Meetinghouse Bancorp (MTGB) 10-Q 2015 Q2 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 March 31, 2015

OR

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

For the transition period from                     to                   

Commission file number:  0-54779

MEETINGHOUSE BANCORP, INC.

(Exact name of registrant as specified in its charter)

Maryland	45-4640630
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

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 May 14, 2015.

MEETINGHOUSE BANCORP, INC.

FORM 10-Q

Table of Contents

		Page No.
PART I. CONDENSED FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements March 31, 2015 (unaudited) and September 30, 2014
	Consolidated Balance Sheets as of March 31, 2015 (unaudited) and September 30, 2014	3
	Consolidated Statements of Income (Loss) for the Three and Six Months Ended March 31, 2015 and 2014 (unaudited)	4
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended March 31, 2015 and 2014 (unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended March 31, 2015 and 2014 (unaudited)	6
	Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2015 and 2014 (unaudited)	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
Part II. OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	32
Signatures		33

2

PART I.  FINANCIAL INFORMATION

Item 1.   Condensed Consolidated Financial Statements (Unaudited)

MEETINGHOUSE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

	March 31,			September 30,
	2015			2014
	(Unaudited)
ASSETS
Cash and due from banks	$	3,764		$	4,943
Federal funds sold	1,428			942
Interest-bearing demand deposits with other banks	55			53
Cash and cash equivalents	5,247			5,938
Interest-bearing time deposits in other banks	1,981			1,985
Investments in available-for-sale securities (at fair value)	16,435			16,638
Federal Home Loan Bank stock, at cost	958			754
Loans held-for-sale	7,539			2,727
Loans, net of allowance for loan losses of $521 as of March 31, 2015 and $506 as of September 30, 2014	78,626			77,015
Premises and equipment	1,716			1,772
Investment in real estate	1,138			1,090
Cooperative Central Bank deposit	427			427
Accrued interest receivable	294			273
Other assets	451			544
Total assets	$	114,812		$	109,163
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	16,247		$	14,355
Interest-bearing	76,837			73,128
Total deposits	93,084			87,483
Federal Home Loan Bank advances	10,667			10,953
Deferred income tax liability, net	181			58
Other liabilities	288			219
Total liabilities	104,220			98,713
Stockholders’ Equity:
Preferred stock, 500,000 shares authorized; none outstanding	—			—
Common stock, $.01 par value; 5,000,000 shares authorized; 661,250 and 679,769 shares issued and outstanding at March 31, 2015 and September 30, 2014, respectively	7			7
Additional paid-in capital	5,670			5,903
Retained earnings	5,132			5,035
Unearned compensation - ESOP (28,623 shares unallocated at March 31, 2015 and 32,439 shares at September 30, 2014)	(301		)	(341		)
Unearned compensation - restricted stock awards	(182		)	(221		)
Accumulated other comprehensive income	266			67
Total stockholders’ equity	10,592			10,450
Total liabilities and stockholders’ equity	$	114,812		$	109,163

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

3

MEETINGHOUSE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(In thousands, except share data)

	Three months ended March 31,						Six months ended March 31,
	2015			2014			2015		2014
	(Unaudited)						(Unaudited)
Interest and dividend income:
Interest and fees on loans	$	895		$	701		$	1,771	$	1,375
Interest and dividends on securities	103			66			209		100
Other interest	6			8			11		16
Total interest and dividend income	1,004			775			1,991		1,491
Interest expense:
Interest on deposits	169			138			332		271
Interest on Federal Home Loan Bank advances	28			4			56		7
Total interest expense	197			142			388		278
Net interest and dividend income	807			633			1,603		1,213
(Benefit) provision for loan losses	(3		)	(10		)	15		(21		)
Net interest and dividend income after (benefit) provision for loan losses	810			643			1,588		1,234
Noninterest income:
Mortgage banking activities	240			138			378		220
Customer service fees	97			85			188		174
Other income	16			11			32		20
Total noninterest income	353			234			598		414
Noninterest expense:
Salaries and employee benefits	569			480			1,097		952
Occupancy and equipment expense	142			114			253		225
Professional fees	100			81			214		186
Data processing	89			70			188		151
Deposit insurance expense	24			15			45		28
Advertising	16			20			37		41
Supplies	15			10			28		20
Other expense	85			83			162		156
Total noninterest expense	1,040			873			2,024		1,759
Income (loss) before income tax expense (benefit)	123			4			162		(111		)
Income tax expense (benefit)	51			9			65		(38		)
Net income (loss)	$	72		$	(5	)	$	97	$	(73	)
Earnings (loss) per share:
Basic	$	0.12		(0.01		)	$	0.16	$	(0.12	)
Diluted	$	0.12		(0.01		)	$	0.16	$	(0.12	)
Weighted average shares outstanding
Basic	612,221			623,108			612,611		619,261
Diluted	612,221			623,108			612,611		619,261

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

4

MEETINGHOUSE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

	Three months ended March 31,
	2015		2014
	(Unaudited)
Net income (loss)	$	72	$	(5	)
Other comprehensive income, net of tax:
Net change in unrealized holding gain on available-for-sale securities	90		14
Other comprehensive income, net of tax	90		14
Comprehensive income	$	162	$	9

	Six months ended March 31,
	2015		2014
	(Unaudited)
Net income (loss)	$	97	$	(73	)
Other comprehensive income (loss), net of tax:
Net change in unrealized holding gain on available-for-sale securities	199		(26		)
Other comprehensive income (loss), net of tax	199		(26		)
Comprehensive income (loss)	$	296	$	(99	)

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

5

MEETINGHOUSE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Six Months Ended March 31, 2015 and 2014

(In thousands, except share data)

(Unaudited)

																	Accumulated
					Additional						Unearned			Unearned			Other
	Common Stock				paid-in			Retained			compensation			Compensation -			Comprehensive
	Shares		Amount		capital			Earnings			- ESOP			Restricted Stock Awards			Income			Total
Balance, September 30, 2013	661,250		$	7	$	5,645		$	5,179		$	(482	)	$	—		$	38		$	10,387
Net loss	—		—		—			(73		)	—			—			—			(73		)
Other comprehensive loss, net of tax	—		—		—			—			—			—			(26		)	(26		)
Common stock released by ESOP (7,632 shares)	—		—		15			—			80			—			—			95
Common stock committed to be released by ESOP (1,908 shares)	—		—		3			—			20			—			—			23
Balance, March 31, 2014	661,250		$	7	$	5,663		$	5,106		$	(382	)	$	—		$	12		$	10,406
Balance, September 30, 2014	679,769		$	7	$	5,903		$	5,035		$	(341	)	$	(221	)	$	67		$	10,450
Net income	—		—		—			97			—			—			—			97
Other comprehensive income, net of tax	—		—		—			—			—			—			199			199
Shares repurchased	(18,519	)	—		(243		)	—			—			—			—			(243		)
Compensation expense - restricted stock awards	—		—		—			—			—			39			—			39
Common stock released by ESOP (1,908 shares)	—		—		5			—			20			—			—			25
Common stock committed to be released by ESOP (1,908 shares)	—		—		5			—			20			—			—			25
Balance, March 31, 2015	661,250		$	7	$	5,670		$	5,132		$	(301	)	$	(182	)	$	266		$	10,592

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

6

MEETINGHOUSE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Six months ended March 31,
	2015			2014
	(Unaudited)
Cash flows from operating activities:
Net income (loss)	$	97		$	(73	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Amortization of securities, net	15			20
Provision (benefit) for loan losses	15			(21		)
Change in deferred loan costs, net	(2		)	(66		)
Loans originated for sale	(37,884		)	(19,502		)
Proceeds from sale of loans	33,472			18,670
Gain on sales of loans	(400		)	(102		)
Depreciation and amortization	88			87
Increase in accrued interest receivable	(21		)	(12		)
(Increase) decrease in mortgage servicing asset	(7		)	13
Decrease (increase) in other assets	93			(42		)
Compensation expense - restricted stock awards	39			—
Deferred tax expense	2			1
ESOP expense	50			118
Increase (decrease) in accrued expenses and other liabilities	69			(270		)
Net cash used in operating activities	(4,374		)	(1,179		)
Cash flows from investing activities:
Purchases of interest-bearing time deposits in other banks	(1,485		)	(1,489		)
Proceeds from maturities of interest-bearing time deposits in other banks	1,489			1,413
Purchases of available-for-sale securities	(360		)	(7,183		)
Proceeds from maturities of available-for-sale securities	868			665
Loan originations and principal collections, net	(1,624		)	(6,368		)
Recoveries of loans previously charged off	—			2
Purchase of Federal Home Loan Bank stock	(204		)	(151		)
Capital expenditures	(73		)	(69		)
Net cash used in investing activities	(1,389		)	(13,180		)
Cash flows from financing activities:
Net increase in demand deposits, NOW and savings accounts	2,887			1,041
Net increase in time deposits	2,714			8,309
Net change in short-term advances from Federal Home Loan Bank	(286		)	2,935
Common stock acquired - repurchase plan	(243		)	—
Net cash provided by financing activities	5,072			12,285
Net decrease in cash and cash equivalents	(691		)	(2,074		)
Cash and cash equivalents at beginning of period	5,938			4,713
Cash and cash equivalents at end of period	$	5,247		$	2,639
Supplemental disclosures:
Interest paid	$	388		$	271
Income taxes received	(7		)	(30		)

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

7

Meetinghouse Bancorp, Inc. and Subsidiary

Notes to Condensed Unaudited Consolidated Financial Statements

For the Six Months Ended March 31, 2015 and 2014

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 69 Richmond Street Realty Trust.  All significant intercompany accounts and transactions have been eliminated in the consolidation.

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 Rule 10-01 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 consolidated financial statements reflect all adjustments (consisting solely of normal recurring adjustments) that are necessary for a fair presentation.  The results shown for the interim periods ended March 31, 2015 and March 31, 2014 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, 2014 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 Company is the registered bank holding company for the Bank.  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 May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, “Revenue from Contracts with Customers (Topic 606).”  The objective of this ASU is to clarify principles for recognizing revenue and to develop a common revenue standard for GAAP and International Financial Reporting Standards.  The guidance in this ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards.  The core principal of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The amendments in this update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period.  Early application is not permitted.  The Company is currently reviewing this ASU to determine if it will have an impact on its consolidated financial statements.

In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis.”  The amendments in this ASU affect reporting entities that are required to evaluate whether they should consolidate certain legal entities.  Specifically, the amendments: (1) Modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities; (2) Eliminate the presumption that a general partner should consolidate a limited partnership; (3) Affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) Provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in

8

Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds.  ASU 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015.  The Company anticipates that the adoption of this ASU will not have a material impact on its consolidated financial statements.

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

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

NOTE 4 - EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share (“EPS”) excludes dilution and is calculated by dividing net income (loss) applicable to common stock 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 Company’s Employee Stock Ownership Plan (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. Unvested restricted stock awards 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 the shares become vested.

9

EPS for the three and six months ended March 31, 2015 and 2014 have been computed as follows (in thousands, except share data):

	Three months ended March 31,
	2015			2014
	(unaudited)
Net income (loss) applicable to common stock	$	72		$	(5	)
Average number of shares issued	661,250			661,250
Average unallocated ESOP shares	(30,510		)	(38,142		)
Average unvested restricted stock awards	(18,519		)	—
Average number of common shares outstanding used to calculate basic earnings (loss) per share	612,221			623,108
Effect of dilutive shares	—			—
Average number of common shares outstanding used to calculate diluted earnings (loss) per share	612,221			623,108
Basic earnings (loss) per share	$	0.12		$	(0.01	)
Diluted earnings (loss) per share	$	0.12		$	(0.01	)

	Six months ended March 31,
	2015			2014
	(unaudited)
Net income (loss) applicable to common stock	$	97		$	(73	)
Average number of shares issued	662,605			661,250
Average unallocated ESOP shares	(31,475		)	(41,989		)
Average unvested restricted stock awards	(18,519		)	—
Average number of common shares outstanding used to calculate basic earnings (loss) per share	612,611			619,261
Effect of dilutive shares	—			—
Average number of common shares outstanding used to calculate diluted earnings (loss) per share	612,611			619,261
Basic earnings (loss) per share	$	0.16		$	(0.12	)
Diluted earnings (loss) per share	$	0.16		$	(0.12	)

10

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
March 31, 2015 (unaudited):
U.S. Government and federal agency obligations	$	3,410	$	77	$	—	$	3,487
Taxable municipal securities	299		10		—		309
Asset-backed securities	882		29		—		911
Mortgage-backed securities	11,414		325		11		11,728
	$	16,005	$	441	$	11	$	16,435
September 30, 2014:
U.S. Government and federal agency obligations	$	3,403	$	10	$	28	$	3,385
Taxable municipal securities	301		—		2		299
Asset-backed securities	911		5		—		916
Mortgage-backed securities	11,913		158		33		12,038
	$	16,528	$	173	$	63	$	16,638

The amortized cost and estimated fair value of available-for-sale securities, segregated by contractual maturity at March 31, 2015, are presented below (in thousands):

	Amortized		Fair
(unaudited)	Cost Basis		Value
Due within one year	$	—	$	—
Due after one year through five years	750		750
Due after five years through ten years	2,959		3,046
Due after ten years	—		—
Asset-backed securities	882		911
Mortgage-backed securities	11,414		11,728
	$	16,005	$	16,435

There were no sales of available-for-sale securities during the six months ended March 31, 2015 and 2014.

Information pertaining to securities with gross unrealized losses at March 31, 2015, aggregated by investment category and length of time that individual securities have been in a continuous loss position, are as follows (in thousands):

11

	Less than 12 Months				12 Months or Longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
March 31, 2015 (unaudited):
Mortgage-backed securities	$	200	$	1	$	644	$	10	$	844	$	11
Total temporarily impaired securities	$	200	$	1	$	644	$	10	$	844	$	11
September 30, 2014
U.S. Government and federal agency obligations	$	1,445	$	22	$	744	$	6	$	2,189	$	28
Taxable municipal securities	299		2		—		—		299		2
Mortgage-backed securities	3,254		20		734		13		3,988		33
Total temporarily impaired securities	$	4,998	$	44	$	1,478	$	19	$	6,476	$	63

Management conducts, at least on a quarterly basis, a review of the Company’s 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 March 31, 2015 consist of five mortgage-backed securities. The unrealized loss at March 31, 2015 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 maturity, the declines are deemed to be not other-than-temporary.

NOTE 6 - LOANS

Loans consist of the following:

	March 31,					September 30,
	2015					2014
	(unaudited)
	(Dollars in thousands)
Real estate loans:
Residential	$	49,781		63.34	%	$	48,654		63.21	%
Commercial	12,119			15.43		12,473			16.20
Construction	2,864			3.64		1,736			2.26
Multi-family	2,800			3.56		2,837			3.69
Total real estate	67,564			85.97		65,700			85.36
Commercial	2,795			3.56		2,940			3.82
Consumer loans:
Home equity	6,871			8.74		6,989			9.08
Other	1,362			1.73		1,339			1.74
Total consumer	8,233			10.47		8,328			10.82
				100.00	%				100.00	%
Total loans	78,592					76,968
Allowance for loan losses	(521		)			(506		)
Deferred loan costs, net	555					553
Net loans	$	78,626				$	77,015

12

The following table sets forth information regarding the allowance for loan losses by portfolio segment as of and for the six months ended March 31, 2015 (unaudited):

	Real Estate													Consumer
	1-4 Family		1-4 Family
	Owner		Non-Owner
(In thousands)	Occupied		Occupied		Commercial			Construction		Multi-family		Commercial		Home Equity			Other		Total
Allowance for loan losses:
Beginning balance	$	165	$	101	$	86		$	17	$	28	$	25	$	41		$	43	$	506
Charge-offs	—		—		—			—		—		—		—			—		—
Recoveries	—		—		—			—		—		—		—			—		—
Provision (benefit)	6		—		(1		)	12		—		—		(2		)	—		15
Ending balance	$	171	$	101	$	85		$	29	$	28	$	25	$	39		$	43	$	521
Allowance for loan losses:
Ending balance:
Individually evaluated for impairment	$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—	$	—
Ending balance:
Collectively evaluated for impairment	171		101		85			29		28		25		39			43		521
Total allowance for loan losses ending balance	$	171	$	101	$	85		$	29	$	28	$	25	$	39		$	43	$	521
Loans:
Ending balance:
Individually evaluated for impairment	$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—	$	—
Ending balance:
Collectively evaluated for impairment	34,191		15,590		12,119			2,864		2,800		2,795		6,871			1,362		78,592
Total loans ending balance	$	34,191	$	15,590	$	12,119		$	2,864	$	2,800	$	2,795	$	6,871		$	1,362	$	78,592

The following table sets forth information regarding the allowance for loan losses by portfolio segment as of and for the six months ended March 31, 2014 (unaudited):

	Real Estate														Consumer
	1-4 Family			1-4 Family
	Owner			Non-Owner
(In thousands)	Occupied			Occupied		Commercial			Construction		Multi-family		Commercial		Home Equity		Other		Total
Allowance for loan losses:
Beginning balance	$	178		$	75	$	81		$	8	$	17	$	16	$	31	$	29	$	435
Charge-offs	—			—		—			—		—		—		—		—		—
Recoveries	—			—		—			—		—		—		—		2		2
(Benefit) provision	(34		)	4		(13		)	1		12		5		3		1		(21		)
Ending balance	$	144		$	79	$	68		$	9	$	29	$	21	$	34	$	32	$	416

The following table sets forth information regarding the allowance for loan losses by portfolio segment as of September 30, 2014:

	Real Estate												Consumer
	1-4 Family		1-4 Family
	Owner		Non-Owner
(In thousands)	Occupied		Occupied		Commercial		Construction		Multi-family		Commercial		Home Equity		Other		Total
Allowance for loan losses:
Ending balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Ending balance:
Collectively evaluated for impairment	165		101		86		17		28		25		41		43		506
Total allowance for loan losses ending balance	$	165	$	101	$	86	$	17	$	28	$	25	$	41	$	43	$	506
Loans:
Ending balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Ending balance:
Collectively evaluated for impairment	33,179		15,475		12,473		1,736		2,837		2,940		6,989		1,339		76,968
Total loans ending balance	$	33,179	$	15,475	$	12,473	$	1,736	$	2,837	$	2,940	$	6,989	$	1,339	$	76,968

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The following table sets forth information regarding nonaccrual loans and past-due loans as of March 31, 2015 (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
March 31, 2015:
Real estate:
Residential	$	381	$	—	$	188	$	569	$	49,212	$	49,781	$	—	$	336
Commercial	—		—		—		—		12,119		12,119		—		—
Construction	—		—		—		—		2,864		2,864		—		—
Multi-family	—		—		—		—		2,800		2,800		—		—
Commercial	—		—		—		—		2,795		2,795		—		—
Home equity	390		—		—		390		6,481		6,871		—		19
Other consumer	7		—		—		7		1,355		1,362		—		—
Total	$	778	$	—	$	188	$	966	$	77,626	$	78,592	$	—	$	355

The following table sets forth information regarding nonaccrual loans and past-due loans as of September 30, 2014:

					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, 2014:
Real estate:
Residential	$	386	$	34	$	—	$	420	$	48,234	$	48,654	$	—	$	—
Commercial	—		—		—		—		12,473		12,473		—		—
Construction	—		—		—		—		1,736		1,736		—		—
Multi-family	—		191		—		191		2,646		2,837		—		—
Commercial	—		—		—		—		2,940		2,940		—		—
Home equity	216		—		—		216		6,773		6,989		—		20
Other consumer	—		8		—		8		1,331		1,339		—		—
Total	$	602	$	233	$	—	$	835	$	76,133	$	76,968	$	—	$	20

As of March 31, 2015 (unaudited) and September 30, 2014, and during the six months and year then ended, respectively, the Company had no loans categorized as impaired.

There were no loans modified during the six months ended March 31, 2015 (unaudited) or during the year ended September 30, 2014 that met the definition of a troubled debt restructured loan as described in ASC 310-40.

Credit Quality Information

The Company utilizes an eight grade internal loan rating system for 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 or do not represent significant 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. Loans in this category also include 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.

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Loans rated 8:  Loans in this category are considered uncollectible (“loss”) 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 commercial real estate, construction and commercial loans.  For all residential real estate and 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 March 31, 2015 (unaudited):

	Real Estate										Consumer
(In thousands)	Residential		Commercial		Construction		Multi-family		Commercial		Home Equity		Other		Total
March 31, 2015:
Grade:
Pass	$	—	$	12,119	$	2,864	$	2,800	$	2,329	$	—	$	—	$	20,112
Special mention	218		—		—		—		466		24		—		708
Substandard	—		—		—		—		—		19		—		19
Not formally rated	49,563		—		—		—		—		6,828		1,362		57,753
Total	$	49,781	$	12,119	$	2,864	$	2,800	$	2,795	$	6,871	$	1,362	$	78,592

The following table presents the Company’s loans by risk rating as of September 30, 2014:

	Real Estate										Consumer
(In thousands)	Residential		Commercial		Construction		Multi-family		Commercial		Home Equity		Other		Total
September 30, 2014:
Grade:
Pass	$	—	$	12,473	$	1,736	$	2,837	$	2,761	$	—	$	—	$	19,807
Special mention	225		—		—		—		179		28		—		432
Substandard	—		—		—		—		—		20		—		20
Not formally rated	48,429		—		—		—		—		6,941		1,339		56,709
Total	$	48,654	$	12,473	$	1,736	$	2,837	$	2,940	$	6,989	$	1,339	$	76,968

NOTE 7 - FAIR VALUE MEASUREMENTS

ASC 820-10, “Fair Value Measurement — Overall,” 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.

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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 at March 31, 2015 (unaudited) and September 30, 2014.  The Company did not have any significant transfers of assets between Levels 1 and 2 of the fair value hierarchy during the six months ended March 31, 2015 (unaudited) and the year ended September 30, 2014.

Cash and cash equivalents — The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents approximates those assets’ fair values.

Interest-bearing time deposits with other banks — The fair value of interest-bearing time deposits in other banks is determined by discounting the cash flows associated with these instruments using current market rates for deposits with similar characteristics.

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 six months ended March 31, 2015 and 2014 (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.

Accrued interest receivable — Carrying value approximates fair value.

Deposits — The fair values disclosed for demand deposits, regular savings, NOW accounts and money market accounts are equal to the amount payable on demand at the reporting date (i.e., their carrying amounts).  Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

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.

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The following summarizes assets measured at fair value on a recurring basis at March 31, 2015 (unaudited) and September 30, 2014:

(In thousands)	Total		Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3
March 31, 2015:
Securities available-for-sale:
U.S. Government and federal agency obligations	$	3,487	$	—	$	3,487	$	—
Taxable municipal securities	309		—		309		—
Asset-backed securities	911		—		911		—
Mortgage-backed securities	11,728		—		11,728		—
	$	16,435	$	—	$	16,435	$	—
September 30, 2014:
Securities available-for-sale:
U.S. Government and federal agency obligations	$	3,385	$	—	$	3,385	$	—
Taxable municipal securities	299		—		299		—
Asset-backed securities	916		—		916		—
Mortgage-backed securities	12,038		—		12,038		—
	$	16,638	$	—	$	16,638	$	—

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:

	March 31, 2015 (unaudited)
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Total
	(In Thousands)
Financial assets:
Cash and cash equivalents	$	5,247	$	5,247	$	—	$	—	$	5,247
Interest-bearing time deposits with other banks	1,981		—		—		1,998		1,998
Available-for-sale securities	16,435		—		16,435		—		16,435
Federal Home Loan Bank stock	958		958		—		—		958
Loans held-for-sale	7,539		7,675		—		—		7,675
Loans, net	78,626		—		—		80,583		80,583
Accrued interest receivable	294		294		—		—		294
Financial liabilities:
Deposits	93,084		—		—		93,400		93,400
Federal Home Loan Bank advances	10,667		—		—		10,669		10,669

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	September 30, 2014
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Total
	(In Thousands)
Financial assets:
Cash and cash equivalents	$	5,938	$	5,938	$	—	$	—	$	5,938
Interest-bearing time deposits with other banks	1,985		—		—		1,986		1,986
Available-for-sale securities	16,638		—		16,638		—		16,638
Federal Home Loan Bank stock	754		754		—		—		754
Loans held-for-sale	2,727		2,753		—		—		2,753
Loans, net	77,015		—		—		77,749		77,749
Accrued interest receivable	273		273		—		—		273
Financial liabilities:
Deposits	87,483		—		—		87,769		87,769
Federal Home Loan Bank advances	10,953		—		—		10,933		10,933

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 at March 31, 2015 (unaudited) and September 30, 2014.

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

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

The new regulations implemented changes to what constitutes regulatory capital.  Certain instruments will no longer constitute qualifying capital, subject to phase-out periods.  In addition, Tier 2 capital is no longer limited to the amount of Tier 1 capital included in total capital.  Mortgage servicing rights, certain deferred tax assets and investments in unconsolidated subsidiaries over designated percentages of CETI will be deducted from capital.  The Bank has elected to permanently opt out of the inclusion of accumulated other comprehensive income in capital calculations, as permitted by the regulations.  This opt-out will reduce the impact of market volatility on our regulatory capital ratios.

The new regulations also changed the risk weights of certain assets, including an increase in the risk weight of certain high volatility commercial real estate acquisition, development and construction loans and non-residential mortgage loans that are 90 days past due or on non-accrual status to 150% from 100%, a credit conversion factor for the unused portion of commitments with maturities of less than one year that are not cancellable to 20% from 0%, an increase in the risk weight for mortgage servicing and deferred tax assets that are not deducted from capital to 250% from 100%, and an increase in the risk weight for equity exposures to 600% from 0%.

As of March 31, 2015 (unaudited), the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.    There are no conditions or events since that notification that management believes have changed the institution’s category. 

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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 March 31, 2015 (unaudited):
Total Capital (to risk weighted assets)	$	9,434	14.6	%	$	5,186	8.0	%	$	6,482	10.0	%
Common Equity Tier 1 Capital	8,913		13.8		2,917		4.5		4,213		6.5
Tier 1 Capital (to risk weighted assets)	8,913		13.8		3,889		6.0		5,186		8.0
Tier 1 Capital (to average assets)	8,913		7.9		4,539		4.0		5,673		5.0
As of September 30, 2014:
Total Capital (to risk weighted assets)	$	8,172	13.3	%	$	4,901	8.0	%	$	6,126	10.0	%
Tier 1 Capital (to risk weighted assets)	7,667		12.5		2,451		4.0		3,676		6.0
Tier 1 Capital (to average assets)	7,667		8.1		3,787		4.0		4,733		5.0

NOTE 9 - OTHER COMPREHENSIVE INCOME (LOSS)

GAAP generally requires 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 (loss), are components of comprehensive income (loss).

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The components of other comprehensive income (loss), included in stockholders’ equity, are as follows during the three and six months ended March 31, 2015 and 2014 (unaudited):

	Three months ended March 31,
	2015			2014
	(In Thousands)
Unrealized gains (losses) on securities:
Net unrealized holding gain on available-for-sale securities	$	144		$	20
Reclassification adjustment for realized (gains) losses in net income	—			—
	144			20
Income tax expense	(54		)	(6		)
Other comprehensive income, net of tax	$	90		$	14

	Six months ended March 31,
	2015			2014
	(In Thousands)
Unrealized gains (losses) on securities:
Net unrealized holding gain (loss) on available-for-sale securities	$	320		$	(43	)
Reclassification adjustment for realized (gains) losses in net income	—			—
	320			(43		)
Income tax (expense) benefit	(121		)	17
Other comprehensive income (loss), net of tax	$	199		$	(26	)

At March 31, 2015 (unaudited) and September 30, 2014, the components of accumulated other comprehensive income, included in stockholders’ equity, are as follows:

	March 31,		September 30,
	2015		2014
	(In Thousands)
Net unrealized gain on securities available-for-sale	$	266	$	67
Total accumulated other comprehensive income	$	266	$	67

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

The Bank has adopted a tax-qualified 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 become 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 6-year loan term.

The trustee holds 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 trustee will reallocate any

20

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 March 31, 2015 (unaudited), the remaining principal balance on the ESOP debt is $332,000 and the number of shares held by the ESOP is 46,287.

Total compensation expense recognized in connection with the ESOP was $25,000 and $23,000 for the three months ended March 31, 2015 and 2014, respectively (unaudited), and $50,000 and $46,000 for the six months ended March 31, 2015 and 2014, respectively (unaudited).

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

This discussion is intended to assist in understanding the consolidated 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.

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 2014 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, at least quarterly, 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,

21

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 six months ended March 31, 2015.

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.

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 Company 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 Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on 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.

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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 Taxes.    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 March 31, 2015 (unaudited) and September 30, 2014

Total Assets. Total assets increased by $5.6 million, from $109.2 million at September 30, 2014 to $114.8 million at March 31, 2015, primarily due to an increase in loans held-for-sale of $4.8 million and an increase in loans, net, of $1.6 million. These increases were primarily offset by a decrease in cash and cash equivalents of $691,000.

Cash and Cash Equivalents. Cash and cash equivalents decreased by $691,000, from $5.9 million at September 30, 2014 to $5.2 million at March 31, 2015, in order to fund new loan originations.

Interest-Bearing Time Deposits in Other Banks. These deposits decreased by $4,000, from $2.0 million at September 30, 2014 to $2.0 million at March 31, 2015.  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 decreased by $203,000, from $16.6 million at September 30, 2014 to $16.4 million at March 31, 2015.  The decrease is primarily due to repayments, net of purchases, of mortgage-backed securities.

Loans, Net. Loans, net, increased by $1.6 million, from $77.0 million at September 30, 2014 to $78.6 million at March 31, 2015. This increase was primarily due to new loans originated, net of repayments.

Loans Held-for-Sale. Loans held-for-sale increased by $4.8 million, from $2.7 million at September 30, 2014 to $7.5 million at March 31, 2015, primarily due to the timing of loan closings and fundings.

Deposits. Our primary sources of funds are retail deposit accounts held primarily by individuals and businesses within our primary market area. Total deposits increased by $5.6 million, from $87.5 million at September 30, 2014 to $93.1 million at March 31, 2015, primarily due to a $2.7 million increase in certificates of deposit and a $1.9 million increase in noninterest-bearing demand deposit accounts.

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

	March 31,				September 30,
(Dollars in thousands)	2015				2014
	(unaudited)
Noninterest-bearing demand deposits	$	16,247	17.45	%	$	14,355	16.41	%
Interest bearing deposits:
Money market	12,473		13.40		11,905		13.61
Regular and other savings	11,772		12.65		11,345		12.97
Certificates of deposit	52,592		56.50		49,878		57.01
Total	$	93,084	100.00	%	$	87,483	100.00	%

Borrowings. We generally use borrowings from the Federal Home Loan Bank of Boston to supplement our supply of funds for originating loans and purchasing securities. Federal Home Loan Bank of Boston borrowings outstanding at March 31, 2015 were $10.7 million. Total borrowings outstanding at September 30, 2014 were $11.0 million.

Comparison of Results of Operations for the Three and Six Months Ended March 31, 2015 and 2014 (unaudited)

Net Income (Loss). Net income (loss) went from a net loss of ($5,000) for the three months ended March 31, 2014 to net income of $72,000 for the three months ended March 31, 2015, primarily due to an increase in total noninterest income of $119,000 and an increase in interest income of $229,000, offset by an increase in noninterest expense of $167,000 and an increase in interest expense of $55,000.

Net income (loss) went from a net loss of ($73,000) for the six months ended March 31, 2014 to net income of $97,000 for the six months ended March 31, 2015, primarily due to an increase in noninterest income of $184,000 and an increase in interest income of $500,000, offset by an increase in noninterest expense of $265,000, an increase in interest expense of $110,000 and an increase in provision for loan losses of $36,000.

Net Interest and Dividend Income. Net interest and dividend income increased by $174,000, from $633,000 for the three months ended March 31, 2014 to $807,000 for the three months ended March 31, 2015, primarily due to the increase in loans, net and investment securities. The average outstanding balance of loans, net, increased by $19.8 million, from $65.5 million for the three months ended March 31, 2014 to $85.3 million for the three months ended March 31, 2015, and the average balance of investment securities increased by $7.2 million, from $10.6 million for the three months ended March 31, 2014 to $17.8 million for the three months ended March 31, 2015. The average yield on interest-earning assets decreased from 3.85% for the three months ended March 31, 2014 to 3.75% for the three months ended March 31, 2015, while the average balance of interest-earning assets increased from $80.6 million to $107.1 million. The average rate paid on interest-bearing liabilities increased from 0.87% for the three months ended March 31, 2014 to 0.90% for the three months ended March 31, 2015. The interest rate spread decreased from 2.98% for the three months ended March 31, 2014 to 2.85% for the three months ended March 31, 2015. Interest expense on FHLB advances increased by $24,000, from $4,000 for the three months ended March, 31, 2014, to $28,000 for the three months ended March 31, 2015, primarily due to increased borrowings as a part of the bank’s growth strategy to fund loans.

Net interest and dividend income increased by $390,000, from $1.2 million for the six months ended March 31, 2014 to $1.6 million for the six months ended March 31, 2015 primarily due to the increase in loans, net and investment securities. The average outstanding balance of loans, net increased by $20.4 million, from $64.0 million for the six months ended March 31, 2014 to $84.4 million for the six months ended March 31, 2015, and the average balance of investment securities increased by $9.0 million, from $8.7 million for the six months ended March 31, 2014 to $17.8 million for the six months ended March 31, 2015.  The average yield on interest-earning assets decreased from 3.85% for the six months ended March 31, 2014 to 3.78% for the six months ended March 31, 2015, offset by an increase in the average balance of interest-earning assets from $77.4 million to $105.2 million. The average rate paid on interest-bearing liabilities decreased from 0.90% for the six months ended March 31, 2014 to 0.89% for the six months ended March 31, 2015. The interest rate spread decreased from 2.95% for the six months ended March 31, 2014 to 2.89% for the six months ended March 31, 2015. Interest expense on FHLB advances increased by $49,000, from $7,000 for the six months ended March 31, 2014, to $56,000 for the six months ended March 31, 2015, primarily due to increased borrowings as a part of the bank’s growth strategy to fund loans.

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Average Balances and Yields.  The following tables (unaudited) present 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 March 31,
	2015						2014
	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)	$	17,788	$	103	2.32	%	$	10,619	$	66	2.49	%
Loans, net (2)	85,283		895		4.20	%	65,450		701		4.28	%
Other interest earning assets (3)	3,999		6		0.60	%	4,530		8		0.71	%
Total interest-earning assets	107,070		1,004		3.75	%	80,599		775		3.85	%
Non-interest earning assets	10,476						8,999
Total assets	$	117,546					$	89,598
Interest bearing liabilities:
Regular savings accounts	$	11,558	$	5	0.17	%	$	9,642	$	4	0.17	%
Money market accounts	11,745		16		0.54	%	10,012		13		0.52	%
Time deposits	51,198		148		1.16	%	40,336		121		1.20	%
Total interest bearing deposits	74,501		169		0.91	%	59,990		138		0.92	%
Federal Home Loan Bank advances	13,052		28		0.86	%	5,081		4		0.31	%
Total interest-bearing liabilities	87,553		197		0.90	%	65,071		142		0.87	%
Demand deposits	16,185						11,144
Other liabilities	412						101
Stockholders’ equity	13,396						13,282
Total liabilities and stockholders’ equity	$	117,546					$	89,598
Net interest income			$	807					$	633
Interest rate spread					2.85	%					2.98	%
Net yield on earning assets					3.01	%					3.14	%

(1) Includes Federal Home Loan Bank 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 March 31, 2015 and 2014 are annualized.

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	Six months ended March 31,
	2015						2014
	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)	$	17,777	$	209	2.35	%	$	8,732	$	100	2.29	%
Loans, net (2)	84,358		1,771		4.20	%	63,974		1,375		4.30	%
Other interest earning assets (3)	3,084		11		0.71	%	4,676		16		0.68	%
Total interest-earning assets	105,219		1,991		3.78	%	77,382		1,491		3.85	%
Non-interest earning assets	10,519						9,009
Total assets	$	115,738					$	86,391
Interest bearing liabilities:
Regular savings accounts	$	11,511	$	9	0.16	%	$	9,668	$	8	0.17	%
Money market accounts	11,815		33		0.56	%	9,914		27		0.54	%
Time deposits	50,554		290		1.15	%	38,570		236		1.22	%
Total interest bearing deposits	73,880		332		0.90	%	58,152		271		0.93	%
Federal Home Loan Bank advances	12,891		56		0.87	%	3,726		7		0.37	%
Total interest-bearing liabilities	86,771		388		0.89	%	61,878		278		0.90	%
Demand deposits	15,244						11,059
Other liabilities	404						207
Stockholders’ equity	13,319						13,247
Total liabilities and stockholders’ equity	$	115,738					$	86,391
Net interest income			$	1,603					$	1,213
Interest rate spread					2.89	%					2.95	%
Net yield on earning assets					3.05	%					3.14	%

(1) Includes Federal Home Loan Bank 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 six month periods ended March 31, 2015 and 2014 are annualized.

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Rate/Volume Analysis. The following tables (unaudited) set 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.

	Three Months Ended									Six Months Ended
	March 31, 2015									March 31, 2015
	Compared to									Compared to
	Three Months Ended									Six Months Ended
	March 31, 2014									March 31, 2014
	Increase (Decrease)									Increase (Decrease)
	Due to									Due to
(In thousands)	Volume			Rate			Net			Volume			Rate			Net
Interest income:
Securities (1)	$	41		$	(4	)	$	37		$	106		$	3		$	109
Loans, net (2)	208			(14		)	194			427			(31		)	396
Other interest-earning assets (3)	(1		)	(1		)	(2		)	(6		)	1			(5		)
Total interest-earning assets	248			(19		)	229			527			(27		)	500
Interest expense:
Deposits	$	34		$	(3	)	$	31		$	74		$	(13	)	$	61
Federal Home Loan Bank advances	11			13			24			31			18			49
Total interest-bearing liabilities	45			10			55			105			5			110
Increase (decrease) in net interest income	$	203		$	(29	)	$	174		$	422		$	(32	)	$	390

(1)Includes Federal Home Loan Bank 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 (Benefit) for Loan Losses. The benefit for loan losses decreased by $7,000, from $10,000 for the three months ended March 31, 2014 to $3,000 for the three months ended March 31, 2015.  The decrease in the benefit was due to the growth of the loan portfolio.

The provision for loan losses increased by $36,000, from ($21,000) for the six months ended March 31, 2014 to $15,000 for the six months ended March 31, 2015.  The increase in the provision was due to the growth of the loan portfolio.

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Analysis of Loan Loss Experience. The following tables set forth an analysis of the allowance for loan losses for the periods indicated (unaudited).

	At or						At or
	For the						For the
	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Dollars in thousands)	2015			2014			2015			2014
Allowance beginning of period	$	524		$	424		$	506		$	435
(Benefit) provision for loan losses	(3		)	(10		)	15			(21		)
Charge-offs	—			—			—			—
Recoveries	—			2			—			2
Allowance at end of period	$	521		$	416		$	521		$	416
Allowance for loan losses as a percent of non- performing loans	146.76		%	N/A			146.76		%	N/A
Allowance for loan losses as a percent of total loans	0.66		%	0.65		%	0.66		%	0.65		%
Net (charge-offs) recoveries to average loans outstanding during the period	—		%	—		%	—		%	—		%

Noninterest Income. Noninterest income increased by $119,000, from $234,000 for the three months ended March 31, 2014 to $353,000 for the three months ended March 31, 2015, primarily due to an increase in mortgage banking activities from $138,000 to $240,000. The increase in mortgage banking activities was primarily due to increased volume of loans sold in the secondary market.

Noninterest income increased by $184,000, from $414,000 for the six months ended March 31, 2014 to $598,000 for the six months ended March 31, 2015, primarily due to an increase in mortgage banking activities from $220,000 to $378,000. 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 $167,000, from $873,000 for the three months ended March 31, 2014 to $1.0 million for the three months ended March 31, 2015 primarily due to increases in salaries and employee benefit expense of $89,000 for salary adjustments and increased costs of employee benefits and compensation expense associated with restricted stock awards. Occupancy and equipment expense increased $28,000, primarily due to increased snow removal expenses, and professional fees increased $19,000 primarily due to additional outsourcing of loan quality control services.

Noninterest expense increased by $265,000, from $1.8 million for the six months ended March 31, 2014 to $2.0 million for the six months ended March 31, 2015 primarily due to increases in salaries and employee benefit expense of $145,000 for salary adjustments, increased costs of employee benefits and compensation expense associated with restricted stock awards. Occupancy and equipment expense increased $28,000 primarily due to increased snow removal expenses, and professional fees increased $28,000, primarily due to unforeseen legal expenses.

Income Tax Expense (Benefit). Income tax expense increased by $42,000, from $9,000 for the three months ended March 31, 2014 to $51,000 for the three months ended March 31, 2015, due to the increase in pre-tax income for the three months ended March 31, 2015. The effective tax rate was 225.0% for the three months ended March 31, 2014 and 41.5% for the three months ended March 31, 2015.

Income tax expense increased by $103,000, from ($38,000) for the six months ended March 31, 2014 to $65,000 for the six months ended March 31, 2015, due to the increase in pre-tax income for the six months ended March 31, 2015. The effective tax rate was (34.2%) for the six months ended March 31, 2014 and the effective tax rate was 40.1% for the six months ended March 31, 2015.

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Analysis of Nonperforming and Classified Assets.    We consider repossessed assets and loans that are 90 days or more past due or on nonaccrual 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 income. 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 incident.

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.

	March 31,			September 30,
(Dollars in thousands)	2015			2014
	(unaudited)
Nonaccrual loans:
Real estate loans:
Residential	$	336		$	—
Commercial	—			—
Total real estate	336			—
Consumer loans	19			20
Total	355			20
Accruing loans past due 90 days or more	—			—
Total nonaccrual loans and accruing loans past due 90 days	355			20
Other real estate owned	—			—
Total nonperforming assets	355			20
Troubled debt restructurings	—			—
Total nonperforming assets and troubled debt restructurings	$	355		$	20
Total nonperforming loans to total loans	0.45		%	0.03		%
Total nonperforming loans to total assets	0.31		%	0.02		%
Total nonperforming assets and troubled debt restructurings to total assets	0.31		%	0.02		%

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, and borrowings from the Federal Home Loan Bank of Boston. 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.

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Management regularly adjusts its 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.

The Bank’s most liquid assets are cash and cash equivalents, interest-bearing deposits in other banks, and U.S. government federal agencies and mortgage-backed securities. The levels of these assets depend on the Bank’s operating, financing, lending and investing activities during any given period.  At March 31, 2015, cash and cash equivalents totaled $5.2 million.  Securities classified as available-for-sale provide additional sources of liquidity and had a market value of $16.4 million at March 31, 2015.  In addition, at March 31, 2015, the Bank had the ability to borrow a total of approximately $27.8 million from the Federal Home Loan Bank of Boston.  At March 31, 2015, the Bank had borrowings outstanding of $10.7 million.  At March 31, 2015, the Bank also had the ability to borrow $4.7 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 from Bankers’ Bank Northeast. At March 31, 2015, the Bank had no borrowings outstanding under this credit facility.

At March 31, 2015, the Bank had $8.7 million in loan commitments outstanding, which consisted of commitments to originate loans, available lines of credit, standby letters of credit and unadvanced funds on construction loans. Certificates of deposit due within one year after March 31, 2015 totaled $33.3 million, or 63% 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 March 31, 2015, the Company (unconsolidated basis) had liquid assets of $973,000.

Contractual Obligations. The Company has entered into a non-cancellable lease agreement pertaining to the Roslindale branch facility.

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 March 31, 2015, the Bank exceeded all of its regulatory capital requirements to be considered “well capitalized” under regulatory guidelines.  See note 8 of the notes to condensed unaudited 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 Company has in particular classes of financial instruments.

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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 Company 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 upon 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, 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):

	March 31,		September 30,
	2015		2014
	(unaudited)
Commitments to originate loans	$	2,025	$	1,114
Unadvanced funds on lines of credit	5,823		5,259
Unadvanced funds on construction loans	689		527
Standby letters of credit	149		149
	$	8,686	$	7,049

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 March 31, 2015 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

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 have been no material changes in the Company’s risk factors during the six months ended March 31, 2015. 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, 2014.

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

Not applicable.

Item 3.  Defaults Upon Senior Securities

Not applicable.

Item 4.  Mine Safety Disclosures

Not applicable.

Item 5.  Other Information.

Not applicable.

Item 6.  Exhibits

3.1Articles of Incorporation of Meetinghouse Bancorp, Inc. (1)

3.2Articles of Amendment to Articles of Incorporation of Meetinghouse Bancorp, Inc. (1)

3.3Bylaws of Meetinghouse Bancorp, Inc. (1)

31.1Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

31.2Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

32.0Section 1350 Certification

101.1The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balances Sheets, (ii) the Consolidated Statements of Income (Loss), (iii) the Consolidated Statements of Comprehensive Income (Loss), (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.

(1)Incorporated herein by reference to the exhibits to the Company’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: May 15, 2015	By:	/s/ Anthony A. Paciulli
		Anthony A. Paciulli
		President and Chief Executive Officer
Dated: May 15, 2015	By:	/s/ Wayne Gove
		Wayne Gove
		Senior Vice President and Chief Financial Officer

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