		—		—		1,722		1,722		—		—
Commercial	—		—		—		—		1,762		1,762		—		—
Home Equity	40		—		—		40		4,967		5,007		—		—
Consumer	1		—		—		1		698		699		—		—
Total	$	746	$	216	$	—	$	962	$	52,044	$	53,006	$	—	$	—

The following table sets forth information regarding nonaccrual loans and past-due loans as of September 30, 2012:

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					90 Days								90 Days or
	30–59 Days		60–89 Days		or More		Total		Total		Total		More Past Due
(in thousands)	Past Due		Past Due		Past Due		Past Due		Current		Loans		and Accruing		Nonaccrual
September 30, 2012:
Real estate:
Residential one-to-four family	$	299	$	51	$	—	$	350	$	27,821	$	28,171	$	—	$	—
Commercial	—		—		—		—		7,080		7,080		—		—
Construction	—		—		—		—		332		332		—		—
Multi-family	—		—		—		—		1,168		1,168		—		—
Commercial	—		—		—		—		1,550		1,550		—		—
Home Equity	20		—		—		20		4,525		4,545		—		—
Consumer	1		—		3		4		708		712		—		3
Total	$	320	$	51	$	3	$	374	$	43,184	$	43,558	$	—	$	3

As of June 30, 2013 (unaudited) and September 30, 2012, the Company had no loans categorized as impaired.

There were no loans modified during the nine months ended June 30, 2013 (unaudited) or during the year ended September 30, 2012 that met the definition of a troubled debt restructured loan as described in ASC 310-10-50.

Credit Quality Information

The Company utilizes an eight grade internal loan rating system for residential and commercial real estate, construction and commercial loans as follows:

Loans rated 1 - 4:  Loans in these categories are considered “pass” rated loans and conform in all respects to Company and regulatory requirements.  These are also loans for which no repayment risk has been identified.  Credit or collateral exceptions are minimal, are in the process of correction and do not represent risk.

Loans rated 5:  Loans in this category are considered “special mention” and are fundamentally sound, but exhibit potentially unwarranted credit risk or other unsatisfactory characteristics.  The likelihood of loss to the Company is remote.

Loans rated 6:  Loans in this category are considered “substandard” and are inadequately protected by current sound net worth, paying capacity of the obligor, or the value of pledged collateral; as well as those loans with unsatisfactory characteristics indicating higher levels of risk.  The combination of one or more of these characteristics increases the possibility of loss to the Company.

Loans rated 7:  Loans in this category are considered “doubtful.”  Loans in this category exhibit weaknesses inherent in the substandard classification and, in addition, collection or liquidation in full is highly questionable.

Loans rated 8:  Loans in this category are considered “loss”. Loans in this category are considered uncollectible and of such little value that their continuance as an asset is not warranted.

On an annual basis, or more often if needed, the Company formally reviews the ratings on all residential real estate and commercial real estate, construction and commercial loans.  For all consumer loans, the Company initially assesses credit quality based upon the borrower’s ability to service the debt and subsequently monitors these loans based upon the borrower’s payment activity.

The following table presents the Company’s loans by risk rating as of June 30, 2013 (unaudited):

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	Real Estate										Consumer
(in thousands)	Residential		Multi Family		Commercial		Construction		Commercial		Home Equity		Other		Total
June 30, 2013:
Grade:
Pass	$	33,888	$	1,722	$	8,138	$	321	$	1,573	$	—	$	—	$	45,642
Special mention	246		—		516		—		189		37		—		988
Substandard	453		—		254		—		—		23		—		730
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Not formally rated	—		—		—		—		—		4,947		699		5,646
Total	$	34,587	$	1,722	$	8,908	$	321	$	1,762	$	5,007	$	699	$	53,006

The following table presents the Company’s loans by risk rating as of September 30, 2012:

	Real Estate										Consumer
(in thousands)	Residential		Multi Family		Commercial		Construction		Commercial		Home Equity		Other		Total
September 30, 2012:
Grade:
Pass	$	27,456	$	1,168	$	6,821	$	332	$	1,360	$	—	$	—	$	37,137
Special mention	256		—		—		—		190		42		—		488
Substandard	459		—		259		—		—		48		—		766
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Not formally rated	—		—		—		—		—		4,455		712		5,167
Total	$	28,171	$	1,168	$	7,080	$	332	$	1,550	$	4,545	$	712	$	43,558

NOTE 7 - FAIR VALUE MEASUREMENTS

ASC 820-10, “Fair Value Measurements and Disclosures,” provides a framework for measuring fair value under generally accepted accounting principles.  This guidance also allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis.

In accordance with ASC 820-10, 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.

Level 1 - Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange.  Level 1 also includes U.S. Treasury, other U.S. Government and agency mortgage-backed securities that are traded by dealers or brokers in active markets.  Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 - Valuations for assets and liabilities traded in less active dealer or broker markets.  Valuations are obtained from third party pricing services for identical or comparable assets or liabilities.

Level 3 - Valuations for assets and liabilities that are derived from other methodologies, including option pricing models, discounted cash flow models and similar techniques, are not based on market exchange, dealer, or broker traded transactions.  Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets and liabilities.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.  These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value for June 30, 2013 (unaudited) and September 30, 2012.  The Company did not have any significant transfers of assets between levels 1 and 2 of the fair value hierarchy during the nine months ended June 30, 2013 (unaudited) and the year ended September 30, 2012.

Cash and cash equivalents - The Company’s cash instruments are generally classified within level 1 or level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.

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Securities available-for-sale - The Company’s investment in mortgage-backed securities and other debt securities available-for-sale is generally classified within level 2 of the fair value hierarchy.  For these securities, we obtain fair value measurements from independent pricing services.  The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. treasury yield curve, trading levels, market consensus prepayment speeds, credit information and the instrument’s terms and conditions.

Federal Home Loan Bank stock — The carrying amount of Federal Home Loan Bank (“FHLB”) of Boston stock approximates fair value based upon the redemption provisions of the FHLB of Boston.

Loans held-for-sale — Loans originated and held-for-sale are carried at the lower of aggregate cost or market value.  No fair value adjustments were recorded on loans held-for-sale during the nine months ended June 30, 2013 and 2012 (unaudited).

Loans — Fair values for 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 non-performing loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

Mortgage servicing rights (“MSR”) — Mortgage servicing rights (“MSR”) are the rights of a mortgage servicer to collect mortgage payments and forward them, after deducting a fee, to the mortgage holder. The fair value of servicing rights is estimated using a discounted cash flow model. The fair value of MSR is highly sensitive to changes in assumptions. Changes in prepayment speed assumptions generally have the most significant impact on the fair value of our MSR. Generally, as interest rates decline, mortgage loan prepayments accelerate due to increased refinance activity, which results in a decrease in the fair value of MSR. As interest rates rise, mortgage loan prepayments slow down, which results in an increase in the fair value of MSR. Thus, any measurement of the fair value of our MSR is limited by the conditions existing and the assumptions utilized as of a particular point in time, and those assumptions may not be appropriate if they are applied at a different point in time.

Accrued interest receivable — Carrying value approximates fair value.

Federal Home Loan Bank advances: Fair values for Federal Home Loan Bank advances are estimated using a discounted cash flow technique that applies interest rates currently being offered on advances to a schedule of aggregated expected monthly maturities on Federal Home Loan Bank advances.

Level 3 is for positions that are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence.  In the absence of such evidence, management’s best estimate is used.  Subsequent to inception, management only changes level 3 inputs and assumptions when corroborated by evidence such as transactions in similar instruments, completed or pending third-party transactions in the underlying investment or comparable entities, subsequent rounds of financing, recapitalization and other transactions across the capital structure, offerings in the equity or debt markets, and changes in financial ratios or cash flows.

The following summarizes assets measured at fair value on a recurring basis at June 30, 2013 (unaudited) and September 30, 2012:

(in thousands)	Total		Level 1		Level 2		Level 3
June 30, 2013
Securities available-for-sale:
U.S. agencies	$	791	$	—	$	791	$	—
Mortgage-backed securities	4,735		—		4,735		—
	$	5,526	$	—	$	5,526	$	—
September 30, 2012:
U.S. agencies	$	52	$	—	$	52	$	—
Corporate debt securities	320		—		320		—
Mortgage-backed securities	5,072		—		5,072		—
	$	5,444	$	—	$	5,444	$	—

The estimated fair values of the Company’s financial instruments, all of which are held or issued for purposes other than trading, are as follows:

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	June 30, 2013 (unaudited)
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Total
	(in thousands)
Financial assets:
Cash and cash equivalents	$	2,774	$	2,774	$	—	$	—	$	2,774
Interest-bearing time deposits with other banks	4,891		—		4,896		—		4,896
Available-for-sale securities	5,526		—		5,526		—		5,526
Federal Home Loan Bank stock	282		282		—		—		282
Loans held-for-sale	6,832		6,944		—		—		6,944
Loans, net	52,911		—		—		52,596		52,596
Accrued interest receivable	197		197		—		—		197
Mortgage servicing rights	249		—		310		—		310
Financial liabilities:
Deposits	64,802		—		65,037		—		65,037
Federal Home Loan Bank advances	1,500		—		1,500		—		1,500

	September 30, 2012
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Total
	(in thousands)
Financial assets:
Cash and cash equivalents	$	10,177	$	10,177	$	—	$	—	$	10,177
Interest-bearing time deposits with other banks	3,951		—		3,953		—		3,953
Available-for-sale securities	5,444		—		5,444		—		5,444
Federal Home Loan Bank stock	401		401		—		—		401
Loans held-for-sale	6,794		6,902		—		—		6,902
Loans, net	43,368		—		—		44,132		44,132
Accrued interest receivable	173		173		—		—		173
Mortgage servicing rights	103		—		105		—		105
Financial liabilities:
Deposits	68,297		—		68,556		—		68,556

The Company may be required, from time to time, to measure certain other assets at fair value on a non-recurring basis in accordance with GAAP.  There were no Level 1, Level 2 or Level 3 nonrecurring fair value measurements for the periods ended June 30, 2013 (unaudited) and September 30, 2012.

NOTE 8 - REGULATORY CAPITAL

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices.  The Bank’s

18

capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined).  As of June 30, 2013 (unaudited) and September 30, 2012, the Bank met all capital adequacy requirements to which it was subject at such dates.

As of June 30, 2013 (unaudited), the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action.  To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table.  There are no conditions or events since that notification that management believes have changed the institution’s category.

The Bank’s actual capital amounts and ratios are also presented in the table below.

									To Be Well
					Minimum				Capitalized Under
					For Capital				Prompt Corrective
	Actual				Adequacy Purposes				Action Provisions
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of June 30, 2013 (unaudited):
Total Capital (to Risk Weighted Assets)	$	8,011	17.8	%	$	3,593	> 8.0	%	$	4,492	>	10.0	%
Tier 1 Capital (to Risk Weighted Assets)	7,609		16.9		1,797		> 4.0		2,695		>	6.0
Tier 1 Capital (to Average Assets)	7,609		10.0		3,041		> 4.0		3,801		>	5.0
As of September 30, 2012:
Total Capital (to Risk Weighted Assets)	$	5,579	14.3	%	3,125		> 8.0		$	3,906	>	10.0	%
Tier 1 Capital (to Risk Weighted Assets)	5,246		13.4		1,562		> 4.0		2,343		>	6.0
Tier 1 Capital (to Average Assets)	5,246		7.4		2,849		> 4.0		3,562		>	5.0

NOTE 9 — OTHER COMPREHENSIVE (LOSS) INCOME

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income.  Although certain changes in assets and liabilities are reported as a separate component of the stockholders’ equity section of the consolidated balance sheets, such items, along with net income, are components of comprehensive income.

The components of other comprehensive loss, included in stockholders’ equity are as follows during the three and nine months ended June 30, 2013 and 2012 (unaudited):

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	Three months ended June 30,
	2013			2012
Unrealized (losses) gains on securities:
Net unrealized holding (loss) gain on available-for-sale securities	$	(89	)	$	3
Reclassification adjustment for realized (gains) losses in net income	—			—
	(89		)	3
Income tax benefit	34			—
Other comprehensive (loss) income, net of tax	$	(55	)	$	3

	Nine months ended June 30,
	2013			2012
Unrealized losses on securities:
Net unrealized holding loss on available-for-sale securities	$	(184	)	$	(63	)
Reclassification adjustment for realized (gains) losses in net income	—			—
	(184		)	(63		)
Income tax benefit	71			26
Other comprehensive loss, net of tax	$	(113	)	$	(37	)

As of June 30, 2013 and June 30, 2012 (unaudited), accumulated other comprehensive income consists of net unrealized holding gains on available-for-sale securities, net of taxes.

NOTE 10 — EMPLOYEE STOCK OWNERSHIP PLAN (“ESOP”)

The Company adopted a tax-qualified employee stock ownership plan (“ESOP”) for the benefit of eligible employees.  Effective November 19, 2012, the Bank converted from a Massachusetts-chartered mutual co-operative bank to a Massachusetts-chartered stock co-operative bank and became the wholly-owned subsidiary of the Company.  The Company completed its initial public offering in connection with the conversion transaction by selling a total of 661,250 shares of common stock at a purchase price of $10.00 per share in a subscription offering, of which 27,700 shares were purchased by the Bank’s ESOP.  The ESOP acquired an additional 18,587 shares in the open market subsequent to the conversion.

The ESOP funded its stock purchase through a loan from the Company equal to 100% of the aggregate purchase price of the common stock. The ESOP trustee will repay the loan principally through the Bank’s contributions to the ESOP and, possibly, dividends paid on common stock held by the plan over a 7-year loan term.

The trustee will hold the shares purchased in a loan suspense account and will release the shares from the suspense account on a pro rata basis as it repays the loan. The trustee will allocate the shares released among active participants on the basis of each active participant’s proportional share of compensation for the plan year. Generally, participants will receive distributions from the ESOP upon separation from service. The plan will reallocate any unvested shares of common stock forfeited by participants upon their separation from service among the remaining participants in the plan.

Under applicable accounting requirements, the Company will record a compensation expense for the ESOP at the fair market value of the shares when they are committed to be released from the suspense account to participants’ accounts under the plan.

At June 30, 2013 (unaudited), the remaining principal balance on the ESOP debt was $482,000 and the number of shares held by the ESOP was 45,795.

Total compensation expense recognized in connection with the ESOP was $19,000 and $43,000, respectively, for the three and nine months ended June 30, 2013 (unaudited).

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

This discussion is intended to assist in understanding the financial condition and results of operations of the Company.  This should be read in conjunction with the consolidated financial statements and accompanying notes contained in this report.

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Forward-Looking Statements

This report may contain forward-looking statements within the meaning of the federal securities laws.  These statements are not historical facts; rather they are statements based on the Company’s current expectations regarding its business strategies and their intended results and its future performance.  Forward-looking statements are preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions.

Forward-looking statements are not guarantees of future performance.  Numerous risks and uncertainties could cause or contribute to the Bank’s actual results, performance and achievements being materially different from those expressed or implied by the forward-looking statements.  Factors that may cause or contribute to these differences include, without limitation, general economic conditions, including changes in market interest rates and changes in monetary and fiscal policies of the federal government; legislative and regulatory changes; the quality and composition of the loan and investment securities portfolio; loan demand; deposit flows; competition; and changes in accounting principles and guidelines.  Additional factors that may affect our results are discussed in the Company’s 2012 Annual Report on Form 10-K under the section titled “Item 1A.- Risk Factors.”  These factors should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements.  Except as required by applicable law or regulation, the Company assumes no obligation and disclaims any obligation to update any forward-looking statements.

Critical Accounting Policies

We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies.

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

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by the following loan segments: owner and non-owner occupied residential real estate, home equity, multi-family commercial real estate, construction, commercial and consumer. Management uses a rolling average of historical losses based on a time frame appropriate to capture relevant loss data for each loan segment. This historical loss factor is adjusted for the following qualitative factors: levels/trends in delinquencies; trends in volume and terms of loans; effects of changes in risk selection and underwriting standards and other changes in lending policies, procedures and practices; experience/ability/depth of lending management and staff; and national and local economic trends and conditions. There were no changes in the Company’s policies or methodology pertaining to the general component of the allowance for loan losses for the nine months ended June 30, 2013.

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

Residential real estate:    Residential real estate includes owner and non-owner occupied real estate loans and home equity loans. The Company originates most of the loans in this segment according to FNMA/FHLMC underwriting guidelines. Most loans in this segment are collateralized by residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment. There are some non-owner occupied residential real estate loans with multiple investment properties that are evaluated as commercial real estate property.

Commercial real estate:    Commercial real estate includes multi-family and certain non-owner occupied residential real estate. Loans in this segment are primarily income-producing properties throughout Massachusetts. The underlying cash flows generated by the properties are adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, will have an effect on the credit quality in this segment. Management periodically obtains rent rolls and continually monitors the cash flows of these loans.

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

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

Consumer loans:    Loans in this segment are generally unsecured and repayment is dependent on the credit quality of the individual borrower.

The allocated component relates to loans that are classified as impaired. Impairment is measured on a loan by loan basis for commercial, commercial real estate and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent. An allowance is established when the discounted cash flows (or collateral value) of the impaired loan is lower than the carrying value of that loan. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual consumer and residential real estate loans for impairment disclosures, unless such loans are subject to a troubled debt restructuring agreement.

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. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

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

An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio.

Deferred Tax Assets.    Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. Management reviews deferred tax assets on a quarterly basis to identify any uncertainties pertaining to realization of such assets. In determining whether a valuation allowance is required against deferred tax assets, management assesses historical and forecasted operating results, including a review of eligible carryforward periods, tax planning opportunities and other relevant considerations. We believe the accounting estimate related to the valuation allowance is a critical estimate because the underlying assumptions can change from period to period. For example, tax law changes or variances in future projected operating performance could result in a change in the valuation allowance. Should actual factors and conditions differ materially from those used by management, the actual realization of net deferred tax assets could differ materially from the amounts recorded in the financial statements. If we were not able to realize all or part of our deferred tax assets in the future, an adjustment to the related valuation allowance would be charged to income tax expense in the period such determination was made and could have a negative impact on earnings. In addition, if actual factors and conditions differ materially from those used by management, we could incur penalties and interest imposed by taxing authorities.

Comparison of Financial Condition at June 30, 2013 and September 30, 2012

Total Assets. Total assets increased by $3.0 million, from $74.1 million at September 30, 2012 to $77.1 million at June 30, 2013, primarily due to an increase in loans, net of allowance of $9.5 million and an increase in interest-bearing time deposits in other banks of $940,000. These increases were primarily offset by a decrease in cash and cash equivalents of $7.4 million.

Cash and Cash Equivalents. Cash and cash equivalents decreased by $7.4 million, from $10.2 million at September 30, 2012 to $2.8 million at June 30, 2013, in order to fund new loan originations.

Interest-Bearing Time Deposits in Other Banks. These deposits increased by $940,000, from $4.0 million at September 30, 2012 to $4.9 million at June 30, 2013.  We maintain funds in these accounts in order to improve the yield earned on excess liquidity.

Securities. Our securities portfolio consists primarily of residential mortgage-backed securities issued by U.S. government agencies and government sponsored enterprises. Investments in available-for-sale securities increased by $82,000 from $5.4 million at

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September 30, 2012 to $5.5 million at June 30, 2013.  The increase is largely due to the purchase of new mortgage-backed securities and government agency securities in the amount of $2.2 million offset by repayments made on mortgage-backed securities and a corporate bond in the amount of $1.9 million.

Loans, Net. Loans, net, increased by $9.5 million, from $43.4 million at September 30, 2012 to $52.9 million at June 30, 2013. This increase was primarily due to new loans originated, net of repayments.

Loans Held-for-Sale. Loans held-for-sale increased by $38,000, from $6.8 million at September 30, 2012 to $6.8 million at June 30, 2013, primarily due to continued demand created for fixed-rate residential mortgage loans due to a prevailing low interest rate environment.

Deposits. Our primary sources of funds are retail deposit accounts held primarily by individuals and businesses within our primary market area. Total deposits decreased by $3.5 million, from $68.3 million at September 30, 2012 to $64.8 million at June 30, 2013, primarily due to a $4.2 million decrease in noninterest-bearing accounts and a $744,000 increase in interest-bearing deposits.

The following table sets forth the balances of our deposit products at the dates indicated.

	June 30,				September 30,
(Dollars in thousands)	2013				2012
	(unaudited)
Noninterest-bearing demand deposits	$	10,474	16.16	%	$	14,713	21.54	%
Interest bearing deposits:
Money market	9,086		14.02		8,599		12.59
Regular and other savings	9,819		15.15		8,561		12.54
Certificates of deposit	35,423		54.67		36,424		53.33
Total	$	64,802	100.00	%	$	68,297	100.00	%

Borrowings. We generally use borrowings from the FHLB to supplement our supply of funds for loans and securities. No Federal Home Loan Bank of Boston borrowings were outstanding at September 30, 2012.  Outstanding FHLB borrowings were $1.5 million at June 30, 2013.

Comparison of Results of Operations for the Three and Nine Months Ended June 30, 2013 and 2012

Net (Loss) Income. Net loss increased by $69,000, from ($3,000) in the three months ended June 30, 2012 to ($72,000) in the three months ended June 30, 2013, primarily due to an increase in total noninterest expense of $246,000 and an increase in provision for loan loss of $19,000, offset by an increase in interest income of $53,000 and an increase in net interest and dividend income of $67,000.

Net income decreased by $146,000, from $142,000 in the nine months ended June 30, 2012 to a net loss of ($4,000) in the nine months ended June 30, 2013, primarily due to an increase in provision for loan losses of $52,000 and an increase in total noninterest expense of $600,000, offset by an increase in interest and dividend income of $15,000, an increase in noninterest income of $322,000 and a decrease in income tax expense of $111,000.

Net Interest and Dividend Income. Net interest and dividend income increased by $67,000, from $472,000 in the three months ended June 30, 2012 to $539,000 in the three months ended June 30, 2013, primarily due to the increase in loans, net, offset by declining market interest rates. The average outstanding balance of loans, net increased by $11.0 million, from $46.5 million in the three months ended June 30, 2012 to $57.5 million in the three months ended June 30, 2013.  The yield on interest-earning assets increased from 3.72% in the three months ended June 30, 2012 to 3.80% in the three months ended June 30, 2013, which offsets an increase in the average balance of interest-earning assets from $66.4 million to $70.4 million. The average rate paid on interest-bearing liabilities decreased from 1.07% in the three months ended June 30, 2012 to 0.96% in the three months ended June 30, 2013. The interest rate spread increased from 2.65% in the three months ended June 30, 2012 to 2.84% in the three months ended June 30, 2013.

Net interest and dividend income increased by $73,000, from $1.5 million in the nine months ended June 30, 2012 to $1.6 million in the nine months ended June 30, 2013 primarily due to the increase in loans, net, offset by declining market interest rates. The average outstanding balance of loans, net increased by $8.7 million, from $45.9 million in the nine months ended June 30, 2012 to $54.6 million in the nine months ended June 30, 2013.  The yield on interest-earning assets decreased from 4.03% in the nine months ended June 30, 2012 to 3.72% in the nine months ended June 30, 2013, which offsets an increase in the average balance of interest-

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earning assets from $64.2 million to $69.9 million. The average rate paid on interest-bearing liabilities decreased from 1.14% in the nine months ended June 30, 2012 to 0.97% in the nine months ended June 30, 2013. The interest rate spread decreased from 2.89% in the nine months ended June 30, 2012 to 2.75% in the nine months ended June 30, 2013.

Average Balances and Yields.  The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. Average balances have been calculated using daily balances. Loan fees are included in interest income on loans and are insignificant.

	Three months ended June 30,
	2013						2012
	Average		Interest		Average		Average		Interest		Average
	Outstanding		Earned/		Yield/		Outstanding		Earned/		Yield/
(Dollars in thousands)	Balance		Paid		Rate (4)		Balance		Paid		Rate (4)
Interest-earning assets:
Securities (1)	$	6,558	$	34	2.07	%	$	7,507	$	51	2.72	%
Loans, net (2)	57,471		627		4.36	%	46,494		558		4.80	%
Other interest-earning assets (3)	6,344		9		0.57	%	12,369		8		0.26	%
Total interest-earning assets	70,373		670		3.80	%	66,370		617		3.72	%
Non-interest earning assets	8,203						6,559
Total Assets	$	78,576					$	72,929
Interest-bearing liabilities:
Regular savings accounts	$	9,709	$	6	0.25	%	$	8,961	$	6	0.27	%
Money market accounts	9,117		12		0.53	%	9,636		12		0.50	%
Time deposits	35,495		113		1.27	%	35,413		127		1.43	%
Total interest-bearing deposits	54,321		131		0.96	%	54,010		145		1.07	%
Federal Home Loan Bank advances	502		—		—		—		—		—
Total interest-bearing liabilities	54,823		131		0.96	%	54,010		145		1.07	%
Demand deposits	10,163						13,633
Other liabilities	132						5
Equity	13,458						5,281
Total liabilites and equity	$	78,576					$	72,929
Net interest income			$	539					$	472
Interest rate spread					2.84	%					2.65	%
Net yield on earning assets					3.06	%					2.84	%

(1) Includes FHLB of Boston stock, deposits with Co-operative Central Bank, and available-for-sale securities.

(2) Includes non-accrual loans and interest received on such loans, and loans held-for-sale.

(3) Includes short-term investments.

(4) Yields and rates for the three month periods ended June 30, 2013 and 2012 are annualized.

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	Nine months ended June 30,
	2013						2012
	Average		Interest		Average		Average		Interest		Average
	Outstanding		Earned/		Yield/		Outstanding		Earned/		Yield/
(Dollars in thousands)	Balance		Paid		Rate (4)		Balance		Paid		Rate (4)
Interest-earning assets:
Securities (1)	$	6,145	$	114	2.47	%	$	7,059	$	194	3.66	%
Loans, net (2)	54,635		1,802		4.40	%	45,931		1,727		5.01	%
Other interest-earning assets (3)	9,091		36		0.53	%	11,170		16		0.19	%
Total interest-earning assets	69,871		1,952		3.72	%	64,160		1,937		4.03	%
Non-interest earning assets	8,587						5,469
Total Assets	$	78,458					$	69,629
Interest-bearing liabilities:
Regular savings accounts	$	9,379	$	18	0.26	%	$	8,831	$	17	0.26	%
Money market accounts	9,019		34		0.50	%	9,097		37		0.54	%
Time deposits	35,997		344		1.27	%	35,038		400		1.52	%
Total interest-bearing deposits	54,395		396		0.97	%	52,966		454		1.14	%
Federal Home Loan Bank advances	247		—		0.00	%	—		—		0.00	%
Total interest-bearing liabilities	54,642		396		0.97	%	52,966		454		1.14	%
Demand deposits	12,884						11,371
Other liabilities	125						76
Equity	10,807						5,216
Total liabilites and equity	$	78,458					$	69,629
Net interest income			$	1,556					$	1,483
Interest rate spread					2.75	%					2.89	%
Net yield on earning assets					2.97	%					3.08	%

(1) Includes FHLB of Boston stock, deposits with Co-operative Central Bank, and available-for-sale securities.

(2) Includes non-accrual loans and interest received on such loans, and loans held-for-sale.

(3) Includes short-term investments.

(4) Yields and rates for the nine month periods ended June 30, 2013 and 2012 are annualized.

Rate/Volume Analysis.  The following table sets forth the effects of changing rates and volumes on our net interest and dividend income. 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 total increase (decrease) column represents the sum of the prior columns. For purposes of this table, changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionally based on the changes due to rate and the changes due to volume.

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	Three Months Ended									Nine Months Ended
	June 30, 2013									June 30, 2013
	Compared to									Compared to
	Three Months Ended									Nine Months Ended
	June 30, 2012									June 30, 2012
	Increase (Decrease)									Increase (Decrease)
	Due to									Due to
(in thousands)	Volume			Rate			Net			Volume			Rate			Net
Interest income:
Securities (1)	$	(6	)	$	(11	)	$	(17	)	$	(23	)	$	(57	)	$	(80	)
Loans, net (2)	112			(43		)	69			213			(138		)	75
Other interest-earning assets (3)	(1		)	2			1			(2		)	22			20
Total interest-earning assets	105			(52		)	53			188			(173		)	15
Interest expense:
Deposits	2			(16		)	(14		)	15			(73		)	(58		)
Federal Home Loan Bank advances	—			—			—			—			—			—
Total interest-bearing liabilities	2			(16		)	(14		)	15			(73		)	(58		)
Increase (decrease) in net interest income	$	103		$	(36	)	$	67		$	173		$	(100	)	$	73

(1)   Includes FHLB of Boston stock, deposits with the Cooperative Central Bank, and available-for-sale securities.

(2)   Includes non-accruing loan balances and interest received on such loans, and loans held-for-sale.

(3)   Includes short-term investments.

Provision for Loan Losses. The provision for loan losses increased by $19,000, from $8,000 for the three months ended June 30, 2012 to $27,000 for the three months ended June 30, 2013.  The increase in the provision was largely due to the increase in loan balances in the three months ended June 30, 2013 compared to the prior period.

The provision for loan losses increased by $52,000, from $20,000 for the nine months ended June 30, 2012 to $72,000 for the nine months ended June 30, 2013.  The increase in the provision was largely due to the increase in loan balances in the nine months ended June 30, 2013 compared to the prior period.

Analysis of Loan Loss Experience. The following table sets forth an analysis of the allowance for loan losses for the periods indicated.

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	For the						For the
	Three Months Ended						Nine Months Ended
	June 30,						June 30,
(Dollars in thousands)	2013			2012			2013			2012
Allowance beginning of period	$	376		$	328		$	334		$	316
Provision for loan losses	27			8			72			20
Charge-offs	—			—			(3		)	—
Recoveries	—			—			—			—
Allowance at end of period	$	403		$	336		$	403		$	336
Allowance for loan losses as a percent of non-performing loans	N/A			137.14		%	N/A			137.14		%
Allowance for loan losses as a percent of total loans	0.76		%	0.75		%	0.76		%	0.75		%
Net (charge-offs) recoveries to average loans outstanding during the period	—		%	—		%	—		%	—		%

Noninterest Income. Noninterest income increased by $83,000, from $193,000 in the three months ended June 30, 2012 to $276,000 in the three months ended June 30, 2013, primarily due to an increase in gain on secondary market activities from $111,000 to $190,000. The increase in gain on secondary market activities was primarily due to increased volume of loans sold in the secondary market.

Noninterest income increased by $322,000, from $661,000 in the nine months ended June 30, 2012 to $983,000 in the nine months ended June 30, 2013, primarily due to an increase in gain on secondary market activities from $411,000 to $714,000. The increase in gain on secondary market activities was primarily due to increased volume of loans sold in the secondary market.

Noninterest Expense. Noninterest expense increased by $246,000, from $663,000 in the three months ended June 30, 2012 to $909,000 in the three months ended June 30, 2013 primarily due to increases in salaries and employee benefits expense, occupancy and equipment expense, professional fees, and other expenses.  Salary and employee benefits expense increased $48,000 largely due to increased commissions paid to commissioned loan originators due to higher origination volume. Professional fees expenses increased by $94,000, primarily due to increases in audit expenses of $11,000, legal expenses of $63,000 and public reporting expenses of $9,000. Occupancy and equipment expenses increased $58,000, primarily due to increased real estate taxes and depreciation expense on bank building and investments in real estate, and plowing and sanding. Deposit insurance expense increased $30,000 due to an adjustment of the monthly accrual and expenses related to the opening of the Roslindale branch of $18,000.

Noninterest expense increased by $600,000, from $1.9 million in the nine months ended June 30, 2012 to $2.5 million in the nine months ended June 30, 2013 primarily due to increases in salaries and employee benefits expense, occupancy and equipment expense, professional fees, data processing expense, and other expenses. Salary and employee benefits expense increased $218,000 largely due to increased commissions paid to commissioned loan originators due to higher origination volume. Professional fees expenses increased $173,000, primarily due to temporary staffing expenses in the lending area of $21,000, a marketing study to assist the bank in the site selection of a new branch of $7,000, and increases in audit expenses of $34,000, legal expenses of $74,000, and public reporting expenses of $26,000.  Occupancy and equipment expenses increased $99,000, primarily due to increased real estate taxes and depreciation expense on bank building and investments in real estate and an increase in utilities expense. Data processing expenses increased $33,000 due to a one-time charge for customer research and increased data processing volumes and enhancements. Other expenses increased $66,000 due to additional loan origination fee expenses due to higher loan origination volume, and other loan customer expenses.

.

Income Tax Expense. Income tax expense decreased by $46,000, from ($3,000) in the three months ended June 30, 2012 to ($49,000) in the three months ended June 30, 2013, due to higher pre-tax loss. The effective tax rate was 50.0% for the three months ended June 30, 2012 and 40.5% for the three months ended June 30, 2013.

Income tax expense decreased by $111,000, from $94,000 in the nine months ended June 30, 2012 to ($17,000) in the nine months ended June 30, 2013, due to lower pre-tax income. The effective tax rate was 39.8% for the nine months ended June 30, 2012 and 80.9% for the nine months ended June 30, 2013.

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Analysis of Nonperforming and Classified Assets.    We consider repossessed assets and loans that are 90 days or more past due to be non-performing assets. Residential real estate loans are generally placed on nonaccrual status when they become 90 days past due or are in the process of foreclosure, at which time the accrual of interest ceases and the allowance for any uncollectible accrued interest is established and charged against interest revenue. All closed-end consumer loans 90 days or more past due and equity lines in the process of foreclosure are placed on nonaccrual status. Secured consumer loans are written down to realizable value and unsecured consumer loans are charged-off upon reaching 120 or 180 days past due depending on the type of loan. Commercial real estate loans and commercial business loans and leases which are 90 days or more past due are placed on nonaccrual status, unless secured by sufficient cash or other assets immediately convertible to cash. Typically, when a loan has been placed on nonaccrual status, previously accrued and uncollected interest is reversed against interest on loans. A loan can be returned to accrual status when collectability of principal is reasonably assured based on our determination that the event of delinquency was a one-time incidence.

Real estate that we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned until it is sold. When property is acquired it is recorded at fair market value at the date of foreclosure. Any holding costs and changes in fair value after acquisition of the property are reflected in income.

The following table provides information with respect to our nonperforming assets, including troubled debt restructurings, at the dates indicated.

	June 30,		September 30,
(Dollars in thousands)	2013		2012
	(unaudited)
Nonaccrual loans:
Real estate loans:
Residential	$	—	$	—
Commercial	—		—
Total real estate	—		—
Consumer loans	—		3
Total	—		3
Accruing loans past due 90 days or more	—		—
Total nonaccrual loans and accruing loans past due 90 days	—		3
Other real estate owned	—		—
Total nonperforming assets	—		3
Troubled debt restructurings	—		—
Total nonperforming assets and troubled debt restructurings	$	—	$	3
Total nonperforming loans to total loans	N/A		0.01		%
Total nonperforming loans to total assets	N/A		0.00		%
Total nonperforming assets and troubled debt restructurings to total assets	N/A		0.00		%

Liquidity and Capital Resources

Liquidity Management.  Liquidity is the ability to meet current and future financial obligations of a short-term and long-term nature. The Bank’s primary sources of funds consist of deposit inflows, loan repayments, maturities and sales of securities, borrowings from the Federal Home Loan Bank of Boston and securities sold under agreements to repurchase. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and prepayments on loans are greatly influenced by general interest rates, economic conditions and competition.

Management regularly adjusts our investments in liquid assets based upon an 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 interest-rate risk and investment policies.

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The Bank’s most liquid assets are cash and cash equivalents, interest-bearing deposits in other banks, and corporate bonds. The levels of these assets depend on the Bank’s operating, financing, lending and investing activities during any given period.  At June 30, 2013, cash and cash equivalents totaled $2.8 million.  Securities classified as available-for-sale, whose aggregate market value exceeded cost, provide additional sources of liquidity and had a market value of $5.5 million at June 30, 2013.  In addition, at June 30, 2013, the Bank had the ability to borrow a total of approximately $9.5 million from the FHLB of Boston.  At June 30, 2013, the Bank had $1.5 million in borrowings outstanding.  In addition, at June 30, 2013, the Bank had the ability to borrow $3.2 million from the Co-operative Central Bank, none of which was outstanding at that date.

In addition, the Bank had a $500,000 line of credit available to us from Bankers’ Bank Northeast. At June 30, 2013, the Bank had no borrowings outstanding under this credit facility.

At June 30, 2013, the Bank had $5.6 million in loan commitments outstanding, which consisted of commitments to originate loans, available lines of credit and unadvanced funds on construction loans. Certificates of deposit due within one year after June 30, 2013 totaled $27.1 million, or 76% of total time deposits.  If these maturing deposits are not renewed, the Bank will be required to seek other sources of funds, including other certificates of deposit and borrowings. Depending on market conditions, the Bank may be required to pay higher rates on such deposits or other borrowings than the Bank currently pays on the certificates of deposit. Management believes, however, based on past experience that a significant portion of our certificates of deposit will be renewed.  The Bank has the ability to attract and retain deposits by adjusting the interest rates offered.

The Company is a separate legal entity from the Bank and must provide for its own liquidity to pay its operating expenses and other financial obligations, to pay any dividends and to repurchase any of its outstanding common stock.  The Company’s primary source of income is dividends received from the Bank.  Under Massachusetts banking law, the amount of dividends that the Bank may declare and pay to the Company in any calendar year, without receipt of prior approval from the Commissioner of Banks of Massachusetts, cannot exceed the total of its net profits for that year combined with its retained net profits of the preceding two years, less any required transfer to surplus or a fund for the retirement of any preferred stock.  At June 30, 2013, the Company had liquid assets of $2.8 million.

Contractual Obligations. We had no contractual obligations outstanding as of June 30, 2013 and September 30, 2012.

Capital Management.  The Bank is subject to various regulatory capital requirements administered by the Federal Deposit Insurance Corporation and the Massachusetts Commissioner of Banks, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories.  At June 30, 2013, the Bank exceeded all of its regulatory capital requirements to be considered “well capitalized” under regulatory guidelines.  See note 8 of the notes to consolidated financial statements.

Off-Balance Sheet Arrangements

In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in our financial statements.  These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit.

The Company is party to financial instruments with off balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement the Bank has in particular classes of financial instruments.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company extension of credit, is based on management’s credit evaluation of the borrower. Collateral held varies but usually includes income producing commercial properties or residential real estate.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance by a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.  The Company’s outstanding letters of credit generally have a term of less than one year. If a letter of credit is drawn upon,

29

the Company may seek recourse through the customer’s underlying line of credit. If the customer’s line of credit is also in default, the Company may take possession of the collateral, if any, securing the line of credit.

Notional amounts of financial instrument liabilities with off-balance sheet credit risk are as follows (in thousands):

	June 30,		September 30,
	2013		2012
	(unaudited)
Commitments to originate loans	$	2,702	$	1,110
Unadvanced funds on lines of credit	2,462		2,451
Standby letters of credit	149		149
Unadvanced funds on construction loans	297		—
	$	5,610	$	3,710

There is no material difference between the notional amount and the estimated fair value of the off-balance sheet liabilities.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

This item is not applicable as the Company is a smaller reporting company.

Item 4.  Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”).  Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

In addition, based on that evaluation, no change in the Company’s internal control over financial reporting occurred during the quarter ended June 30, 2013 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

The Company is not involved in any pending legal proceedings.  The Company is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business.  The Company’s management believes that such routine legal proceedings, in the aggregate, are immaterial to the Company’s financial condition and results of operations.

Item 1A.  Risk Factors

There has been no material changes in the Company’s risk factors during the three and nine months ended June 30, 2013. See the discussion and analysis of risk factors, in Item 1A entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended September 30, 2012.

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

Not applicable.

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Item 3.  Defaults Upon Senior Securities

Not applicable.

Item 4.  Mine Safety Disclosures

Not applicable.

Item 5.  Other Information.

On May 30, 2013, the Company opened its first branch office. The office is located at 4238 Washington Street, Roslindale, Massachusetts.

Item 6.  Exhibits

3.1	Articles of Incorporation of Meetinghouse Bancorp, Inc. (1)
3.2	Articles of Amendment to Articles of Incorporation of Meetinghouse Bancorp, Inc. (1)
3.3	Bylaws of Meetinghouse Bancorp, Inc. (1)
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.0	Section 1350 Certification
101.1*	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balances Sheets, (ii) the Consolidated Statements of (Loss) Income, (iii) the Consolidated Statements of Comprehensive (Loss) Income, (iv) the Consolidated Statements of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to the Consolidated Financial Statements.

*	Furnished, not filed.
(1)	Incorporated herein by reference to the exhibits to Meetinghouse Bancorp, Inc.’s Registration Statement on Form S-1 (File No. 333-180026), filed with the Securities and Exchange Commission on March 9, 2012.

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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.

	MEETINGHOUSE BANCORP, INC.
Dated:   August 14, 2013	By:	/s/ Anthony A. Paciulli
		Anthony A. Paciulli
		President and Chief Executive Officer
Dated:   August 14, 2013	By:	/s/ Wayne Gove
		Wayne Gove
		Senior Vice President and Chief Financial Officer

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