Edgewater Bancorp 10K 2014 Annual report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

☒

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

For the fiscal year ended December 31, 2014.

☐

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

For the transition period from to .

Commission file number: 000-55129

EDGEWATER BANCORP, INC.

(Exact name of registrant as specified in its charter)

	Maryland (State or other jurisdiction of incorporation or organization)			46-3687434 (I.R.S. Employer Identification Number)
	321 Main Street, St. Joseph, Michigan (Address of principal executive offices)			49085 (Zip Code)

Registrant’s telephone number, including area code: (296) 982-4175

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

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 ☒ No ☐

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

	Large accelerated filer ☐			Accelerated filer ☐
	Non-accelerated filer ☐			Smaller reporting company ☒
	(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 Act). Yes ☐ No ☒

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, computed by reference to the last sale price at which the common equity was last sold, as of June 30, 2014, the last business day of the most recently completed second fiscal quarter was $7,026,140.

As of March 17, 2015, there were issued and outstanding 667,898 shares of the Registrant’s Common Stock with a par value of $0.01 per share.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s proxy statement for the Annual Meeting of Stockholders to be held on May 14, 2015 are incorporated by reference into Part III of this Report.

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	ITEM 1. Business					1
	ITEM 1A. Risk Factors					40
	ITEM 1B. Unresolved Staff Comments					40
	ITEM 2. Properties					40
	ITEM 3. Legal Proceedings					40
	ITEM 4. Mine Safety Disclosure					40
	ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities					41
	ITEM 6. Selected Financial Data					42
	ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations					42
	ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk					56
	ITEM 8. Financial Statements and Supplementary Data					56
	ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure					56
	ITEM 9A. Controls and Procedures					57
	ITEM 10. Directors, Executive Officers and Corporate Governance					59
	ITEM 11. Executive Compensation					59
	ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters					59
	ITEM 13. Certain Relationships and Related Transactions and Director Independence					59
	ITEM 14. Principal Accountant Fees and Services					59
	ITEM 15. Exhibits and Financial Statement Schedules					60
	Edgewater Bancorp, Inc. Consolidated Financial Statements					F-1

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Forward-Looking Statements

When used in this Annual Report on Form 10-K, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties including changes in economic conditions in our market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company’s market area, and competition could cause actual results to differ materially from historical earnings and those presently anticipated or projected. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. We advise readers that the factors listed above and other factors could affect the Company’s financial performance and could cause our actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

We do not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

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PART I

ITEM 1.

Business

Edgewater Bancorp, Inc.

Edgewater Bancorp, Inc. was incorporated as a Maryland corporation on July 11, 2013 and owns all of the outstanding shares of common stock of Edgewater Bank as a result of the conversion from mutual to stock form of Edgewater Bank on January 16, 2014. Edgewater Bancorp, Inc. has not engaged in any business to date other than owning the common stock of Edgewater Bank.

On January 16, 2014, Edgewater Bancorp, Inc. completed its initial public offering of common stock. In the offering, Edgewater Bancorp, Inc. issued a total of 667,898 shares of its common stock for an aggregate of $6,678,980 in total offering proceeds.

Our executive and administrative office is located at 321 Main Street, St. Joseph, Michigan 49085, and our telephone number at this address is (269) 982-4175. Our website address is www.edgewaterbank.com. Information on our website is not incorporated into this Annual Report and should not be considered part of this Annual Report.

Edgewater Bank

Edgewater Bank is a federal mutual savings association that was originally organized in 1910 as a state-chartered mutual savings and loan association under the name Industrial Building and Loan. In 1938, the Bank converted to a federal charter and changed its name to Buchanan Federal Savings and Loan Association. The Bank changed its name in 1965 to LaSalle Federal Savings and Loan Association of Buchanan and in 1989 to LaSalle Federal Savings Bank. The Bank changed its name to Edgewater Bank in 2005.

Our business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations, in one- to four-family residential real estate, commercial and industrial, and commercial real estate loans and, to a lesser extent, home equity lines of credit and other consumer loans. At December 31, 2014, $45.4 million, or 50% of our total loan portfolio, was comprised of one- to four-family residential real estate loans. We also invest in securities, which consist primarily of U.S. government agency obligations and mortgage-backed securities and to a lesser extent, state and municipal securities and collateralized mortgage obligations. We offer a variety of deposit accounts, including checking accounts, NOW accounts, savings accounts, money market accounts and certificate of deposit accounts. We utilize advances from the FHLB-Indianapolis for asset/liability management purposes and, to a much lesser extent, for additional funding for our operations. At December 31, 2014, we had $10 million in advances outstanding with FHLB-Indianapolis.

Our executive and administrative office is located at 321 Main Street, St. Joseph, Michigan 49085, and our telephone number at this address is (269) 982-4175.

Plan of Conversion and Reorganization

On September 3, 2013, the Board of Directors of Edgewater Bank adopted a plan of conversion and reorganization (the “Plan”). The Plan provided for the reorganization of Edgewater Bank from a federally chartered mutual savings association into a federally chartered stock savings association, the formation of Edgewater Bancorp, Inc. as the stock holding company of Edgewater Bank and an offering by Edgewater

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Bancorp, Inc. of shares of its common stock to eligible depositors of Edgewater Bank and the public. The Plan was approved by the Office of the Comptroller of the Currency (the “OCC”) and the holding company application of Edgewater Bancorp, Inc. was approved by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Plan was approved by the affirmative vote of a majority of the total votes eligible to be cast by the voting members of Edgewater Bank at a special meeting held on December 20, 2013 and the reorganization was completed on January 16, 2014.

Market Area and Competition

We conduct our operations from our main office in St. Joseph, Michigan and our four additional full-service banking offices located in Royalton Township, Coloma, Bridgman and Buchanan, Michigan. We have completed the sale of the Decatur office on January 24, 2014. Our primary market area includes Berrien County and, to a lesser extent, Van Buren County and Cass County, Michigan, all of which are located in southwestern Michigan near the border of Indiana, and portions of northern Indiana that are contiguous with Berrien and Cass Counties. We will, on occasion, make loans secured by properties located outside of our primary market are especially to borrowers with whom we have an existing relationship and who have a presence within our primary market area. Our primary market area includes small towns and rural communities, and St. Joseph, where our headquarters are located, is a community of upscale retirement, vacation or second homes. Our market area was historically a manufacturing and agricultural-based economy, including the world headquarters of Whirlpool Corporation and Leco Corporation. Our market area has experienced continued developments in the medical and health services and nuclear energy industries, with Lakeland Regional Health System and Indiana Michigan Power employing large numbers of people, as well as the metal fabrication and tourism industries. The economy in our market area also has a significant service component, particularly the food and beverage industries. The regional economy is fairly diversified, supported by government, professionals such as doctors, lawyers and accountants, wholesale and retail trade, manufacturing and agriculture.

We face competition within our market area both in making loans and attracting deposits. Our market area has a concentration of financial institutions that include large money center and regional banks, community banks and credit unions. We also face competition from commercial banks, savings institutions, and mortgage banking firms, consumer finance companies and credit unions and, with respect to deposits, from money market funds, brokerage firms, mutual funds and insurance companies. As of June 30, 2014, based on the most recent available FDIC data, our market share of deposits represented 5.0% of FDIC-insured deposits in Berrien County, ranking us 6th in market share of deposits. We do not have a significant market share of either deposits or residential lending in Van Buren County, Cass County or areas that we serve in northern Indiana.

Lending Activities

General. Our principal lending activity is originating one- to four-family residential real estate loans, commercial and industrial loans, commercial real estate loans, consumer loans (including home equity lines of credit, watercraft and automobile loans) and, to a lesser extent, residential and commercial construction loans. We sell in the secondary market a significant majority of the fixed-rate one- to four-family residential mortgage loans that we originate, generally on a servicing-retained, non-recourse basis, while retaining adjustable rate one- to four-family residential mortgages, in order to manage the maturity and time to re-price our loan portfolio. We may, at times, retain within our loan portfolio a modest amount of intermediate and longer term residential mortgage loans for asset-liability management purposes. In recent years, we have changed our strategy to focus on relationship-based banking, diversifying of our loan portfolio, increasing the yield of our loan portfolio and improving and managing our asset quality. Accordingly, subject to market conditions and our asset-liability analysis, we expect to take advantage of unique characteristics of our market area to increase our residential mortgage, commercial and industrial, and consumer loans. Our business strategy does not contemplate the origination of speculative construction and land development loans. We expect to develop a broader, more flexible array of residential, commercial and industrial and consumer loan products specifically suited to the customers and potential customers in our market area, hire additional personnel with residential, commercial and consumer lending experience and continue to improve our customer service. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Business Strategy” for more information regarding our future plans for lending activities.

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Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio, by type of loan at the dates indicated, excluding loans held for sale.

	At December 31,
	2014					2013
	Amount			Percent		Amount			Percent
Real estate loans:
Residential 1 – 4 family		$	45,353,599		50.09%		$	43,612,578		50.06%
Commercial Real Estate			27,908,662		30.83			24,705,387		28.36
Construction and land development			1,523,281		1.68			1,618,445		1.86
Total real estate(2)(3)			74,785,542		82.60			69,936,410		80.28
Commercial and industrial			5,536,805		6.12			5,524,011		6.34
Consumer loans:
Home equity loans and lines of credit			9,331,608		10.31			10,984,782		12.61
Other consumer loans			883,864		0.97			672,560		0.77
Total consumer			10,215,472		11.28			11,657,342		13.38
Total loans			90,537,819		100.00%			87,117,763		100.00%
Less other items:
Net deferred loan costs			(17,057)					(35,416)
Allowance for loan losses			1,075,351					1,061,141
Total loans, net		$	89,479,525				$	86,092,038

(1)

Does not include loans held for sale of $48,300 and $0 at December 31, 2014 and December 31, 2013, respectively.

(2)

At December 31, 2014, consists of $17.1 million of owner occupied properties and $5.8 million of non-owner occupied properties.

(3)

Includes $4.0 million and $2.9 million of multi-family loans at December 31, 2014 and December 31, 2013, respectively.

Loan Portfolio Maturities and Yields. The following table summarizes the scheduled repayments of our loan portfolio at December 31, 2014. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in the year ending December 31, 2015. Maturities are based on the final contractual payment date and do not reflect the impact of prepayments and scheduled principal amortization.

	One- to Four-Family					Commercial Real Estate					Construction and Land
	Amount			Weighted Average Rate		Amount			Weighted Average Rate		Amount			Weighted Average Rate
Ending December 31,
2015		$	191,728		4.25%		$	2,307,858		6.17%		$	1,093,177		8.66%
2016			146,499		2.59			1,431,932		5.91			267,383		5.14
2017 to 2018			624,928		5.63			3,824,764		5.44			—		—
2019 to 2023			1,501,468		4.61			15,141,562		4.83			—		—
2024 to 2028			6,205,528		3.88			2,898,021		5.76			115,714		3.91
2024 to 2028			11,689,705		3.63			—		—			—		—
2029 and beyond			24,993,743		3.69			2,304,525		5.52			47,007		4.38
Total		$	45,353,599		3.76%		$	27,908,662		5.23%		$	1,523,281		7.55%

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	Commercial and Industrial					Home Equity Loans and Lines of Credit					Other Consumer					Total
	Amount			Weighted Average Rate		Amount			Weighted Average Rate		Amount			Weighted Average Rate		Amount			Weighted Average Rate
Ending December 31,
2014		$	2,952,351		4.51%		$	873,845		3.81%		$	298,252		3.97%		$	7,717,211		5.49%
2015			1,082,229		5.24			425,950		3.50			58,660		5.75			3,412,653		5.19
2016			117,686		5.05			762,433		3.72			58,607		3.71			5,388,418		5.19
2017 to 2018			1,341,160		4.19			2,359,570		3.60			253,718		3.96			20,597,478		4.62
2019 to 2023			43,379		5.00			4,897,864		4.70			189,808		5.33			14,350,314		4.56
2024 to 2028			—		—			11,946		8.00			24,819		3.99			11,726,470		3.63
2029 and beyond			—		—			—		—			—		—			27,345,275		3.84
Total		$	5,536,805		4.59%		$	9,331,608		4.21%		$	883,864		4.36%		$	90,537,819		4.38%

Loan Approval Procedures and Authority. Pursuant to applicable law, the aggregate amount of loans that we are permitted to make to any one borrower or a group of related borrowers is generally limited to 15% of Edgewater Bank’s unimpaired capital and surplus (25% if the amount in excess of 15% is secured by “readily marketable collateral” or 30% for certain residential development loans). In addition, we have established an in-house limit that is less than the legal limits on loans to one borrower. At December 31, 2014, our largest credit relationship totaled $1.9 million and was secured by multiple commercial real estate properties in our market area. Our second largest relationship at December 31, 2014 was a $1.8 million loan secured by an owner-occupied manufacturing facility in our market area. At December 31, 2014, both of these loans were performing in accordance with their terms.

Our lending is subject to written underwriting standards and origination procedures. Decisions on one- to four-family residential mortgage and consumer loans are made on the basis of detailed applications developed by our lending officers. Decisions on commercial real estate and commercial and industrial loans are made on the basis of information submitted by the prospective borrower and analyzed by our lending officers. Banking regulation require that for real estate loans of $1.0 million or more, commercial real estate loans of $250,000 or more and complex residential loans of $250,000 or more, we require property appraisals prepared by an outside independent state-certified appraiser approved by our board of directors. For non-complex residential loans between $250,000 and $1.0 million, we require property appraisals prepared by an outside independent state-certified or state-licensed appraiser. Although the use of internal evaluations are permitted by banking regulations for commercial real estate loans of less than $1.0 million and other loans of less than $250,000, we require current third-party appraisals for all loans that we originate. We categorize a third-party appraisal as “current” if it was prepared within 18-months of the loan application and we know of no material changes in the property or surrounding areas. The loan application and review process is designed primarily to determine the borrower’s ability to repay the requested loan, and the more significant items obtained through the application process are verified through use of credit reports and credit history, financial and cash flow information and tax returns.

Personal guarantees are generally obtained from the principals of commercial real estate and commercial and industrial loans. Although this requirement may be waived depending upon the loan-to-value ratio and the debt service ratio associated with the loan, personal guarantees are obtained on substantially all business-related loans. For commercial real estate and construction loans, we require title and hazard insurance, and appropriate flood, fire and extended coverage insurance with Edgewater Bank named in the mortgagee clause.

We use the Loan ProspectorTM System for loans originated for sale to Freddie Mac. We generally do not make residential loans that are not approved by this system (other than loans above the Freddie Mac lending limit for conforming loans, which we refer to as “jumbo” loans), but we review all non-approved residential loans and will extend credit in certain circumstances upon approval by our loan committee, which consists of our President and Chief Executive Officer, our Chief Financial Officer, our Senior Lender, our Senior Retail Officer, our Assistant Vice President of Risk Management, and all other commercial lending officers.

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Approval of the loan committee requires the vote of a majority of the members. Our President and Chief Executive Officer may veto approval of any loan approved by the loan committee. Our board of directors may approve loans above those amounts, and may approve loans in excess of our in-house lending limit (up to our legal lending limit). Approval of the board of directors requires the vote of four of the six directors.

Fixed and Adjustable-Rate Loan Schedule. The following table sets forth our fixed- and adjustable-rate loans at December 31, 2014 that are contractually due after December 31, 2015.

	Due After December 31, 2015
	Fixed			Adjustable			Total
	(Dollars in thousands)
Real estate loans:
One- to four-family residential		$	22,437		$	22,851		$	45,288
Commercial			23,914			1,687			25,601
Construction and land			440			—			440
Total real estate			46,791			24,538			71,329
Commercial and industrial			2,349			235			2,584
Consumer loans:
Home equity loans and lines of credit			733			7,734			8,467
Other consumer			599			—			599
Total consumer			1,332			7,734			9,066
Total loans		$	50,472		$	32,507		$	82,979

One- to Four-Family Residential Real Estate Lending. The focus of our lending program has historically been the origination of one- to four-family residential real estate loans. At December 31, 2014, we had $45.4 million of loans secured by one- to four-family real estate, representing 50.0% of our total loan portfolio. In addition, at December 31, 2014, we had a $48,300 in residential mortgage held for sale. We primarily originate fixed-rate residential mortgage loans, but we also offer adjustable-rate residential mortgage loans and home equity loans. At December 31, 2014, the one- to four-family residential mortgage loans held in our portfolio were comprised of 47.3% fixed-rate loans, and 52.7% adjustable-rate loans.

We sell the majority of the one- to four-family residential mortgage loans that we originate. During the years ended December 31, 2014 and December 31, 2013, we sold $6.9 million and $16.6 million, respectively, of residential mortgage loans for gains on sale of approximately $141,000 and $249,000, respectively. Almost all of these loans were sold on a servicing-retained basis. At December 31, 2014 and December 31, 2013, our servicing portfolio was $73.6 million and $76.7 million, respectively, all of which related to loans that we had originated. Servicing fees were approximately $57,000 and $189,000, respectively, during the years ended December 31, 2014 and December 31, 2013. See “— Originations, Purchases and Sales of Loans.”

Our fixed-rate one- to four-family residential real estate loans are generally underwritten according to Freddie Mac guidelines, and we refer to loans that conform to such guidelines as “conforming loans.” We generally originate both fixed- and adjustable-rate mortgage loans in amounts up to the maximum conforming loan limits as established by the Federal Housing Finance Agency for Freddie Mac, which as of December 31, 2014 was generally $417,000 for single-family homes in our market area. We also originate jumbo loans, which we generally retain in our portfolio, although we may develop a secondary market program with a private purchaser for certain of these jumbo loans. At December 31, 2014, we had $6.2 million in jumbo loans. We currently have a program in place with a third party that allows us to refer FHA and VA loans to them for underwriting and servicing.

At December 31, 2014, almost all of our one- to four-family residential loans that we hold in our portfolio and our home equity loans and lines of credit were secured by properties located in our market area. In addition, almost all of the residential mortgage loans that we originate for sale are secured by properties located in our market area.

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We generally limit the loan-to-value ratios of our one- to four-family residential mortgage loans to 80% of the purchase price or appraised value, whichever is lower. In addition, we may make one- to four-family residential mortgage loans with loan-to-value ratios between 80% and 95% of the purchase price or appraised value, whichever is less, where the borrower obtains private mortgage insurance.

Our one- to four-family residential real estate loans typically have terms of 10 to 30 years. Our adjustable-rate one- to four-family residential real estate loans generally have fixed rates for initial terms of one, three, five, seven or ten years and adjust annually thereafter at a margin. In recent years, this margin has been 275 basis points over the weekly average yield on U.S. treasury securities adjusted to a constant maturity of one year. The margin will be increased from 275 basis points to 300 basis points for new loan approvals. The maximum amount by which the interest rate may be increased or decreased is generally 2.00% per adjustment period and the lifetime interest rate cap is generally 6.00% over the initial interest rate of the loan.

Although adjustable-rate mortgage loans may reduce to an extent our vulnerability to changes in market interest rates because they periodically re-price (as interest rates increase the required payments due from the borrower also increase subject to rate caps), increasing the potential for default by the borrower. At the same time, the ability of the borrower to repay the loan and the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustments of the contractual interest rate are also limited by the maximum periodic and lifetime rate adjustments permitted by our loan documents. Moreover, the interest rates on most of our adjustable-rate loans do not adjust for up to seven years after origination. As a result, the effectiveness of adjustable-rate mortgage loans in compensating for changes in general interest rates may be limited during periods of rapidly rising interest rates.

We also originate home equity lines of credit and fixed-term home equity loans. See “— Consumer Lending.”

We do not offer “interest only” mortgage loans on permanent one- to four-family residential real estate loans (where the borrower pays interest for an initial period, after which the loan converts to a fully amortizing loan). We also do not offer loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on the loan, resulting in an increased principal balance during the life of the loan. We do not offer “subprime loans” on one- to four- family residential real estate loans (i.e., loans that generally target borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios), or “Alt-A” loans (i.e., loans that generally target borrowers with better credit scores who borrow with alternative documentation such as little or no verification of income).

Commercial Real Estate Lending. We have historically focused our non-residential lending activities on commercial real estate. However, we have revised our strategy to diversify our loan portfolio and increase our yield while improving asset quality, and we believe a key to successful implementation of this strategy is to reduce our reliance on commercial real estate lending by managing the run-off of loans that do not match our current strategy, while continuing to originate commercial real estate loans on a selective basis. In the future, we will focus on originating loans up to our in-house lending limit, where the property is located in our market area and where we have a strong existing relationship with the borrower. We will be more selective in our approval process based on the size of the loans and our overall relationship with the borrower. At December 31, 2014, we had $27.9 million in commercial real estate loans, representing 30.8% of our total loan portfolio.

Our commercial real estate loans are either fixed or adjustable rate based on the prime rate as set forth in the Wall Street Journal. Our commercial real estate loans generally have initial terms of not more than five years and amortization terms of not more than 20 years, with a balloon payment at the end of the initial term. The maximum loan-to-value ratio of our commercial real estate loans is generally 80% of the lower of the purchase price or appraised value of the property securing the loan, regardless of whether the property is owner-occupied or not. Our commercial real estate loans are typically secured by retail, industrial, warehouse, service, medical or other commercial properties, or apartment buildings.

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Set forth below is information regarding our commercial real estate loans at December 31, 2014.

Industry Type	Number of Loans		Balance
			(Dollars in thousands)
Real estate development(1)		21		$	10,010
Storage unit rental		4			614
Health care and social		3			1,138
Retail trade		13			1,875
Accommodation and food		7			1,921
Funeral homes		8			1,757
Legal services		2			627
Other services		14			2,369
Manufacturing		10			4,060
Recreational		4			2,217
Agriculture		3			1,135
Other miscellaneous		1			186
		90		$	27,909

(1)

These loans are primarily loans secured by multi-tenant properties.

At December 31, 2014, the average loan balance of our outstanding commercial real estate loans was $308,000, and the largest of such loans was a $1.5 million loan secured by an apartment complex in our market area. This loan was performing in accordance with its original repayment terms at December 31, 2014.

We consider a number of factors in originating commercial real estate loans. We evaluate the qualifications and financial condition of the borrower, including project-level and global cash flows, credit history, and management expertise, as well as the value and condition of the property securing the loan. When evaluating the qualifications of the borrower, we consider the value of the property, the financial resources of the borrower, the borrower’s experience in owning or managing similar property and the borrower’s payment history with us and other financial institutions. In evaluating the property securing the loan, the factors we consider include the net operating income of the mortgaged property before debt service and depreciation, the ratio of the loan amount to the appraised value of the mortgaged property and the debt service coverage ratio (the ratio of net operating income to debt service). We generally require a debt service ratio of at least 1.25 times.

Commercial real estate loans entail greater credit risks compared to one- to four-family residential real estate loans because they typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment of loans secured by income-producing properties typically depends on the successful operation of the property, as repayment of the loan generally is dependent, in large part, on sufficient income from the property to cover operating expenses and debt service. Changes in economic conditions that are not in the control of the borrower or lender could affect the value of the collateral for the loan or the future cash flow of the property. Additionally, any decline in real estate values may be more pronounced for commercial real estate than residential properties. If we foreclose on a commercial real estate loan, our holding period for the collateral is typically longer than for one- to four-family residential real estate loans because there are fewer potential purchasers of the collateral. Further, our commercial real estate loans generally have relatively large balances to single borrowers or related groups of borrowers. Accordingly, if any of our judgments regarding the collectability of our commercial real estate loans prove incorrect, the resulting charge-offs may be larger on a per loan basis than those incurred with respect to one- to four-family residential loans.

Commercial and Industrial Lending. At December 31, 2014, we had $5.5 million of commercial and industrial loans, representing 6.1% of our total loan portfolio. Because we believe that expanding our organic origination of commercial and industrial loans is essential to our profitability, we intend to increase

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our commercial and industrial lending by targeting businesses with between $1.0 million and $15.0 million in revenues operating in our market area, including medical, legal, accounting and other professional practices as well as traditional commercial businesses, with loan products designed to meet the needs of professional and rural development borrowers.

We offer short-term commercial and industrial loans with terms of one year or less and long-term commercial and industrial loans with terms of up to five years (up to 10 years when guaranteed by a federal government agency or when a secondary market for the loan exists). Commercial and industrial loans are generally secured by equipment, furniture and fixtures, inventory, accounts receivable or other business assets. The maturity of commercial and industrial loans secured by purchased equipment is fixed to correspond to 80% of the useful life of the equipment or five years, whichever is less. We endeavor not to accept as collateral highly specialized or customer-made equipment that may be difficult to dispose of in foreclosure. In very limited circumstances where the borrower’s financial condition warrants, short-term commercial loans may be unsecured. The interest rates on these loans are commensurate with the term and value of the collateral securing the loans. We also offer revolving lines of credit to finance short-term working capital needs such as accounts payable and inventory. These lines of credit are in amounts proportionate to the borrower’s working capital position, are generally predicated on an advance formula based on the stated collateral, and typically require an annual full payoff. Our commercial lines of credit are generally priced on a floating rate basis utilizing an index rate such as the Wall Street Journal prime rate, and may be secured or, in very limited circumstances, unsecured. We generally obtain personal guarantees with respect to all commercial and industrial loans and lines of credit.

We also offer commercial and industrial loans utilizing the SBA’s 504 Loan Program, although we did not have any of these loans outstanding at December 31, 2014. The structure of loans provided under the SBA 504 Program reduces our credit risk and improves our collateral position. We also offer the SBA’s 7a Loan Program. Under the 7a Program, our credit risk is reduced as a result of a loan guaranty from the SBA, generally at 75% of the total loan amount. In addition, the guaranteed portion of the credit can be sold in the secondary market generating significant fee income opportunities. Because we face recourse liability on these loans if they do not meet all SBA requirements, we enhance the underwriting, servicing, and review processes on these loans. During the year ended December 31, 2014, we originated $2.3 million in SBA loans. We will continue to increasing our origination of SBA loans as part of our lending strategy.

We typically originate commercial and industrial loans on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business, the experience and stability of the borrower’s management team, earnings projections and the underlying assumptions, and the value and marketability of any collateral securing the loan. As a result, the availability of funds for the repayment of commercial and industrial loans may be substantially dependent on the success of the business itself and the general economic environment in our market area. Therefore, commercial and industrial loans that we originate have greater credit risk than one- to four-family residential real estate loans or, generally, consumer loans. In addition, commercial and industrial loans often result in larger outstanding balances to single borrowers, or related groups of borrowers, and also generally require substantially greater evaluation and oversight efforts.

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Set forth below is information regarding our commercial and industrial loans at December 31, 2014.

Industry Type	Number of Loans		Balance
			(Dollars in thousands)
Real estate(1)		4		$	401
Storage unit rental		6			150
Health care and social		7			75
Retail trade		6			742
Accommodation and food		2			63
Cabling / Fiber		0			—
Other services		22			2,375
Manufacturing		12			1,091
Municipality		3			529
Other miscellaneous		3			111
		65		$	5,537

(1)

Consists of working lines of credit to owners of rental properties that are not secured by real estate.

At December 31, 2014, the average loan balance of our outstanding commercial and industrial term loans was $74,000, and the largest outstanding balance was a $405,000 loan secured by all of the business assets, including equipment and accounts receivable, of a law office in our market area. This loan was performing in accordance with its original repayment terms at December 31, 2014.

We believe that commercial and industrial loans will provide growth opportunities for us, and we expect to increase this business line in the future in order to develop banking relationships with depositors and related mortgage lending customers. We expect to hire one or two additional commercial lenders with credit administration experience and business development and marketing skills, which we expect will increase our pipeline of commercial and industrial loan commitments. The additional capital we received in connection with the stock offering will modestly increase our maximum lending limits and will allow us to increase the amounts of our loans to one borrower.

Our commercial and industrial loans are originated primarily based on the identified cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. Most often, this collateral consists of equipment, inventory or accounts receivable. Credit support provided by the borrower for most of these loans and the probability of repayment is based on the liquidation of the pledged collateral and enforcement of a personal guarantee, if any. As a result, in the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. The collateral securing other loans may depreciate over time, may be difficult to appraise and may fluctuate in value, and the cash flows of the borrower may fluctuate based on the success of the business.

Consumer Lending. At December 31, 2014, we had $10.2 million, or 11.3% of our loan portfolio, in consumer loans, including $9.3 million in home equity loans and lines of credit and $884,000 in other consumer loans.

Our home equity lines of credit and fixed-term equity loans are secured by residential property, are fixed or variable rate, and are approved with a maximum maturity of 10 years. Home equity lines of credit and fixed-term equity loans are generally originated in accordance with the same standards as one- to four-family residential mortgage loans. We extend home equity lines of credit and fixed-term equity loans on owner-occupied property regardless of whether we hold the first mortgage, and on investment properties only if we hold the first mortgage. We do not extend home equity lines of credit unless the combined loan-to-value ratio of the first mortgage and the home equity line of credit or fixed-term equity loan is less than 70%, or less than 80% if we hold the first mortgage. If we hold the first mortgage and the borrower’s credit score is above 740, we will extend credit up to a combined 90% loan-to-value ratio.

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Home equity lines of credit and fixed-term equity loans have greater risk than one- to four-family residential real estate loans secured by first mortgages. Our interest is generally subordinated to the interest of the institution holding the first mortgage. Even where we hold the first mortgage, we face the risk that the value of the collateral may not be sufficient to compensate us for the amount of the unpaid loan and costs of foreclosure and we may be unsuccessful in recovering the remaining balance from those customers. Particularly with respect to our home equity lines of credit and fixed-term equity loans, decreases in real estate values could adversely affect the value of property used as collateral.

At December 31, 2014, we had $8.6 million, or 9.5% of our loan portfolio, in home equity lines of credit and $738,000, or 0.8% of our loan portfolio, in fixed-term equity loans. We also had an additional $8.1 million in unused commitments on home equity lines of credit. The largest outstanding balance of any home equity line of credit was $263,000 and the largest outstanding balance of any fixed-term equity loan was $51,000. These loans were performing in accordance with their original repayment terms at December 31, 2014.

Consumer loans other than home equity lines of credit and fixed-term equity loans have either a variable or fixed-rate of interest for a term of up to six years, depending on the type of collateral and the creditworthiness of the borrower. Our consumer loans may be secured by deposits, automobiles, boats, motorcycles, snowmobiles or recreational vehicles. Consumer loans are generally limited to 100% of the purchase price (excluding sales tax) with respect to new vehicles, and 100% of NADA retail value or cost, whichever is less, with respect to used vehicles, and loans of up to $5,000 may be unsecured depending on the creditworthiness of the borrower.

Consumer loans generally have shorter terms to maturity, which reduces our exposure to changes in interest rates. In addition, management believes that offering consumer loan products helps to expand and create stronger ties to our existing customer base by increasing the number of customer relationships and providing cross-marketing opportunities.

Consumer loans generally have greater credit risk compared to longer-term loans secured by improved, owner-occupied real estate, particularly unsecured loans and consumer loans that are secured by rapidly depreciable assets, such as automobiles. In these cases, any repossessed collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance. As a result, consumer loan collections are dependent on the borrower’s continuing financial stability and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.

Construction and Land Lending. At December 31, 2014, we had $1.5 million, or 1.7% of our total loan portfolio, in construction and land loans. Of these, $664,000 were loans for the construction by individuals of their primary residences, $836,000 were loans where raw land serves as collateral other than for construction and development purposes (including one loan in the amount of approximately $263,000 secured by a parcel of land utilized by an RV dealer as an outdoor showroom), and $400,000 were construction and land development loans. At December 31, 2014, our largest construction and land loan was a $605,000 loan secured by a primary residence located in our market area. This loan was performing in accordance with its original repayment terms at December 31, 2014.

Our residential construction loans generally have initial terms of 12 months (subject to extension), during which the borrower pays interest only. Upon completion of construction, these loans convert to conventional amortizing mortgage loans. We do not extend credit if construction has already commenced, except in unique circumstances and upon the approval of the President and Chief Executive Officer or the loan committee and if title insurance is obtained. Our residential construction loans have rates and terms comparable to one- to four-family residential real estate loans that we originate. The maximum loan-to-value ratio of our residential construction loans is generally 80% of the lesser of the appraised value of the completed property, which may be up to 100% of the cost to build if the land is owned by borrower free and clear, or the total cost of the construction project. Residential construction loans are generally underwritten pursuant to the same guidelines used for originating permanent residential mortgage loans.

Our commercial construction loans generally have terms consistent with the duration of the construction process, with a maximum of 18 months, during which the borrower pays interest only. The borrower must have a commitment for permanent financing at the conclusion of the construction loan,

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preferably with Edgewater Bank. Our commercial construction loans have rates and terms comparable to commercial real estate loans that we originate. The maximum loan-to-value of our commercial construction loans is 80% of the lesser of the appraised value of the completed property or the confirmed purchase price for the land plus the value of the improvements. Commercial construction loans are generally underwritten pursuant to the same guidelines used for originating permanent commercial real estate loans.

All construction loans require the borrower to engage a licensed contractor and for the contractor to provide a complete construction budget and timeline, plus a statement of planned sub-contractors and estimated payments to each. The borrower must obtain title insurance. Construction advances are approved through the title insurance company and require appropriate lien waivers from the contractor and sub-contractors. For each draw request, an inspection of the construction is required prior to disbursement of loan proceeds.

We make raw land loans on a very limited basis. These loans have terms of not more than five years with amortization periods of not more than 15 years. The maximum loan-to-value of these loans is 65% of the lesser of the appraised value or the purchase price of the property. We will also originate land loans secured by building lots. Lot loans may be approved on a short-term interest-only basis if the borrower plans to pay-off the loan through construction financing or other means within 12 months and the borrower qualifies for such financing. If the lot loan is not short-term in nature, it will be structured on a fully amortizing basis, with the borrower obligated to pay principal and interest.

Construction and land lending generally involves greater credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction or land loan depends largely upon the accuracy of the initial estimate of the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions. If the estimate of construction cost is inaccurate, we may be required to advance additional funds beyond the amount originally committed in order to protect the value of the property. Moreover, if the estimated value of the completed project is inaccurate, the borrower may hold a property with a value that is insufficient to assure full repayment of the construction loan upon the sale of the property. Construction and land loans also expose us to the risk that improvements will not be completed on time in accordance with specifications and projected costs. In addition, the ultimate sale or rental of the property may not occur as anticipated. Land loans pose additional risk because the property generally does not produce income and may be relatively illiquid.

Loan Originations, Participations, Purchases and Sales.

We originate real estate and other loans through employee marketing and advertising efforts, our existing customer base, walk-in customers and referrals from customers. All loans that we originate are underwritten pursuant to our policies and procedures.

We sell a majority of the conventional one- to four-family residential mortgage loans that we originate into the secondary market. In recent years, we have sold most of the fixed-rate, one- to four-family residential real estate loans that we originated for sale to Freddie Mac on a servicing-retained basis, although we are also approved to sell to the Federal Home Loan Bank of Indianapolis and intend to investigate the possibility of becoming approved to sell to Fannie Mae. We originate a limited number of residential mortgage loans for sale on a servicing-released basis based on the circumstances of the borrower and with specific loan approval. Otherwise we consider the secondary market conditions and our asset and liability management and liquidity demands and interest rate risk analysis on an ongoing basis in making decisions as to whether to hold the mortgage loans we originate for investment or to sell such loans to investors, choosing the strategy that is most advantageous to us from a profitability and risk management standpoint. For the years ended December 31, 2014 and December 31, 2013, we sold $6.9 million and $16.6 million of mortgage loans, respectively. All of the mortgage loans were sold on a servicing-retained basis. At December 31, 2014, we serviced $73.6 million of fixed-rate, one- to four-family residential real estate loans that we originated and sold in the secondary market.

From time to time, we may purchase loan participations secured by properties within and outside of our primary lending market area in which we are not the lead lender, but where we are familiar with the lead lender and its underwriting standards, lending staff and credit risk tolerance. In these circumstances,

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we follow our customary loan underwriting and approval policies, and do not rely solely on the underwriting processes of the lead lender. We do not currently have any purchased loan participations, but we intend to review a limited number of participation opportunities in the future.

The following table shows our loan origination, purchases, sales and repayment activities for the years indicated.

	Years Ended December 31,
	2014			2013
	(Dollars in thousands)
Total loans, including loans held for sale, at beginning of period		$	87,596		$	90,651
Loans originated:
Real estate loans:
One- to four-family residential			15,317			22,495
Commercial real estate			10,291			4,761
Construction and land			—			—
Total real estate			25,608			27,256
Commercial and industrial			2,323			3,877
Consumer loans:
Home equity loans and lines of credit			1,226			1,824
Other consumer			926			476
Total consumer			2,152			2,300
Total loans			30,083			33,433
Loans Purchased			—			—
Loans sold:
Real estate loans:
One- to four-family residential			(6,888)			(16,586)
Commercial real estate			—			(2,092)
Construction and land			—			—
Total real estate			(6,888)			(18,678)
Commercial and industrial			—			—
Consumer loans:			—			—
Home equity loans and lines of credit			—			—
Other consumer			—			—
Total consumer			—			—
Total loans			(6,888)			(18,678)
Principal repayments			(20,205)			(17,810)
Net loan activity			2,990			(3,055)
Total loans, including loans held for sale, at end of period		$	90,586		$	87,596

Delinquencies, Classified Assets and Non-Performing Assets

Delinquency Procedures. When a borrower fails to make a required monthly payment on a residential real estate loan, the loan officer reports the delinquency to the loan committee, which then determines whether responsibility for the loan will remain with the loan officer or transferred to the appropriate collections or risk management personnel. Our policies provide that a late notice be sent when a loan is 15

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days past due, and a second late notice be sent when a loan is 30 days past due. In addition, we may call the borrower when the loan is 15 days past due, and we attempt to cooperate with the borrower to determine the reason for nonpayment and to work with the borrower to establish a repayment schedule that will cure the delinquency. Once the loan is considered in default, generally at 90 days past due, a certified letter is generally sent to the borrower explaining that the entire balance of the loan is due and payable, the loan is placed on non-accrual status, and additional efforts are made to contact the borrower. If the borrower does not respond, we generally initiate foreclosure proceedings when the loan is 150 to 180 days past due. If the loan is reinstated, foreclosure proceedings will be discontinued and the borrower will be permitted to continue to make payments. In certain instances, we may modify the loan or grant a limited exemption from loan payments to allow the borrower to reorganize his or her financial affairs.

When we foreclose on real estate located in the state of Michigan and have acquired the sheriff’s deed on the property through the foreclosure process, the loan is classified as “in redemption” pursuant to Michigan law for a period of up to one year during which time the borrower is able to redeem the subject property. As a result, during this period, the borrower is permitted to occupy the property, and we are not permitted to dispose of the property, although we classify the property as real estate owned. The real estate is recorded at estimated fair value at the date of acquisition less estimated costs to sell, and any write-down resulting from the acquisition is charged to the allowance for loan losses. Estimated fair value is based on a new appraisal which is obtained as soon as practicable. Subsequent decreases in the value of the property are charged to operations. After acquisition, and potentially during the redemption period, all costs incurred in maintaining the property are expensed. Costs relating to the development and improvement of the property, however, are capitalized to the extent of estimated fair value less estimated costs to sell. We generally attempt to sell real estate owned as soon as possible after foreclosure. Foreclosure laws vary depending on the state in which the property is located, so our foreclosure process may vary as a result. For example, there is no redemption period in the state of Indiana, so we become the owner of foreclosed property upon acquisition of the sheriff’s deed. The majority of our mortgage loans are secured by property located in the state of Michigan.

Delinquent commercial and industrial, commercial real estate, construction and consumer loans are handled in a similar fashion. Our procedures for repossession and sale of consumer collateral are subject to various requirements under applicable laws, including consumer protection laws. In addition, we may determine that foreclosure and sale of such collateral would not be cost-effective for us.

Troubled Debt Restructurings. We occasionally modify loans to extend the term or make other concessions to help a borrower stay current on his or her loan and to avoid foreclosure. We consider modifications only after analyzing the borrower’s current repayment capacity, evaluating the strength of any guarantors based on documented current financial information, and assessing the current value of any collateral pledged. We generally do not forgive principal or interest on loans, but may do so if it is in our best interest and increases the likelihood that we can collect the remaining principal balance. We may modify the terms of loans to lower interest rates (which may be at below market rates), to provide for fixed interest rates on loans where fixed rates are otherwise not available, to provide for longer amortization schedules (up to 40 years), or to provide for interest-only terms. These modifications are made only when there is a reasonable and attainable workout plan that has been agreed to by the borrower and that is in our best interests. We generally limit the terms of workout plans to 24 months and the amortization periods of workout plans to 30 years for residential real estate loans, 15 years for commercial real estate loans and 5 years for other secured loans.

At December 31, 2014, we had 16 loans totaling $2.1 million that were classified as troubled debt restructuring. Of these, 7 loans totaling $791,000 were included in our non-accrual loans at such date because they were either not performing in accordance with their modified terms or had been performing in accordance with their modified terms for less than six months since the date of restructuring.

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Delinquent Loans. The following table sets forth our loan delinquencies, including non-accrual loans, by type and amount at the dates indicated.

	Loans Delinquent For
	30 – 59 Days					60 – 89 Days					90 Days and Over					Total
	Number		Amount			Number		Amount			Number		Amount			Number		Amount
	(Dollars in thousands)
At December 31, 2014
Real estate loans:
One- to four-family residential		14		$	1,148		5		$	558		11		$	735		30		$	2,441
Commercial real estate		1			12		—			—		—			—		1			12
Construction and land		1			28		—			—		2			22		3			50
Total real estate		16			1,188		5			558		13			757		34			2,503
Commercial and industrial		—			—		—			—		—			—		—			—
Consumer loans:
Home equity loans and lines of credit		6			54		2			25		1			10		9			89
Other consumer		—			—		1			6		—			—		1			6
Total consumer		6			54		3			31		1			10		10			95
Total loans		22		$	1,242		8		$	589		14		$	767		44		$	2,598
At December 31, 2013
Real estate loans:
One- to four-family residential		16		$	1,584		6		$	537		9		$	529		31		$	2,650
Commercial real estate		—			—		—			—		1			17		1			17
Construction and land		1			32		—			—		2			27		3			59
Total real estate		17			1,616		6			537		12			573		35			2,726
Commercial and industrial		—			—		—			—		—			—		—			—
Consumer loans:
Home equity loans and lines of credit		3			54		1			52		3			156		7			262
Other consumer		1			2		1			9		—			—		2			11
Total consumer		4			56		2			61		3			156		9			273
Total loans		21		$	1,672		8		$	598		15		$	729		44		$	2,999

Classified Assets. Federal regulations provide for the classification of loans and other assets, such as debt and equity securities considered by the FDIC to be of lesser quality, as “substandard,” “doubtful” or “loss.” An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific allowance for loan losses is not warranted. Assets that do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as “special mention” by our management. At December 31, 2014, we had $219,000 of loans designated as “special mention”.

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When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances in an amount deemed prudent by management to cover losses that were both probable and reasonable to estimate. General allowances represent allowances which have been established to cover accrued losses associated with lending activities that were both probable and reasonable to estimate, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as “loss,” it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge-off such amount. An institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the regulatory authorities, which may require the establishment of additional general or specific allowances.

In connection with the filing of our periodic regulatory reports and in accordance with our classification of assets policy, we regularly review the problem loans in our portfolio to determine whether any loans require classification in accordance with applicable regulations. Loans are listed on the “watch list” initially because of emerging financial weaknesses even though the loan is currently performing as agreed, or delinquency status, or if the loan possesses weaknesses although currently performing. Management reviews the status of each loan on our watch list on a quarterly basis with the directors’ loan committee and then with the full board of directors. If a loan deteriorates in asset quality, the classification is changed to “special mention,” “substandard,” “doubtful” or “loss” depending on the circumstances and the evaluation. Generally, loans 90 days or more past due are placed on nonaccrual status and classified “substandard.”

The following table sets forth our amounts of classified assets as of the dates indicated. Amounts shown at December 31, 2014 and December 31, 2013 include approximately $1.6 million and $2.7 million of nonperforming loans, respectively. The related specific valuation allowance in the allowance for loan losses for such nonperforming loans was $17,502 and $22,479 at December 31, 2014 and December 31, 2013, respectively.

	At December 31, 2014			At December 31, 2013
	(Dollars in thousands)
Classified assets:
Substandard loans(1)		$	2,887		$	3,852
Doubtful loans			—			—
Loss loans			—			—
Real estate owned and other
Real estate owned and other repossessed assets(2)			467			1,169
Total classified assets		$	3,354		$	5,021

(1)

Includes non-accruing loans that are more than 90 days past due.

(2)

Includes real estate totaling $44,100 at December 31, 2013 that was subject to the redemption period under Michigan law.

The decrease in classified assets to $3.4 million at December 31, 2014 from $5.0 million at December 31, 2013 is the continuation of a trend of declining classified assets that began in 2009. This decrease was primarily due to the enhanced review of our nonperforming assets, which resulted in significant charge-offs and losses on sales of real estate owned. Management believes it has resolved the majority of our problem assets, particularly the speculative construction and land development loans originated prior to 2009, but continues to closely monitor and aggressively manage these classified loans. We resolved these remaining loan relationships throughout 2014 and into early 2015. Our level of classified assets and expenses to resolve such loans remained elevated during this period. It is our experience that a significant number of classified non-owner occupied commercial real estate loans that were originated prior to 2009 historically have become non-performing loans.

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Non-Performing Assets. Non-performing assets decreased to $3.4 million, or 2.8% of total assets, at December 31, 2014 from $3.9 million, or 3.2% of total assets, at December 31, 2013. Nonperforming loans were $2.9 million at December 31, 2014 and $2.7 million from December 31, 2013. The largest decline was in commercial real estate which decreased $327,000 from December 31, 2013. Residential 1-4 family mortgages increased $526,000 over December 31, 2013. Real estate owned was $467,000 on December 31, 2014 and $1.2 million on December 31, 2013, declining $701,000. This was a result of the sale of two commercial real estate properties totaling $477,000. As of December 31, 2014, commercial real estate loans totaled $397,000, or 33.5% of our non-performing assets. At December 31, 2014, one-to-four family residential mortgage loans were zero a decrease of $352,000 from December 31, 2013. One-to-four family residential mortgage loans were 53.8% of nonperforming assets at December 31, 2014.

We generally cease accruing interest on our loans when contractual payments of principal or interest have become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income is reversed. Interest received on nonaccrual loans is applied against principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt. Troubled debt restructurings are loans that have renegotiated loan terms to assist borrowers who are unable to meet the original terms of their loans, with modifications to loan terms including a lower interest rate, a reduction in principal, or a longer term to maturity. Troubled debt restructurings are restored to accrual status when the obligation is brought current, has performed in accordance with the revised contractual terms for six months and the ultimate collectability of the total contractual principal and interest is deemed probable.

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The following table sets forth information regarding our non-performing assets and troubled debt restructurings at the dates indicated. The information reflects net charge-offs but not specific allowances for loan losses. Troubled debt restructurings are loans where the borrower is experiencing financial difficulty and for which either a portion of interest or principal has been forgiven or an extension of term granted, or the terms of which have been modified to reflect interest rates materially less than current market rates.

	At December 31, 2014			At December 31, 2013
	(Dollars in thousands)
Non-accrual loans:
Real estate loans:
One- to four-family residential		$	1,811		$	1,285
Commercial real estate			729			1,056
Construction and land			207			197
Total real estate			2,747			2,538
Commercial and industrial			—			—
Consumer loans:
Home equity loans and lines of credit			151			208
Other consumer			—			—
Total consumer			151			208
Total loans			2,898			2,746
Loans 90 days or more past due and still accruing:
Real estate loans:
One- to four-family residential			—			—
Commercial real estate			—			—
Construction and land			—			—
Total real estate			—			—
Commercial and industrial			—			—
Consumer loans:
Home equity loans and lines of credit			—			—
Other consumer			—			—
Total consumer			—			—
Total loans			—			—
Total non-performing loans			2,898			2,746
Real estate owned and other repossessed assets:
Real estate loans:
One- to four-family residential			—			353
Commercial real estate			397			697
Construction and land			70			75
Total real estate			467			1,125
Commercial and industrial			—			—
Consumer loans:
Home equity loans and lines of credit			—			—
Other consumer			—			—
Total consumer			—			—
Total real estate owned before loans in redemption			467			1,125
Loans in redemption(1)			—			44
Total real estate owned and other repossessed assets			467			1,169
Total non-performing assets		$	3,365		$	3,915

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	At December 31, 2014			At December 31, 2013
	(Dollars in thousands)
Troubled debt restructurings:
Real estate loans:
One- to four-family residential		$	916		$	2,014
Commercial real estate			286			443
Construction and land			134			—
Total real estate			1,336			2,457
Commercial and industrial			—			—
Consumer loans:
Home equity loans and lines of credit			2			24
Other consumer			—			—
Total consumer			2			24
Total loans		$	1,338		$	2,481
Total non-performing loans and troubled debt restructurings		$	4,236		$	5,227
Ratios:
Non-performing loans to total loans			3.20%			3.15%
Non-performing assets to total assets			2.75%			3.23%
Non-performing assets and troubled debt restructurings to total assets			3.46%			4.32%

(1)

Represents real estate that is subject to the redemption period under Michigan law.

Interest income that would have been recorded for the years ended December 31, 2014 and December 31, 2013, had non-accruing loans been current according to their original terms amounted to $23,000 and $89,000, respectively. No interest related to these loans was included in interest income for the years ended December 31, 2014 and December 31, 2013.

Non-performing one- to four-family residential real estate loans totaled $1.8 million at December 31, 2014 and consisted of 24 loans, the largest of which totaled $261,000. Non-performing commercial real estate loans totaled $729,000 at December 31, 2014 and consisted of three loan relationships. There were no nonperforming commercial and industrial loans, non-performing construction and land development loans totaled $207,000, and other non-performing loans totaled $151,000 at December 31, 2014.

Real estate owned totaled $467,000 at December 31, 2014, including $397,000 of commercial real estate properties and $70,000 of residential and commercial vacant land parcels.

At December 31, 2014, our three largest non-performing loan relationships were two commercial real estate relationships totaling $717,000 and $157,000, and a 1 – 4 family residential of $261,000.

Other Loans of Concern. Other than $219,000 of loans designated by management as “special mention,” of which $219,000 related to commercial real estate loans, there were no other loans at December 31, 2014 that are not already disclosed where there is information about possible credit problems of borrowers that caused management to have serious doubts about the ability of the borrowers to comply with present loan repayment terms and that may result in disclosure of such loans in the future.

Allowance for Loan Losses

Analysis and Determination of the Allowance for Loan Losses. Our allowance for loan losses is the amount considered necessary to reflect probable incurred losses in our loan portfolio. We evaluate the need to establish allowances against losses on loans on a quarterly basis. When additional allowances are necessary, a provision for loan losses is charged to earnings.

Our methodology for assessing the appropriateness of the allowance for loan losses consists of two key elements: (1) specific allowances for identified impaired loans; and (2) a general valuation allowance on the remainder of the loan portfolio. Although we determine the amount of each element of the allowance separately, the entire allowance for loan losses is available for the entire portfolio.

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We identify loans that may need to be charged off as a loss by reviewing all delinquent loans, classified loans, and other loans about which management may have concerns about collectability. For individually reviewed loans, the borrower’s inability to make payments under the terms of the loan as well as the shortfall in collateral value could result in our charging off the loan or the portion of the loan that was impaired.

Among other factors, we consider current general economic conditions, including current housing price depreciation, in determining the appropriateness of the allowance for loan losses for our residential real estate portfolio. We use evidence obtained from our own loan portfolio as well as published housing data on our local markets from third party sources that we believe to be reliable as a basis for assumptions about the impact of housing depreciation.

Substantially all of our loans are secured by collateral. Loans 90 days past due and other classified loans are evaluated for impairment and general or specific allowances are established. Typically for a nonperforming real estate loan in the process of collection, the value of the underlying collateral is estimated using either the original independent appraisal if it is less than 18 months old, adjusted for current economic conditions and other factors, or a new independent appraisal, and related general or specific allowances for loan losses are adjusted on a quarterly basis. If a nonperforming real estate loan is in the process of foreclosure and/or there are serious doubts about further collectability of principal or interest, and there is uncertainty about the value of the underlying collateral, we will order a new independent appraisal if it has not already been obtained. Any shortfall would result in immediately charging off the portion of the loan that was impaired.

Specific Allowances for Identified Problem Loans. We establish a specific allowance when loans are determined to be impaired. Loss is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral less estimated selling expenses. Factors in identifying a specific problem loan include: (1) the strength of the customer’s personal or business cash flows; (2) the availability of other sources of repayment; (3) the amount due or past due; (4) the type and value of collateral; (5) the strength of our collateral position; (6) the estimated cost to sell the collateral; and (7) the borrower’s effort to cure the delinquency. In addition, for loans secured by real estate, we consider the extent of any past due and unpaid property taxes applicable to the property serving as collateral on the mortgage.

General Valuation Allowance on the Remainder of the Loan Portfolio. We establish a general allowance for loans that are not classified as impaired to recognize the inherent losses associated with lending activities, but which, unlike specific allowances, has not been allocated to particular problem assets. This general valuation allowance is determined by segregating the loans by loan category and assigning allowance percentages based on our historical loss experience, delinquency trends and management’s evaluation of the collectability of the loan portfolio. The allowance may be adjusted for significant factors that, in management’s judgment, affect the collectability of the portfolio as of the evaluation date. These significant factors may include changes in lending policies and procedures, changes in existing general economic and business conditions affecting our primary market area, credit quality trends, collateral value, loan volumes and concentrations, seasoning of the loan portfolio, recent loss experience in particular segments of the portfolio, duration of the current business cycle and bank regulatory examination results. The applied loss factors are re-evaluated quarterly to ensure their relevance in the current real estate environment.

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The following table sets forth activity in our allowance for loan losses for the periods indicated.

	At or For the Years Ended December 31,
	2014			2013
	(Dollars in thousands)
Balance at beginning of period		$	1,061		$	1,504
Charge-offs:
Real estate loans:
One- to four-family residential			(27)			(203)
Commercial real estate			—			(350)
Construction and land			—			(133)
Total real estate			(27)			(686)
Commercial and industrial			—			(351)
Consumer loans:
Home equity loans and lines of credit			(73)			(88)
Other consumer			—			—
Total consumer			(73)			(88)
Total loans		$	(100)		$	(1,125)
Recoveries:
Real estate loans:
One- to four-family residential		$	3		$	14
Commercial real estate			91			—
Construction and land			—			1
Total real estate			94			15
Commercial and industrial			—			25
Consumer loans:
Home equity loans and lines of credit			20			2
Other consumer			—			—
Total consumer			20			2
Total loans		$	114		$	42
Net (charge-offs) recoveries			14			(1,083)
Provision for loan losses			—			640
Balance at end of period		$	1,075		$	1,061
Ratios:
Net charge-offs (recoveries) to average loans outstanding (annualized)			0.02%			1.25%
Allowance for loan losses to non-performing loans at end of period			37.09%			38.64%
Allowance for loan losses to total loans at end of period			1.19%			1.22%

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Allocation of Allowance for Loan Losses. The following table sets forth the allowance for loan losses allocated by loan category and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.

	At December 31,
	2014							2013
	Allowance for Loan Losses			Percent of Allowance for Loan Loss by Category		Percent of Loans in Each Category to Total Loans		Allowance for Loan Losses			Percent of Allowance for Loan Loss by Category		Percent of Loans in Each Category to Total Loans
	(Dollars in thousands)
Real estate loans:
One- to four-family residential		$	223		20.74%		50.09%		$	188		16.22%		49.46%
Commercial real estate(1)			504		46.88		32.50			588		72.41		31.97
Total real estate			727		67.63		82.59			776		88.63		81.43
Commercial and industrial			248		23.07		6.12			138		2.19		4.65
Consumer loans(2)			100		9.30		11.28			147		9.18		13.92
Total allocated allowance			1,075		100.00%		100.00%			1,061		100.00%		100.00%
Unallocated allowance			—							—
Total allowance for loan losses		$	1,075						$	1,061

(1)

Includes construction and land loans.

(2)

Includes home equity loans and lines of credit.

At December 31, 2014, our allowance for loan losses represented 1.19% of total loans and 37.1% of non-performing loans, and at December 31, 2013, our allowance for loan losses represented 1.22% of total loans and 38.6% of non-performing loans. There were net recoveries of $14,000 and $1.1 million in net loan charge-offs during the years ended December 31, 2014 and December 31, 2013, respectively.

Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Because future events affecting borrowers and collateral cannot be predicted with certainty, the existing allowance for loan losses may not be adequate and management may determine that increases in the allowance are necessary if the quality of any portion of our loan portfolio deteriorates as a result. Furthermore, as an integral part of its examination process, the OCC will periodically review our allowance for loan losses. The OCC may require that we increase our allowance based on its judgments of information available to it at the time of its examination. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations.

Securities Activities

General. The goals of our investment policy are to provide and maintain liquidity to meet day-to-day, cyclical and long-term liquidity need, to help mitigate interest rate and market risk within the parameters of our interest rate risk policy, and to generate a dependable flow of earnings within the context of our interest rate and credit risk objectives. In recent years, beginning with the recession which began in 2008 and the subsequent challenging economic environment, our strategy has been to reduce the maturities of our investment securities portfolio and to focus on quality and liquidity instead of yield. Subject to loan demand and our interest rate risk analysis, we will increase the balance of our investment securities portfolio when we have excess liquidity.

Our investment policy was adopted by the board of directors. The investment policy is reviewed annually by the board of directors. Authority to make investments under the approved investment policy is

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delegated to our Chief Financial Officer, who serves as Investment Officer. We utilize the services of a third party investment advisor for specific recommendations and review of our investment portfolio and investment activities. The investment portfolio is reviewed quarterly by the Bank’s asset liability management committee and the third party advisor, and an independent market pricing of the investment portfolio is obtained on at least a monthly basis. The Chief Financial Officer reports to the board of directors on at least a quarterly basis with respect to liquidity, credit quality, market risk and recent investment activity. Any exceptions to the investment policy are made only upon the recommendation of the President and Chief Executive Officer and the Chief Financial Officer, and with the concurrence of our third party advisor.

Our current investment policy permits, with certain limitations, investments in United States Treasury securities with maturities up to 10 years; securities issued by the United States Government and its agencies or government sponsored enterprises with maturities up to 30 years (15 years for agency notes and bonds); pass-through mortgage-backed securities (MBS) issued by Fannie Mae, Ginnie Mae and Freddie Mac with an average life up to seven years; collateralized mortgage obligations (CMO) with an average life up to seven years; private issue MBSs and CMOs with average life up to five years; general, revenue, and escrowed obligations issued by states, counties and municipalities with maturities up to 15 years; corporate notes and bonds issued by U.S. corporations with maturities up to five years; bank notes with maturities up to five years; insured certificates of deposit with maturities up to four years; Fed funds sold to U.S. banks; and equity investments in the Federal Reserve Bank of Indianapolis and the Federal Home Loan Bank of Indianapolis or acquired in foreclosure, settlement or workout of debts previously contracted.

Prior to any investment and on an ongoing basis, MBSs, CMOs and certain other investment instruments are subject to an independent analysis as to the impact that changes in interest rates will have on cash flow and market value of each security. In addition, prior to any purchase and on an ongoing basis, all securities are subject to a price sensitivity test to determine the impact of an immediate and sustained shift in the yield curve. This test will be performed using either our internal interest rate simulation model or a model available from a reputable third party other than the broker or dealer selling the instrument. If the change in price exceeds, generally, an increase of 17% resulting from changes in interest rates of +300 bp to -300 bp, or a decrease of 17% resulting from changes in interest rates of +100 bp to +300 bp, these securities may be purchased, but are limited to 10% of our portfolio.

Our current investment policy does not permit any investment with the intent to sell or capture changes in price over 30 days or less. Specifically, our policy prohibits hedging activities and higher risk transactions such as futures, options or swap transactions; coupon stripping; gains trading; short sales; securities lending; buying or selling a security between the announcement of an offering and the issuance of the security, or “when issued” trading; transactions that are closed or sold on or before the settlement date, or “pair-offs”; selling securities at a price above market value while purchasing other securities at above market value, or “adjusted” trading; covered calls; extended settlements other than in the normal course of business; or repurchase or reverse repurchase agreements. In addition, we do not invest in stripped mortgage-backed securities; purchasing securities on margin; CMOs secured by mortgage assets not backed by the credit support of a U.S. government agency; floating rate derivatives; CMO residual or “Z tranche” bonds; long-term zero coupon bonds; complex securities and derivatives as defined in federal banking regulations; and other high-risk securities that do not pass the interest rate sensitivity tests set forth in our investment policy.

Our investment policy also requires that certain investment instruments be rated, and that our investment portfolio meet certain diversification requirements, with U.S. Treasury permitted up to 100% of our portfolio; GNMA obligations permitted up to 50% of our portfolio; and U.S. government and agency notes and bonds permitted up to 30% of our portfolio per issuer; U.S. government and agency MBSs permitted up to 30% of our portfolio per issuer; U.S. government agency CMOs permitted up to 30% of our portfolio per issuer (combined with MBSs issued by the same issuer); private issue MBSs and CMOs permitted up to 10% of our portfolio; SBA pools up to 10% of our portfolio; rated general obligation bank-qualified municipal obligations permitted up to 50% of our portfolio; and corporate and other investments generally limited to 10% of our portfolio.

U.S. Government and Federal Agencies. At December 31, 2014, we had U.S. government and agency securities with a carrying value of $5.0 million, which constituted 39.3% of our securities portfolio. While

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these securities generally provide lower yields than other investments in our securities investment portfolio, we maintain these investments, to the extent appropriate, for liquidity purposes, as collateral for borrowings and for prepayment protection.

State and Political Subdivisions. At December 31, 2014, we had state and political subdivision securities with a carrying value of $3.4 million, which constituted 26.3% of our securities portfolio. Most of our current state and political subdivision securities are in principal amounts of $500,000 or less, were issued by counties and municipalities located in the states of Michigan, Ohio, Wisconsin, Indiana and Pennsylvania, and have maturities not in excess of 5 years. These securities generally provide slightly higher yields than U.S. government and agency securities and mortgage-backed securities, but are not as liquid as such other investments, so we typically maintain investments in municipal securities, to the extent appropriate, for generating returns in our investment portfolio.

Mortgage-Backed Securities and Collateralized Mortgage Obligations. At December 31, 2014, we had mortgage-backed securities with a carrying value of $3.4 million, which constituted 26.4% of our securities portfolio, and CMOs with a carrying value of $1.0 million, which constituted 8.0% of our securities portfolio. Mortgage-backed securities are securities issued in the secondary market that are collateralized by pools of mortgages. Certain types of mortgage-backed securities are commonly referred to as “pass-through” certificates because the principal and interest of the underlying loans is “passed through” to investors, net of certain costs, including servicing and guarantee fees. Mortgage-backed securities typically are collateralized by pools of one- to four-family or multifamily mortgages, although we invest primarily in mortgage-backed securities backed by one- to four-family mortgages. The issuers of such securities pool and resell the participation interests in the form of securities to investors such as Edgewater Bank. The interest rate of the security is lower than the interest rates of the underlying loans to allow for payment of servicing and guaranty fees. All of our mortgage-backed securities are either backed by Ginnie Mae, a United States Government agency, or government-sponsored enterprises, such as Fannie Mae and Freddie Mac.

Residential mortgage-backed securities issued by United States Government agencies and government-sponsored enterprises are more liquid than individual mortgage loans because there is an active trading market for such securities. In addition, residential mortgage-backed securities may be used to collateralize our borrowings. Investments in residential mortgage-backed securities involve a risk that actual payments will be greater or less than the prepayment rate estimated at the time of purchase, which may require adjustments to the amortization of any premium or accretion of any discount relating to such interests, thereby affecting the net yield on our securities. Current prepayment speeds determine whether prepayment estimates require modification that could cause amortization or accretion adjustments.

Federal Home Loan Bank Stock. We hold common stock of the Federal Home Loan Bank of Indianapolis in connection with our borrowing activities totaling $1.1 million at December 31, 2014. The Federal Home Loan Bank common stock is carried at cost and classified as restricted equity securities. We may be required to purchase additional Federal Home Loan Bank stock if we increase borrowings in the future.

The following table sets forth the composition of our investment securities portfolio, all of which were available for sale, at the dates indicated, excluding stock of the Federal Home Loan Bank of Indianapolis.

	December 31, 2014						December 31, 2013
	Amortized Cost			Fair Value			Amortized Cost			Fair Value
	(Dollars in thousands)
Available-for-sale securities:
U.S. Government and federal agency		$	5,003		$	4,940		$	6,558		$	6,441
State and political subdivisions			3,355			3,361			3,359			3,338
Mortgage-backed – GSE-residential			3,357			3,384			4,225			4,231
Collateralized mortgage obligations – GSE			1,020			1,033			1,587			1,584
		$	12,735		$	12,718		$	15,729		$	15,594

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At December 31, 2014, we had no investments in a single entity (other than United States government or agency sponsored securities) that had an aggregate book value in excess of 10% of our total equity.

Securities Portfolio Maturities and Yields. The following table sets forth the composition, stated maturities and weighted average yields of our investment securities portfolio at December 31, 2014. Securities available for sale are carried at fair value. Mortgage-backed securities, including collateralized mortgage obligations, are anticipated to be repaid in advance of their contractual maturities as a result of projected mortgage loan repayments. In addition, under the structure of some of our CMOs, the short- and intermediate-term tranche interests have repayment priority over the longer term tranche interests of the same underlying mortgage pool. Finally, some of our U.S. Treasury and other securities are callable at the option of the issuer. Certain securities have interest rates that are adjustable and will reprice annually within the various maturity ranges. These repricing schedules have not been reflected in the table below.

	One Year or Less					More than One Year through Five Years					More than Five Years through Ten Years					More than Ten Years					Total Securities
	Amortized Cost			Weighted Average Yield		Amortized Cost			Weighted Average Yield		Amortized Cost			Weighted Average Yield		Amortized Cost			Weighted Average Yield		Amortized Cost			Fair Value			Weighted Average Yield
	(Dollars in thousands)
Securities available-for-sale:
U.S. Government and federal agency		$	—		—%		$	5,003		1.06%					%					%		$	5,003		$	4,940		1.06%
State and political subdivisions			795		1.14			2,560		1.54													3,355			3,361		1.45
Mortgage-backed – GSE-residential			—		—			—		0.00			2,707		1.54			650		2.68			3,357			3,384		1.76
Collateralized mortgage obligations – GSE			—		—			537		1.64								483		2.40			1,020			1,033		2.00
Total available-for-sale securities		$	795		1.14%		$	8,100		1.25%		$	2,707		1.54%		$	1,133		2.56%		$	12,735		$	12,718		1.42%

The following table shows the purchase, sale and amortization and repayment activity in our securities portfolio during the periods indicated:

	For the years ended December 31,
	2014			2013
	(Dollars in thousands)
Total at beginning of period		$	15,729		$	14,318
Purchases of:
U.S. government and federal agency obligations			—			3,586
U.S. government-sponsored enterprise mortgage-backed securities			—			—
U.S. government-sponsored enterprise collateralized mortgage obligations securities			—			—
State and political subdivisions			—			1,311
Corporate			—			—
Deduct:
U.S. government and federal agency obligations			(1,555)			(1,069)
U.S. government-sponsored enterprise mortgage-backed securities			(868)			(1,491)
U.S. government-sponsored enterprise collateralized mortgage obligations securities			(567)			(924)
State and political subdivisions			(4)			(2)
Corporate			—			—
Net activity			(2,994)			1,411
Total at end of period		$	12,735		$	15,729

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Sources of Funds

General. Deposits have traditionally been our primary source of funds for use in lending and investment activities. We also use borrowings, primarily Federal Home Loan Bank of Indianapolis advances, to supplement cash flow needs, lengthen the maturities of liabilities for interest rate risk purposes and to manage the cost of funds. In addition, we receive funds from scheduled loan payments, investment maturities, loan prepayments, retained earnings and income on earning assets. While scheduled loan payments and income on earning assets are relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition. To a lesser extent, we may utilize repurchase agreements or Federal Funds sold as funding sources.

Deposits. Our deposits are generated primarily from our primary market area. We offer a selection of deposit accounts, including non-interest-bearing and interest-bearing checking accounts, passbook and statement savings accounts, variable rate money market accounts, and certificates of deposit. Unlike most thrift institutions, a significant majority of our deposits are core deposits, which we believe are less susceptible than certificates of deposit to large-scale withdrawals as a result of changes in interest rates. We have not in the past used, and currently do not hold any, brokered or Internet deposits. Depending on our future needs we may participate in the Certificate of Deposit Registry Service (CDARS) and the Qwickrate programs as alternative funding sources, but do not anticipate doing so. At December 31, 2014, our core deposits, which are deposits other than time deposits and certificates of deposit, were $71.6 million, representing 72.7% of total deposits.

Our deposits are primarily obtained from areas surrounding our branch offices, and therefore deposit generation is significantly influenced by general and local economic conditions, changes in prevailing interest rates, internal pricing decisions and competition in our market area, which includes numerous financial institutions of varying sizes offering a wide range of products and services. Interest rates, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies and market rates, liquidity requirements, rates paid by competitors and growth goals. Branch managers of each branch are permitted to authorize certificate of deposit interest rate adjustments up to 0.15%. The President and Chief Executive Officer or Chief Financial Officer may approve any certificate of deposit interest rate adjustment in excess of 0.15%. Based on experience, we believe that our deposits are relatively stable. However, the ability to attract and maintain deposits and the rates paid on these deposits has been and will continue to be significantly affected by market conditions, including competition and prevailing interest rates. At December 31, 2014, $26.9 million, or 27.3% of our total deposit accounts, were certificates of deposit, of which $14.5 million had maturities of one year or less.

In order to attract and retain deposits we rely on pro-active marketing and promotional programs, broadening banking relationships with lending customers, offering attractive interest rates, and offering competitive products to meet the needs of the varied demographic groups in our market areas, such as remote deposit capture for business customers, high-yield checking for higher balances, and low-cost overdraft for lower balances. We intend to continue to refine our product offerings and promotional programs, focus on employee training and development with respect to deposit generation and retention, and leverage relationship-based commercial and industrial and consumer lending to increase our core deposits.

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The following table sets forth the distribution of our average total deposit accounts, by account type, for the periods indicated. As a result of the sale of our Decatur office, deposits decreased by approximately $13.3 million, including decreases of approximately $8.4 million of core deposits and $4.9 million of certificates of deposit, as of the sale date of January 24, 2014.

	For the Years Ended December 31,
	2014							2013
	Average Balance			Percent		Weighted Average Rate		Average Balance			Percent		Weighted Average Rate
	(Dollars in thousands)
Deposit type:
Demand deposit accounts:
Interest bearing		$	17,571		18.3%		0.23%		$	17,515		16.3%		0.16%
Non-interest bearing			12,525		13.1		—			10,967		10.2		—
Money market accounts			22,858		23.8		0.29			25,579		23.7		0.29
Savings accounts			13,840		14.4		0.20			13,492		12.5		0.13
Certificates of deposit			29,091		30.3		0.87			40,187		37.3		1.07
Total deposits		$	95,885		100.00%		0.46%		$	107,740		100.0%		0.57%

The following table sets forth our deposit activities for the periods indicated.

	At or For the Years Ended December 31,
	2014			2013
	(Dollars in thousands)
Beginning balance		$	108,071		$	106,408
Net deposits (withdrawals) before interest credited			3,263			1,079
Branch deposit sale			(13,328)
Interest credited			487			584
Net increase (decrease) in deposits			(9,578)			1,663
Ending balance		$	98,493		$	108,071

The following table sets forth certificates of deposit classified by interest rate as of the dates indicated.

	At December 31,
	2014			2013
	(Dollars in thousands)
Interest Rate:
Less than 1.00%		$	20,879		$	23,217
1.00% to 1.99%			4,516			10,810
2.00% to 2.99%			1,437			1,789
3.00% to 3.99%			—			1,908
4.00% to 4.99%			24			32
5.00% and above			—			—
Total		$	26,856		$	37,756

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Maturities of Certificates of Deposit Accounts. The following table sets forth the amount and maturities of certificates of deposit accounts at the dates indicated.

	At December 31, 2014
	Period to Maturity
	Less Than or Equal to One Year			More Than One to Two Years			More Than Two to Three Years			More Than Three Years			Total			Percent of Total
	(Dollars in thousands)
Interest Rate Range:
Less than 1.00%		$	13,398		$	5,649		$	1,771		$	61		$	20,879		77.7%
1.00% to 1.99%			318			1,464			1,311			1,423			4,516		16.8
2.00% to 2.99%			764			456			—			217			1,437		5.4
3.00% to 3.99%			—			—			—			—			—		—
4.00% to 4.99%			20			—			4			—			24		0.1
5.00% and above			—			—			—			—			—		—
Total		$	14,500		$	7,569		$	3,086		$	1,701		$	26,856		100.00%

At December 31, 2014, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was approximately $7.7 million. The following table sets forth the maturity of those certificates as of December 31, 2013.

	At December 31, 2014
	(Dollars in thousands)
Three months or less		$	835
Over three months through six months			696
Over six months through one year			2,384
Over one year to three years			3,532
Over three years			217
Total		$	7,664

Borrowings. We may obtain advances from the Federal Home Loan Bank of Indianapolis upon the security of our capital stock in the Federal Home Loan Bank of Indianapolis and certain of our mortgage loans. Such advances may be made pursuant to several different credit programs, each of which has its own interest rate and range of maturities. To the extent such borrowings have different terms to reprice than our deposits, they can change our interest rate risk profile. At December 31, 2014, we had $10 million in outstanding advances from the FHLB-Indianapolis. At December 31, 2014, based on available collateral and our ownership of FHLB stock, and based upon our internal policy, we had access to additional Federal Home Loan Bank advances of up to $13.5 million, and an additional $2 million on a line of credit with the Federal Home Loan Bank and $2 million on a line of credit with United Bankers Bank. As a result of our Decatur office sale on January 24, 2014, we borrowed $10.0 million in advances fund the sale.

The following table sets forth information concerning balances and interest rates on our Federal Home Loan Bank advances at the dates and for the periods indicated. We did not have any borrowings other than Federal Home Loan Bank advances at the dates or during the periods indicated.

	At or For the Years Ended December 31,
	2014			2013
	(Dollars in thousands)
Balance at end of period		$	10,000		$	—
Average balance during period		$	9,564		$	1,858
Maximum outstanding at any month end		$	11,000		$	5,000
Weighted average interest rate at end of period			0.00%			0.00%
Average interest rate during period			1.11%			0.48%

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Subsidiary Activities

Edgewater Bank is the wholly-owned subsidiary of Edgewater Bancorp, Inc. Edgewater Bank has three subsidiaries. Explorer Financial Services Corporation is a Michigan corporation established to own approximately 8.91% of MBT Title Services, LLC, a multi-bank owned title insurance company. Edgewater Insurance Agency, Inc. is a Michigan corporation formed to receive the commissions for the Bank’s employee benefit plans. This agency does not sell insurance products to the general public. Waters Edge Real Estate Holdings, LLC is a Michigan limited liability company formed to own and operate certain real estate owned properties between the time of foreclosure and divestiture of these properties. This entity currently does not hold any real estate owned properties.

Employees

As of December 31, 2014 we had 36 full-time equivalent employees. Our employees are not represented by any collective bargaining group. Management believes that we have a good working relationship with our employees.

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REGULATION AND SUPERVISION

General

As a federal savings association, Edgewater Bank is subject to examination and regulation by the OCC, and is also subject to examination by the FDIC. The federal system of regulation and supervision establishes a comprehensive framework of activities in which Edgewater Bank may engage and is intended primarily for the protection of depositors and the FDIC’s Deposit Insurance Fund, and not for the protection of security holders. Under this system of federal regulation, financial institutions are periodically examined to ensure that they satisfy applicable standards with respect to their capital adequacy, assets, management, earnings, liquidity and sensitivity to market interest rates. Edgewater Bank also is regulated to a lesser extent by the Federal Reserve Board, which governs the reserves to be maintained against deposits and other matters. Edgewater Bank must comply with consumer protection regulations issued by the Consumer Financial Protection Bureau. Edgewater Bank also is a member of and owns stock in the Federal Home Loan Bank of Indianapolis, which is one of the twelve regional banks in the Federal Home Loan Bank System. The OCC examines Edgewater Bank and prepares reports for the consideration of its Board of Directors on any operating deficiencies. Edgewater Bank’s relationship with its depositors and borrowers also is regulated to a great extent by federal law and, to a much lesser extent, state law, especially in matters concerning the ownership of deposit accounts, the form and content of Edgewater Bank’s loan documents and certain consumer protection matters.

As a savings and loan holding company, Edgewater Bancorp, Inc. is subject to examination and supervision by, and is required to file certain reports with, the Federal Reserve Board. Edgewater Bancorp, Inc. is also subject to the rules and regulations of the Securities and Exchange Commission under the federal securities laws.

Set forth below are certain material regulatory requirements that are applicable to Edgewater Bank and Edgewater Bancorp, Inc. This description of statutes and regulations is not intended to be a complete description of such statutes and regulations and their effects on Edgewater Bank and Edgewater Bancorp, Inc. Any change in these laws or regulations, whether by Congress or the applicable regulatory agencies, could have a material adverse impact on Edgewater Bancorp, Inc., Edgewater Bank and their operations.

Dodd-Frank Act

The Dodd-Frank Act made significant changes to the regulatory structure for depository institutions and their holding companies. However, the Dodd-Frank Act’s changes go well beyond that and affect the lending, investments and other operations of all depository institutions. The Dodd-Frank Act required the Federal Reserve Board to set minimum capital levels for both bank holding companies and savings and loan holding companies that are as stringent as those required for the insured depository subsidiaries, and the components of Tier 1 capital for holding companies were restricted to capital instruments that were then currently considered to be Tier 1 capital for insured depository institutions. The legislation also established a floor for capital of insured depository institutions that cannot be lower than the standards in effect upon passage, and directed the federal banking regulators to implement new leverage and capital requirements that take into account off-balance sheet activities and other risks, including risks relating to securitized products and derivatives.

The Dodd-Frank Act created a new Consumer Financial Protection Bureau with broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions such as Edgewater Bank, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets are still examined for compliance by their applicable bank regulators. The new legislation also weakened the federal preemption available for national banks and federal savings associations, and gave state attorneys general the ability to enforce applicable federal consumer protection laws.

The Dodd-Frank Act broadened the base for FDIC insurance assessments. Assessments are now based on the average consolidated total assets less tangible equity capital of a financial institution, rather than on

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total deposits. The legislation also permanently increased the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2008, and noninterest-bearing transaction accounts had unlimited deposit insurance through December 31, 2012. The Dodd-Frank Act increased stockholder influence over boards of directors by requiring companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments. The legislation also directs the Federal Reserve Board to promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the company is publicly traded or not. Further, the legislation requires that originators of securitized loans retain a percentage of the risk for transferred loans, directs the Federal Reserve Board to regulate pricing of certain debit card interchange fees and contains a number of reforms related to mortgage origination.

Many provisions of the Dodd-Frank Act involve delayed effective dates and/or require implementing regulations or have not been issued in final form. Their impact on our operations cannot yet fully be assessed. However, there is a significant possibility that the Dodd-Frank Act will result in an increased regulatory burden and compliance, operating and interest expense for Edgewater Bank and Edgewater Bancorp, Inc.

Federal Banking Regulation

Business Activities. A federal savings association derives its lending and investment powers from the Home Owners’ Loan Act, as amended, and applicable federal regulations. Under these laws and regulations, Edgewater Bank may invest in mortgage loans secured by residential and commercial real estate, commercial business and consumer loans, certain types of debt securities and certain other assets, subject to applicable limits. The Dodd-Frank Act authorized, for the first time, the payment of interest on commercial checking accounts, effective July 21, 2011. Edgewater Bank may also establish subsidiaries that may engage in certain activities not otherwise permissible for Edgewater Bank, including real estate investment and securities and insurance brokerage.

Capital Requirements. Federal regulations require savings associations to meet three minimum capital standards: a 1.5% tangible capital ratio, a 4% core capital to assets leverage ratio (3% for savings associations receiving the highest rating on the CAMELS rating system), and an 8% risk-based capital ratio.

The risk-based capital standard for savings associations requires the maintenance of Tier 1 (core) and total capital (which is defined as core capital and supplementary capital) to risk-weighted assets of at least 4% and 8%, respectively. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 200%, assigned by the regulations, based on the risks believed inherent in the type of asset. Core capital is defined as common stockholders’ equity (including retained earnings), certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries, less intangibles other than certain mortgage servicing rights and credit card relationships. The components of supplementary capital include cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock, the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital. Additionally, a savings association that retains credit risk in connection with an asset sale is required to maintain additional regulatory capital because of the purchaser’s recourse against the savings association. In assessing an institution’s capital adequacy, the OCC takes into consideration not only these numeric factors, but qualitative factors as well and has the authority to establish higher capital requirements for individual associations where necessary.

At December 31, 2014, Edgewater Bank’s capital exceeded all applicable requirements.

Individual Minimum Capital Requirement. On January 23, 2013, the OCC notified Edgewater Bank that the OCC had established an IMCR that requires Edgewater Bank to maintain certain individual minimum capital ratio requirements. During the fourth quarter of 2014, Edgewater Bank was notified that IMCR was terminated by the OCC.

New Capital Rule. On July 9, 2013, the OCC and the other federal bank regulatory agencies issued a final rule that will revise their risk-based capital requirements and the method for calculating risk-weighted

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assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. The final rule applies to all depository institutions, top-tier bank holding companies with total consolidated assets of $500 million or more and top-tier savings and loan holding companies.

The rule establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increases the minimum Tier 1 capital to risk-based assets requirement (from 4.0% to 6.0% of risk-weighted assets) and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property.

The rule also includes changes in what constitutes regulatory capital, some of which are subject to a two-year transition period. These changes include the phasing-out of certain instruments as qualifying capital. 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 common stock will be required to be deducted from capital, subject to a two-year transition period. Finally, Tier 1 capital will include accumulated other comprehensive income (which includes all unrealized gains and losses on available for sale debt and equity securities), subject to a two-year transition period. Edgewater Bank has the one-time option in the first quarter of 2015 to permanently opt out of the inclusion of accumulated other comprehensive income in its capital calculation. Edgewater is considering whether to opt out in order to reduce the impact of market volatility on its regulatory capital levels.

The new capital requirements also include changes in the risk-weights of assets to better reflect credit risk and other risk exposures. These include a 150% risk weight (up from 100%) for certain high volatility commercial real estate acquisition, development and construction loans and non-residential mortgage loans that are 90 day past due or otherwise on non-accrual status; a 20% (up from 0%) credit conversion factor for the unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancellable; a 250% risk weight (up from 100%) for mortgage servicing and deferred tax assets that are not deducted from capital; and increased risk-weights (from 0% to up to 600%) for equity exposures.

Finally, the rule limits capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements.

The final rule becomes effective for Edgewater Bank on January 1, 2015. The capital conservation buffer requirement will be phased in beginning January 1, 2016 at 0.625% of risk-weighted assets increasing each year until fill implemented at 2.5% on January 1, 2019.

Edgewater Bank has conducted a pro forma analysis of the application of these new capital requirements as of December 31, 2014. We have determined that Edgewater Bank meets all of these new requirements, including the full 2.5% capital conservation buffer, as if these new requirements had been in effect on that date.

Loans-to-One Borrower. Generally, a federal savings association may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus. An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of December 31, 2014, Edgewater Bank was in compliance with the loans-to-one borrower limitations.

Qualified Thrift Lender Test. As a federal savings association, Edgewater Bank must satisfy the qualified thrift lender, or “QTL,” test. Under the QTL test, Edgewater Bank must maintain at least 65% of its “portfolio assets” in “qualified thrift investments” (primarily residential mortgages and related investments, including mortgage-backed securities) in at least nine months of the most recent 12-month period. “Portfolio assets” generally means total assets of a savings association, less the sum of specified liquid assets up to 20% of total assets, goodwill and other intangible assets, and the value of property used in the conduct of the savings association’s business.

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Alternatively, Edgewater Bank may satisfy the QTL test by qualifying as a “domestic building and loan association” as defined in the Internal Revenue Code of 1986, as amended.

A federal savings association that fails the qualified thrift lender test must operate under specified restrictions set forth in the Home Owners’ Loan Act. The Dodd-Frank Act made noncompliance with the QTL test subject to enforcement action for a violation of law. At December 31, 2014, Edgewater Bank maintained 74.53% of its portfolio assets in qualified thrift investments and, therefore, satisfied the QTL test. Edgewater Bank has satisfied the QTL test in each of the last 12 months.

Capital Distributions. Federal regulations govern capital distributions by a federal savings association, which include cash dividends, stock repurchases and other transactions charged to the savings association’s capital account. A federal savings association must file an application for approval of a capital distribution if:

•

the total capital distributions for the applicable calendar year exceed the sum of the savings association’s net income for that year to date plus the savings association’s retained net income for the preceding two years;

•

the savings association would not be at least adequately capitalized following the distribution;

•

the distribution would violate any applicable statute, regulation, agreement or regulatory condition; or

•

the savings association is not eligible for expedited treatment of its filings.

Even if an application is not otherwise required, every savings association that is a subsidiary of a savings and loan holding company, such as Edgewater Bank, must still file a notice with the Federal Reserve Board at least 30 days before the board of directors declares a dividend or approves a capital distribution.

A notice or application related to a capital distribution may be disapproved if:

•

the federal savings association would be undercapitalized following the distribution;

•

the proposed capital distribution raises safety and soundness concerns; or

•

the capital distribution would violate a prohibition contained in any statute, regulation or agreement.

In addition, the Federal Deposit Insurance Act provides that an insured depository institution may not make any capital distribution if, after making such distribution, the institution would fail to meet any applicable regulatory capital requirement. A federal savings association also may not make a capital distribution that would reduce its regulatory capital below the amount required for the liquidation account established in connection with its conversion to stock form. In addition, beginning in 2016, Edgewater Bank’s ability to pay dividends will be limited if Edgewater Bank does not have the capital conservation buffer required by the new capital rules, which may limit the ability of Edgewater Bancorp, Inc. to pay dividends to its stockholders. See — New Capital Rule.

Community Reinvestment Act and Fair Lending Laws. All federal savings associations have a responsibility under the Community Reinvestment Act and related regulations to help meet the credit needs of their communities, including low- and moderate-income borrowers. In connection with its examination of a federal savings association, the OCC is required to assess the federal savings association’s record of compliance with the Community Reinvestment Act. A savings association’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in denial of certain corporate applications such as branches or mergers, or in restrictions on its activities. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the OCC, as well as other federal regulatory agencies and the Department of Justice.

The Community Reinvestment Act requires all institutions insured by the FDIC to publicly disclose their rating. Edgewater Bank received a “satisfactory” Community Reinvestment Act rating in its most recent federal examination.

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Transactions with Related Parties. A federal savings association’s authority to engage in transactions with its affiliates is limited by Sections 23A and 23B of the Federal Reserve Act and federal regulation. An affiliate is generally a company that controls, or is under common control with an insured depository institution such as Edgewater Bank. Edgewater Bancorp, Inc. is an affiliate of Edgewater Bank because of its control of Edgewater Bank. In general, transactions between an insured depository institution and its affiliates are subject to certain quantitative limits and collateral requirements. In addition, federal regulations prohibit a savings association from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary. Finally, transactions with affiliates must be consistent with safe and sound banking practices, not involve the purchase of low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates. Federal regulations require savings associations to maintain detailed records of all transactions with affiliates.

Edgewater Bank’s authority to extend credit to its directors, executive officers and 10% stockholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board. Among other things, these provisions generally require that extensions of credit to insiders:

•

be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features; and

•

not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of Edgewater Bank’s capital.

In addition, extensions of credit in excess of certain limits must be approved by Edgewater Bank’s loan committee or board of directors. Extensions of credit to executive officers are subject to additional limits based on the type of extension involved.

Enforcement. The OCC has primary enforcement responsibility over federal savings associations and has authority to bring enforcement action against all “institution-affiliated parties,” including directors, officers, stockholders, attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on a federal savings association. Formal enforcement action by the OCC may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors of the institution and the appointment of a receiver or conservator. Civil penalties cover a wide range of violations and actions, and range up to $25,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1 million per day. The FDIC also has the authority to terminate deposit insurance or recommend to the OCC that enforcement action be taken with respect to a particular savings association. If such action is not taken, the FDIC has authority to take the action under specified circumstances.

Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation and other operational and managerial standards as the agency deems appropriate. Interagency guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to implement an acceptable compliance plan. Failure to implement such a plan can result in further enforcement action, including the issuance of a cease and desist order or the imposition of civil money penalties.

Prompt Corrective Action Regulations. The OCC is required by law to take supervisory actions against undercapitalized savings institutions under its jurisdiction, the severity of which depends upon the institution’s level of capital.

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Current OCC prompt corrective action regulations state that to be adequately capitalized, Edgewater Bank must have a Tier 1 leverage ratio of at least 4.0%, a Tier 1 risk-based capital ratio of at least 4.0%, and a total risk-based capital ratio of at least 8.0%. To be well-capitalized, Edgewater Bank must have a Tier 1 leverage ratio of at least 5.0%, a Tier 1 risk-based capital ratio of at least 6.0%, and a total risk-based capital ratio of at least 10.0%. A savings association that has total risk-based capital of less than 8.0% or a leverage ratio or a Tier 1 risk-based capital ratio that generally is less than 4.0% is considered to be undercapitalized. A savings association that has total risk-based capital less than 6.0%, a Tier 1 core risk-based capital ratio of less than 3.0% or a leverage ratio that is less than 3.0% is considered to be “significantly undercapitalized.” A savings institution that has a tangible capital to assets ratio equal to or less than 2% is deemed to be “critically undercapitalized.”

Generally, the OCC is required to appoint a receiver or conservator for a savings association that is “critically undercapitalized” within specific time frames. The regulations also provide that a capital restoration plan must be filed with the OCC within 45 days of the date that a federal savings association is deemed to have received notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” Any holding company of a federal savings association that is required to submit a capital restoration plan must guarantee performance under the plan in an amount of up to the lesser of 5% of the savings association’s assets at the time it was deemed to be undercapitalized by the OCC or the amount necessary to restore the savings association to adequately capitalized status. This guarantee remains in place until the OCC notifies the savings association that it has maintained adequately capitalized status for each of four consecutive calendar quarters. Institutions that are undercapitalized become subject to certain mandatory measures such as a restrictions on capital distributions and asset growth. The OCC may also take any one of a number of discretionary supervisory actions against undercapitalized federal savings associations, including the issuance of a capital directive and the replacement of senior executive officers and directors.

At December 31, 2014, Edgewater Bank met the criteria for being considered “well capitalized.”

In addition, the final capital rule adopted in July 2013 revises the prompt corrective action categories to incorporate the revised minimum capital requirements of that rule when it becomes effective. The OCC’s prompt corrective action standards will change when these new capital ratios become effective. Under the new standards, in order to be considered well-capitalized, Edgewater Bank would have to have a common equity Tier 1 ratio of 6.5% (new), a Tier 1 risk-based capital 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). Edgewater Bank has conducted a pro forma analysis of the application of these new capital requirements as of December 31, 2014. We have determined that Edgewater Bank is well-capitalized under these new standards, as if these new requirements had been in effect on that date. See “— New Capital Rule.”

Insurance of Deposit Accounts. The Deposit Insurance Fund of the FDIC insures deposits at FDIC-insured financial institutions such as Edgewater Bank. Deposit accounts in Edgewater Bank are insured by the FDIC generally up to a maximum of $250,000 per separately insured depositor and up to a maximum of $250,000 for self-directed retirement accounts. The FDIC charges insured depository institutions premiums to maintain the Deposit Insurance Fund.

Under the FDIC’s risk-based assessment system, insured institutions are assigned to one of four risk categories based on supervisory evaluations, regulatory capital levels and certain other risk factors. Rates are based on each institution’s risk category and certain specified risk adjustments. Stronger institutions pay lower rates while riskier institutions pay higher rates.

In February 2011, the FDIC published a final rule under the Dodd-Frank Act to reform the deposit insurance assessment system. The rule redefined the assessment base used for calculating deposit insurance assessments effective April 1, 2011. Under the new rule, assessments are based on an institution’s average consolidated total assets minus average tangible equity instead of total deposits. The proposed rule revised the assessment rate schedule to establish assessments ranging from 2.5 to 45 basis points.

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In addition to the FDIC assessments, the Financing Corporation (“FICO”) is authorized to impose and collect, with the approval of the FDIC, assessments for anticipated payments, issuance costs and custodial fees on bonds issued by the FICO in the 1980s to recapitalize the former Federal Savings and Loan Insurance Corporation. The bonds issued by the FICO are due to mature in 2017 through 2019. For the quarter ended September 30, 2013, the annualized FICO assessment was equal to 0.62 basis points of total assets less tangible capital.

The FDIC has authority to increase insurance assessments. Any significant increases would have an adverse effect on the operating expenses and results of operations of Edgewater Bank. Management cannot predict what assessment rates will be in the future.

Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. We do not currently know of any practice, condition or violation that may lead to termination of our deposit insurance.

Prohibitions Against Tying Arrangements. Federal savings associations are prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution.

Federal Home Loan Bank System. Edgewater Bank is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank System provides a central credit facility primarily for member institutions as well as other entities involved in home mortgage lending. As a member of the Federal Home Loan Bank of Indianapolis, Edgewater Bank is required to acquire and hold shares of capital stock in the Federal Home Loan Bank. As of December 31, 2014, Edgewater Bank was in compliance with this requirement. While Edgewater Bank’s ability to borrow from the Federal Home Loan Bank of Indianapolis provides an additional source of liquidity, Edgewater Bank has historically not used advances from the Federal Home Loan Bank to fund its operations.

Other Regulations

Interest and other charges collected or contracted for by Edgewater Bank are subject to state usury laws and federal laws concerning interest rates. Edgewater Bank’s operations are also subject to federal laws applicable to credit transactions, such as the:

•

Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

•

Real Estate Settlement Procedures Act, requiring that borrowers for mortgage loans for one- to four-family residential real estate receive various disclosures, including good faith estimates of settlement costs, lender servicing and escrow account practices, and prohibiting certain practices that increase the cost of settlement services;

•

Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

•

Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

•

Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies;

•

Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;

•

Truth in Savings Act; and

•

rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.

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In addition, the Consumer Financial Protection Bureau issues regulations and standards under these federal consumer protection laws that affect our consumer businesses. These include regulations setting “ability to repay” and “qualified mortgage” standards for residential mortgage loans and mortgage loan servicing and originator compensation standards. Edgewater Bank is evaluating recent regulations and proposals, and devotes significant compliance, legal and operational resources to compliance with consumer protection regulations and standards.

The operations of Edgewater Bank also are subject to the:

•

Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

•

Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services;

•

Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check;

•

The USA PATRIOT Act, which requires savings associations to, among other things, establish broadened anti-money laundering compliance programs, and due diligence policies and controls to ensure the detection and reporting of money laundering. Such required compliance programs are intended to supplement existing compliance requirements that also apply to financial institutions under the Bank Secrecy Act and the Office of Foreign Assets Control regulations; and

•

The Gramm-Leach-Bliley Act, which places limitations on the sharing of consumer financial information by financial institutions with unaffiliated third parties. Specifically, the Gramm-Leach-Bliley Act requires all financial institutions offering financial products or services to retail customers to provide such customers with the financial institution’s privacy policy and provide such customers the opportunity to “opt out” of the sharing of certain personal financial information with unaffiliated third parties.

Holding Company Regulation

General. Edgewater Bancorp, Inc. is a savings and loan holding company within the meaning of HOLA. As such, Edgewater Bancorp, Inc. is registered with the Federal Reserve Board and is subject to regulations, examinations, supervision and reporting requirements applicable to savings and loan holding companies. In addition, the Federal Reserve Board has enforcement authority over Edgewater Bancorp, Inc. and its non-savings institution subsidiaries. Among other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings institution.

Permissible Activities. Under present law, the business activities of Edgewater Bancorp, Inc. are generally limited to those activities permissible for financial holding companies under Section 4(k) of the Bank Holding Company Act of 1956, as amended, provided certain conditions are met, or for multiple savings and loan holding companies. A financial holding company may engage in activities that are financial in nature, including underwriting equity securities and insurance as well as activities that are incidental to financial activities or complementary to a financial activity. A multiple savings and loan holding company is generally limited to activities permissible for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, subject to regulatory approval, and certain additional activities authorized by federal regulations.

Federal law prohibits a savings and loan holding company, including Edgewater Bancorp, Inc., directly or indirectly, or through one or more subsidiaries, from acquiring more than 5% of another savings institution or holding company thereof, without prior regulatory approval. It also prohibits the acquisition or retention of, with certain exceptions, more than 5% of a nonsubsidiary company engaged in activities that are not closely related to banking or financial in nature, or acquiring or retaining control of an institution that is not federally insured. In evaluating applications by holding companies to acquire savings

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institutions, the Federal Reserve Board must consider the financial and managerial resources, future prospects of the company and institution involved, the effect of the acquisition on the risk to the federal deposit insurance fund, the convenience and needs of the community and competitive factors.

The Federal Reserve Board is prohibited from approving any acquisition that would result in a multiple savings and loan holding company controlling savings institutions in more than one state, subject to two exceptions:

•

the approval of interstate supervisory acquisitions by savings and loan holding companies; and

•

the acquisition of a savings institution in another state if the laws of the state of the target savings institution specifically permit such acquisition.

The states vary in the extent to which they permit interstate savings and loan holding company acquisitions.

Capital. Savings and loan holding companies historically have not been subject to consolidated regulatory capital requirements. The Dodd-Frank Act, however, requires the Federal Reserve Board to establish for all depository institution holding companies minimum consolidated capital requirements that are as stringent as those required for the insured depository subsidiaries. Under regulations recently enacted by the Federal Reserve Board, Edgewater Bancorp, Inc. is be subject to regulatory capital requirements that generally are the same as the new capital requirements for Edgewater Bank. These new capital requirements include provisions that might limit the ability of Edgewater Bancorp, Inc. to pay dividends to its stockholders or repurchase its shares. See “— Federal Banking Regulation — New Capital Rule.” Edgewater Bancorp, Inc. has conducted a pro forma analysis of the application of these new capital requirements as of December 31, 2014, has determined that it met all of these new requirements, including the full 2.5% capital conservation buffer, and remains well-capitalized, if these new requirements had been in effect on that date.

Source of Strength. The Dodd-Frank Act extended the “source of strength” doctrine to savings and loan holding companies. The Federal Reserve Board has issued regulations requiring that all savings and loan holding companies serve as a source of managerial and financial strength to their subsidiary savings associations by providing capital, liquidity and other support in times of financial stress.

Dividends. The Federal Reserve Board has issued a policy statement regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies and savings and loan holding companies. In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. Regulatory guidance provides for prior regulatory consultation with respect to capital distributions in certain circumstances such as where the company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate or earnings retention is inconsistent with the company’s capital needs and overall financial condition. The ability of a savings and loan holding company to pay dividends may be restricted if a subsidiary savings association becomes undercapitalized. The policy statement also states that a savings and loan holding company should inform the Federal Reserve Board supervisory staff prior to redeeming or repurchasing common stock or perpetual preferred stock if the savings and loan holding company is experiencing financial weaknesses or if the repurchase or redemption would result in a net reduction, as of the end of a quarter, in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred. These regulatory policies may affect the ability of Edgewater Bancorp, Inc. to pay dividends, repurchase shares of common stock or otherwise engage in capital distributions.

Acquisition. Under the Federal Change in Bank Control Act, a notice must be submitted to the Federal Reserve Board if any person (including a company), or group acting in concert, seeks to acquire direct or indirect “control” of a savings and loan holding company. Under certain circumstances, a change of control may occur, and prior notice is required, upon the acquisition of 10% or more of the company’s outstanding voting stock, unless the Federal Reserve Board has found that the acquisition will not result in control of the company. A change in control definitively occurs upon the acquisition of 25% or more of the

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company’s outstanding voting stock. Under the Change in Bank Control Act, the Federal Reserve Board generally has 60 days from the filing of a complete notice to act, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition.

Emerging Growth Company Status

The Jumpstart Our Business Startups Act (the “JOBS Act”), which was enacted in April 2012, has made numerous changes to the federal securities laws to facilitate access to capital markets. Under the JOBS Act, a company with total annual gross revenues of less than $1.0 billion during its most recently completed fiscal year qualifies as an “emerging growth company.” Edgewater Bancorp, Inc. qualifies as an emerging growth company under the JOBS Act.

An “emerging growth company” may choose not to hold stockholder votes to approve annual executive compensation (more frequently referred to as “say-on-pay” votes) or executive compensation payable in connection with a merger (more frequently referred to as “say-on-golden parachute” votes). An emerging growth company also is not subject to the requirement that its auditors attest to the effectiveness of the company’s internal control over financial reporting, and can provide scaled disclosure regarding executive compensation; however, Edgewater Bancorp, Inc. will also not be subject to the auditor attestation requirement or additional executive compensation disclosure so long as it remains a “smaller reporting company” under Securities and Exchange Commission regulations (generally less than $75 million of voting and non-voting equity held by non-affiliates). Finally, an emerging growth company may elect to comply with new or amended accounting pronouncements in the same manner as a private company, but must make such election when the company is first required to file a registration statement. Such an election is irrevocable during the period a company is an emerging growth company. Edgewater Bancorp, Inc. has elected to comply with new or amended accounting pronouncements in the same manner as a private company.

A company loses emerging growth company status on the earlier of: (i) the last day of the fiscal year of the company during which it had total annual gross revenues of $1.0 billion or more; (ii) the last day of the fiscal year of the issuer following the fifth anniversary of the date of the first sale of common equity securities of the company pursuant to an effective registration statement under the Securities Act of 1933; (iii) the date on which such company has, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (iv) the date on which such company is deemed to be a “large accelerated filer” under Securities and Exchange Commission regulations (generally, at least $700 million of voting and non-voting equity held by non-affiliates).

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. As directed by the Sarbanes-Oxley Act, our Chief Executive Officer and Chief Financial Officer are required to certify that our quarterly and annual reports do not contain any untrue statement of a material fact. The rules adopted by the Securities and Exchange Commission under the Sarbanes-Oxley Act have several requirements, including having these officers certify that: they are responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal control over financial reporting; they have made certain disclosures to our auditors and the audit committee of the Board of Directors about our internal control over financial reporting; and they have included information in our quarterly and annual reports about their evaluation and whether there have been changes in our internal control over financial reporting or in other factors that could materially affect internal control over financial reporting.

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TAXATION

Federal Taxation

General. Edgewater Bancorp, Inc. and Edgewater Bank are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize material federal income tax matters and is not a comprehensive description of the tax rules applicable to Edgewater Bancorp, Inc. and Edgewater Bank.

Method of Accounting. For federal income tax purposes, Edgewater Bank currently reports its income and expenses on the accrual method of accounting and uses a tax year ending December 31st for filing its federal income tax returns. The Small Business Protection Act of 1996 eliminated the use of the reserve method of accounting for bad debt reserves by savings institutions, effective for taxable years beginning after 1995.

Minimum Tax. The Internal Revenue Code of 1986, as amended, imposes an alternative minimum tax at a rate of 20% on a base of regular taxable income plus certain tax preferences, less an exemption amount, referred to as “alternative minimum taxable income.” The alternative minimum tax is payable to the extent tax computed this way exceeds tax computed by applying the regular tax rates to regular taxable income. Net operating losses can, in general, offset no more than 90% of alternative minimum taxable income. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. At December 31, 2014, Edgewater Bank had no minimum tax credit carryforward.

Net Operating Loss Carryovers. Generally, a financial institution may carry back net operating losses to the preceding two taxable years and forward to the succeeding 20 taxable years. However, as a result of recent legislation, subject to certain limitations, the carryback period for net operating losses incurred in 2008 or 2009 (but not both years) has been expanded to five years. At December 31, 2014, Edgewater Bank had $9.0 million of federal net operating loss carryforwards and $1.3 million of Michigan state net operating loss carryforwards available for future use.

Capital Loss Carryovers. Generally, a financial institution may carry back capital losses to the preceding three taxable years and forward to the succeeding five taxable years. Any capital loss carryback or carryover is treated as a short-term capital loss for the year to which it is carried. As such, it is grouped with any other capital losses for the year to which carried and is used to offset any capital gains. Any undeducted loss remaining after the five year carryover period is not deductible. At December 31, 2014, Edgewater Bank had no capital loss carryover.

Corporate Dividends. We may generally exclude from our income 100% of dividends received from Edgewater Bank as a member of the same affiliated group of corporations.

Audit of Tax Returns. Edgewater Bank’s tax returns for tax year 2009 were subject to an ordinary audit by the Internal Revenue Service. As a result, Edgewater Bank was not required to amend its tax returns and was not required to pay any additional taxes or penalties. Edgewater Bank considers the matter fully resolved.

State Taxation

Companies headquartered in Michigan, such as Edgewater Bancorp, Inc., are subject to a Michigan capital tax which is an assessment of 0.235% of a company’s consolidated net capital, based on a rolling five-year average. Other applicable state taxes include generally applicable sales, use and real property taxes. As a Maryland business corporation, Edgewater Bancorp, Inc. is required to file annual franchise tax return with the State of Maryland. Edgewater Bank’s state income tax returns have not been audited in recent years.

Availability of Annual Report on Form 10-K

This Annual Report on Form 10-K is available on our website at www.edgewaterbank.com. Information on the website is not incorporated into, and is not otherwise considered a part of, this Annual Report on Form 10-K.

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ITEM 1A.

Risk Factors

The presentation of Risk Factors is not required for smaller reporting companies.

ITEM 1B.

Unresolved Staff Comments

Not applicable.

ITEM 2.

Properties

At December 31, 2014, the net book value of our properties was $3.2 million, and the net book value of our furniture, fixtures and equipment (including computer software) was $732,000. We believe that our current facilities are adequate to meet our present and foreseeable needs, other than modest and customary repair and replacement needs.

The following table sets forth information regarding our office properties as of December 31, 2014.

Location

Leased or Owned

Year Acquired
or Leased

Square Footage

Main Office:
(including land)

Saint Joseph − Main Office
321 Main Street
St. Joseph, Michigan 49085

Owned

1998

14,614

Full Service Branches:
(including land)

Bridgman Office
4509 Lake Street
Bridgman, Michigan 49106

Owned

1961

3,980

Buchanan Office(1)
720 East Front Street
Buchanan, Michigan 49107

Leased

2013

1,800

Coloma Office
167 Paw Paw Street
Coloma, Michigan 49038

Owned

1969

2,700

Royalton Township Office
4097 Hollywood Road
St. Joseph, Michigan 49085

Owned

2006

3,692

(1)

Prior to June 2013, we owned the entire building in which our Buchanan office is located. In June 2013, we sold the building to a third party and entered into a lease agreement with the current owner for 1,800 square feet that we occupy.

ITEM 3.

Legal Proceedings

We are not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business. At December 31, 2014, we were not involved in any legal proceedings the outcome of which would be material to our financial condition or results of operations.

ITEM 4.

Mine Safety Disclosure

None.

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PART II

ITEM 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

(a) Market, Holder and Dividend Information. Our common stock is quoted on the OTCQB Bulletin Board under the symbol “EGDW.” The approximate number of holders of record of Edgewater Bancorp, Inc.’s common stock as of March 27, 2015, was 158. Certain shares of Edgewater Bancorp, Inc. are held in “nominee” or “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number. The common stock of Edgewater Bancorp, Inc. began trading on the OTCQB Bulletin Board on January 17, 2014. Accordingly, there is no market information for the periods ended December 31, 2013 and 2012.

The following table shows the high and low sales prices for our common stock as reported by the OTC Bulletin Board for the periods indicated and all dividends, if any, paid by us during those periods.

	High			Low			Dividend
2014
First Quarter		$	11.00		$	10.00		$	0
Second Quarter		$	10.50		$	10.40		$	0
Third Quarter		$	11.00		$	10.25		$	0
Fourth Quarter		$	10.25		$	10.10		$	0

Edgewater Bancorp, Inc. has not declared dividends on its common stock. Dividend payments by Edgewater Bancorp, Inc. are dependent in part on dividends it receives from Edgewater Bank because Edgewater Bancorp, Inc. has no source of income other than dividends from Edgewater Bank, earnings from the investment of proceeds from the sale of shares of common stock retained by Edgewater Bancorp, Inc. and interest payments with respect to Edgewater Bancorp, Inc.’s loan to the Employee Stock Ownership Plan. Our bank’s ability to pay dividends is subject to limitations under various laws and regulations.

(b) Sales of Unregistered Securities. Not applicable.

(c) Use of Proceeds. On September 12, 2013, Edgewater Bancorp, Inc. filed a Registration Statement on Form S-1 with the Securities and Exchange Commission in connection with the conversion of Edgewater Bank and the related offering of common stock by Edgewater Bancorp, Inc. The Registration Statement (File No. 333-191125) was declared effective by the Securities and Exchange Commission on November 12, 2013. Edgewater Bancorp, Inc. registered 1,031,550 shares of common stock, par value $0.01 per share, pursuant to the Registration Statement for an aggregate price of $10.3 million. The stock offering commenced on November 21, 2013, and ended on January 9, 2014. The issuance of 667,898 shares was completed on January 16, 2014 and the shares began trading on January 17, 2014.

Edgewater Bancorp, Inc. contributed $4.6 million of the net proceeds of the offering to Edgewater Bank. In addition, $534,000 of the net proceeds were used to fund the loan to the employee stock ownership plan; and $1.7 million of the net proceeds are reserved for use to pay costs associated with withdrawal from a defined benefit plan in which Edgewater Bank participates.

(d) Securities Authorized for Issuance Under Equity Compensation Plans. None.

(e) Stock Repurchases. None.

(f) Stock Performance Graph. Not required for smaller reporting companies.

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ITEM 6.

Selected Financial Data

Not required for smaller reporting companies.

ITEM 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Edgewater Bank provides financial services to individuals and businesses from our main office in St. Joseph, Michigan and our four additional full-service banking offices located in Royalton Township, Coloma, Bridgman and Buchanan, Michigan. We completed the sale of our Decatur office on January 24, 2014. Our primary market area includes Berrien County, Van Buren County, and, to a lesser extent, Cass County, Michigan, all of which are located in southwestern Michigan near the border of Indiana, and portions of northern Indiana that are contiguous with Berrien and Cass Counties.

We offer a variety of deposit accounts, including checking accounts, NOW accounts, savings accounts, money market accounts and certificate of deposit accounts. We utilize advances from the FHLB-Indianapolis for asset/liability management purposes and, to a much lesser extent, for additional funding for our operations. At December 31, 2014, we had $10.0 million in advances outstanding with FHLB-Indianapolis.

Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provisions for loan losses, non-interest income and non-interest expense. Non-interest income currently consists primarily of service charges on deposit accounts, loan servicing income, gain on sales of securities and loans, debit card income and miscellaneous other income. Non-interest expense currently consists primarily of expenses related to compensation and employee benefits, occupancy and equipment, data processing, federal deposit insurance premiums, ATM charges, professional fees, advertising and other operating expenses.

Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.

Legacy Loan Losses

Prior to 2009, our previous management team engaged in significant non-owner occupied commercial real estate and speculative construction and land development lending, and relied on inadequate underwriting processes and controls in extending credit. In addition, weak economic conditions and ongoing strains in the financial and housing markets beginning in 2008 in many portions of the United States, including our market area, contributed to a challenging environment for financial institutions. Due to these adverse conditions, our market area experienced substantial declines in home prices, historically low levels of existing home sale activity, high levels of foreclosures and high levels of unemployment.

As a result of the economic conditions and loan origination practices by our previous management team, Edgewater Bank experienced unusually high levels of classified loans and charge-offs, particularly in speculative construction and land development loans. As a result, in October 2009, Edgewater Bank entered into a Cease and Desist Order (the “Order”) with the Office of Thrift Supervision. The Order required Edgewater Bank to, among other things, implement and file a loan portfolio management plan (to provide for the timely identification of problem loans as well as procedures to ensure conformity with loan

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approval, collateral documentation, credit information and analysis and risk assessment requirements); a problem assets plan (to provide for the reduction of classified assets); and a business plan (to provide for increases in earnings and capital levels). The Order was terminated in February 2012.

Our efforts to comply with the Order, particularly the resolution of problem assets, resulted in declining levels of capital. As a result of declining capital levels and our continuing high levels of classified assets, on January 23, 2013, the OCC notified Edgewater Bank that the OCC had established an individual minimum capital requirement (“IMCR”). The IMCR requires Edgewater Bank to maintain a tier 1 leverage capital ratio of 8.00% and a total risk-based capital ratio of 12.00% beginning March 31, 2013. During the fourth quarter of 2014, the IMCR was terminated by the OCC.

Business Strategy

We have branded and market Edgewater Bank as “The Real Local Bank” because we are the only remaining bank or savings association headquartered in St. Joseph, Michigan. Our principal objective is to continually develop our model of personalized customer service, localized decision-making, employee involvement and efficiency to become the financial institution of choice for more customers in our communities and to fulfill our corporate mission: “To Profitably Provide Complete Financial Solutions and Total Customer Satisfaction”.

Subject to market conditions and our asset-liability analysis, we expect to take advantage of unique opportunities presented by the geographic characteristics of our market area and our evolving customer base to increase our residential mortgage lending and our generation of low-cost core deposits. In order to diversify our portfolio and increase profitability, we also intend to develop a portfolio of commercial and industrial loans, including loans guaranteed by the SBA, and significantly increase our consumer loan portfolio. We will continue to originate commercial real estate loans secured by properties in our market area where we have or can develop a banking relationship with the borrower. We do not currently contemplate engaging in speculative construction and land development lending.

We intend to focus on relationship-based banking, rather than simply generating loan originations, and customer service, and will continue to hire additional personnel with residential, commercial and consumer lending experience, which we expect will allow us to develop a broader, more flexible array of residential, commercial and industrial and consumer loan products specifically suited to the customers and potential customers in our market area. In addition, we intend to develop and offer additional financial products targeted at business and individual customers who desire full service, “high touch” banking and a full complement of efficient electronic banking services.

We believe a disciplined approach to managing the size and diversification of our balance sheet, a renewed focus on personalized service to broaden customer relationships, a continued commitment to improving and managing asset quality, eliminating unproductive spending and enhancing our data processing and reporting technologies will enable us to operate efficiently and profitably and deliver attractive returns to our shareholders. Highlights of our current business strategy following the completion of this stock offering, subject to regulatory approval where applicable and market conditions, are set forth below.

Improve our asset quality by continuing to reduce loan delinquencies and classified loans and improving our risk profile through enhancements of our credit risk management systems and credit administration procedures. We are committed to actively monitoring and managing all segments of our loan portfolio in an effort to proactively identify and mitigate credit risks within our loan portfolio, with a particular focus on commercial real estate and commercial and industrial loans. We have implemented a policy of conducting both internal and external reviews of our loan portfolio designed to provide early detection of potential problem loans and timely resolution of non-performing and classified loans, and have tasked the credit administration department with conducting internal reviews and stress-testing.

Specifically, we have implemented procedures to perform internal reviews of selected loans based on risk features and dollar volume. We have instituted a risk-rating matrix to appropriately identify potential risks and rate loans based on six key risk characteristics. Additionally, we have implemented a policy that requires a third-party independent loan review of at least 40% of our commercial and industrial and commercial real estate portfolio, with a focus on new relationships, large dollar volume relationships, and

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identified problem loans. The loan review policy also requires a third-party review of a sample of loans originated by each loan officer. The third party reviewer provides an initial review of risk-rating conclusions and discusses its findings with management. Final risk-rating conclusions are based on the third party reviewer’s independent research plus information provided by management. In the past 12 months, a third party reviewed approximately $14.4 million, or roughly 44% of our commercial real estate and commercial and industrial loan portfolio. The third party reviewer concurred with 91% of our internal risk ratings with respect to loans reviewed in its initial findings, based on dollar amount outstanding.

Since January of 2009, we have implemented more stringent underwriting policies and procedures, including increased emphasis on lower debt to income ratios, higher credit scores, and lower loan to value ratios. With respect to commercial real estate and commercial and industrial lending, we have also enhanced the information required with respect to a borrower’s financial condition and business prospects, and perform an internal valuation of underlying property in addition to obtaining third party appraisals.

We have hired additional personnel with experience managing commercial loan administration, collection and workouts, including an experienced credit officer, and expect to hire additional credit administration and collections personnel. We are committed to devoting significant resources to reducing delinquencies and to avoiding problem assets as we increase our commercial real estate and commercial and industrial lending. We are in the process of reviewing our lending staff, and we are considering separating the lending and credit administration functions. We also intend to continually enhance our loan underwriting, credit administration and collection procedures, and to implement improved credit risk management and asset-liability management techniques, such as portfolio stress testing, portfolio credit analysis, and credit decision monitoring matrices. Finally, we believe that focusing on commercial lending relationships with active management teams or owners and on complete banking relationships (instead of loan only relationships) will also mitigate some of the risks associated with commercial and industrial and consumer lending.

Of the $3.4 million in classified assets as of December 31, 2014, $1.8 million were originated before January 2009. Of the $3.4 million in non-performing assets as of December 31, 2014, $2.7 million were originated before January 2009. Accordingly, we believe that our improved underwriting procedures have been effective in limiting classified and non-performing assets.

Prudently and opportunistically grow our assets and liabilities by increasing our presence in the communities we serve. We believe that in order to increase our income, we must focus on growing our loan portfolio. Our total assets increased $1.2 million, or 1.0%, to $122.3 million at December 31, 2014, from $121.1 million at December 31, 2013. This followed a decrease of $2.2 million, or 1.8%, to $121.1 million at December 31, 2013 from $123.3 million at December 31, 2012. These decreases were the result of our efforts to improve our capital ratios to comply with the Order and reduce our risk profile. Our total loan portfolio, before allowance for loan losses, increased $3.4 million, or 3.9%, to $90.5 million at December 31, 2014 from $87.1 million at December 31, 2013. This followed a decrease of $2.9 million, or 3.2%, to $87.1 million at December 31, 2013 from $90.0 million at December 31, 2012. These decreases were the result of our aggressive management and resolution of non-performing loans and loans that do not meet our recently enhanced underwriting standards. We intend to utilize a portion of the proceeds of the offering to grow our balance sheet through increased originations of one- to four family residential real estate, commercial and industrial and consumer loans. To better serve and expand our customer base we intend to develop and continually review a pricing model that will attract prospective customers, particularly homeowners, high net worth individuals, and small- to medium-sized traditional commercial and industrial customers and professional organizations such as medical and dental practices, law firms and accounting firms.

Increase our focus on commercial and industrial and consumer lending in our market area, while continuing to originate commercial real estate and residential construction loans on a selective basis. Although residential mortgage lending historically has been and will continue to be the cornerstone of our lending operations, we believe that the impact of potential changes in market interest rates on residential mortgage loans may have on loan origination volume requires a prudent approach to expanding our organic origination of commercial and industrial and consumer loans is essential not only to our profitability but also to the maintenance of a diverse and balanced loan portfolio. We will avoid significant concentrations within the loan portfolio, especially in non-owner occupied commercial real estate and

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speculative construction and land development loans. We have recently hired a locally based commercial lender with 10 years of experience in commercial and SBA lending as well as credit administration experience and business development and marketing skills. To expand commercial and industrial lending, we intend to:

•

target small- to mid-sized commercial clients, including medical, legal, accounting and other professional practices as well as traditional commercial businesses, located in our market area;

•

develop loan products that will satisfy the needs of professional borrowers, especially the well-established medical community, in the central portion of our market area; and

•

expand SBA and Rural Development offerings in all areas of our market area.

To expand consumer lending, we intend to:

•

develop a watercraft financing program in order to take advantage of the consumer lending opportunity presented by our unique geographic location;

•

develop a vehicle financing program with select automobile dealerships located in our market area to capture a portion of the automobile lending market served by those dealerships; and

•

retain additional consumer lending personnel and train our branch staff to identify and market consumer lending opportunities.

Finally, we intend to continue to originate owner-occupied commercial real estate and residential construction loans on a selective basis where the property is located in our market area, where we have a strong existing relationship with the borrower and, with respect to residential construction loans, where we believe that the loan will convert into a one- to four-family residential mortgage loan that we can either sell or maintain in our portfolio following the construction process. Commercial and industrial, consumer and commercial real estate loans generally have shorter terms and repricing characteristics than fixed-rate, longer-term, one- to four-family residential real estate loans. We expect that a disciplined approach to increasing our commercial and industrial and consumer lending will diversify and increase the yield on our loan portfolio. In addition, because all of our commercial and industrial, consumer, commercial real estate and residential construction lending will focus on lending in our market area, providing excellent customer service, and relationship banking, we expect that an increase in lending will result in a corresponding increase in our customer base for deposit and other services.

Expand originations of residential real estate mortgage loans. We recognize that residential real estate mortgage lending is essential to maintaining customer relations and our status as a community-oriented bank, and also creates invaluable ties to the communities that we serve. We believe that our unique geographical market area on the shore of Lake Michigan, the increasing number of individuals from nearby urban areas such as Chicago, Indianapolis, and Detroit and the growing medical professional community present a significant opportunity for us to expand our residential mortgage lending activities in and around St. Joseph. In addition to expanding our conventional mortgage activities, we introduced a jumbo mortgage program, including developing a relationship with a secondary market purchaser and designing a portfolio program for selected loans, to serve the needs of wealthier customers in our market area. We also intend to develop a broader, more flexible array of residential mortgage products, such as Federal Housing Administration (“FHA”), Veterans Administration (“VA”) and Rural Development loans to better serve the varying needs of customers, particularly in the outlying portion of our market area. We will position some of our origination staff to branch locations in order to expand our marketing reach to outlying portions of our market area. Finally, to ensure continuity of customer service and to maintain customer relationships, we will continue to service mortgage loans that we keep in our portfolio, and retain the servicing of the large majority of mortgage loans that we sell in the secondary market.

Continue to sell fixed-rate loans and retain variable rate and certain fixed-rate loans. During the year ended December 31, 2014, we originated $15.3 million of one to four-family residential real estate loans and sold $6.9 million for gains on sale of $141,000, and during the year ended December 31, 2013, we originated $22.5 million of one to four-family residential real estate loans for sale and sold $16.6 million for gains on sale of $249,000. We plan to maintain an appropriately sized portfolio of adjustable-rate one- to four-family residential real estate loans to meet the needs of borrowers in our market area, increase the yield of our loan

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portfolio as market interest rates rise, assist in the management of our interest rate risk and manage both the maturity of the loan portfolio and the time it takes for loans to reprice in accordance with their terms. We currently sell to the Federal Home Bank as well as to Freddie Mac. In addition, we developed a jumbo mortgage program, including a secondary market purchaser and a portfolio program for retaining selected loans that fit our risk profile and underwriting standards, to serve the needs of high net worth customers in the our market area. We intend to sell the majority of the long-term fixed-rate residential mortgage loans on a servicing-retained basis in order to increase servicing fee income, recognize gains on sale and manage the overall maturity of our loan portfolio.

Continue to generate low-cost deposits within our market area. We offer checking, NOW, savings and money market deposit accounts (which we refer to as “core” deposits), which generally are lower cost sources of funds than certificates of deposit. At December 31, 2014, approximately 72.7% of our deposits were core deposits. We intend to pursue increased origination of these low cost deposits within our market area, with particular focus on transaction accounts, by implementing pro-active marketing and promotional programs, broadening banking relationships with lending customers, offering attractive interest rates, and offering competitive products to meet the needs of the varied demographic groups in our market areas, such as remote deposit capture for business customers, high-yield checking for higher balances, and low-cost overdraft for lower balances. We continue to focus on employee training and development with respect to deposit generation, deposit retention and knowledge of our products and services so that our branches become sources of deposit generation. We also believe that the implementation of our strategy to increase relationship-based commercial and industrial and consumer lending and to establish additional product delivery channels and technological services such as electronic and mobile banking applications will serve to increase our core deposits. Finally, we have developed deposit products that target municipalities and public funds. An increase in transaction deposits and relationship banking will decrease our dependence on certificates of deposit, reduce our interest rate sensitivity, generate fee income to fund our operations, and allow us to continue to utilize FHLB-Indianapolis advances primarily for asset/liability management purposes rather than to fund our operations.

Enhance our menu of product offerings and continue to improve customer service to meet the demands of current customers and attract new customers in our market area. We expect to focus on existing customers and target potential customers to whom personalized, “high touch” service and customized products are more important than traditional factors such as the size or number of locations of the bank, including high net worth or high income individuals and professionals such as doctors, accountants, attorneys and small business owners. In order to attract and retain these customers, we intend to increase our consumer lending activities in the areas of automobile, watercraft, and recreational vehicle loans as well as home equity term loans and lines of credit; develop a broader, more flexible array of residential mortgage products, such as FHA, VA, rural development and jumbo mortgage loans; continue to expand our offering of investment products, enter into an arrangement with a third party to offer trust services; enhance the efficiency of technology-based services that we offer, including debit cards, internet banking, electronic bill pay, mobile banking, ACH services and wire services, and add additional services such as remote deposit capture; and offer extended customer service hours. We also intend to market packages of products and services that are tailored to meet the needs of specific customer groups, such as our “Professional Edge” package, which is designed for professional customers and includes preferred rates and fees, free consultation on investment services, and personalized assistance with transitioning from a customer’s current bank to Edgewater Bank. Finally, we are in the process of developing our “Employ Excellence” program, which will provide a comprehensive training program for employees to enhance performance, improve customer service and compensate employees for exceptional performance in customer service areas.

We intend to continue to pursue our business strategy, subject to changes necessitated by future market conditions, regulatory restrictions and other factors. We have adopted a strategic plan to achieve profitability by leveraging the capital raised in our stock offering to increase our earnings base, especially the size of our loan portfolio. Our strategic plan assumed that, beginning in 2014, we will not incur the same level of charge-offs, provisions for loan losses, write downs on real estate owned and losses on sales of real estate owned or expenses related to problem assets as we have in recent periods. However, the conversion had a short-term adverse impact on our operating results, due to additional costs related to becoming a public company and increased compensation expenses associated with our employee stock ownership. In addition, growth of earning assets is essential to our future profitability, and we expect to

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incur expenses related to the implementation of our growth plan, including hiring initiatives and the development and marketing of new products and services. Accordingly, even if we successfully implement our strategic plan, we do not anticipate a return to profitability until 2015. We may not be able to successfully implement our strategic plan, and therefore may not return to profitability in the timeframe that we expect or at all.

Anticipated Increase in Interest Expense

We funded the assumption of deposits by the purchaser of our Decatur office with cash on hand and approximately $10.0 million of advances from the FHLB-Indianapolis. We expect that our interest expenses will increase by approximately $111,000 per year, but will be offset by a decrease of approximately $68,000 per year in interest expense on deposits assumed by the purchaser.

Anticipated Decrease in Deposit Base

In connection with the sale of the Decatur office, our deposits decreased by approximately $13.3 million, including $8.4 million of core deposits and $4.9 million of certificates of deposit. We retained all loans associated with the Decatur office.

Anticipated Increase in Noninterest Expense

Our noninterest expense is expected to increase because of the increased costs associated with operating as a public company, and the increased compensation expenses associated with the purchase of shares of common stock by our employee stock ownership plan and the possible implementation of one or more stock-based benefit plans, if approved by our stockholders. Finally, we expect that we will add additional lending staff, which will increase our compensation costs.

These costs are expected to be offset by reductions in expenses of approximately $260,000 per year related to our Decatur office, which we sold on January 24, 2014; expenses of approximately $50,000 per year related to the lease of our Buchanan office, which we sold and now lease from the buyer.

Critical Accounting Policies

The discussion and analysis of the financial condition and results of operations are based on our financial statements, which are prepared in conformity with generally accepted accounting principles used in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policies discussed below to be critical accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.

The following represent our critical accounting policies:

Allowance for Loan Losses. The allowance for loan losses is the estimated amount considered necessary to cover inherent, but unconfirmed, credit losses in the loan portfolio at the balance sheet date. The allowance is established through the provision for losses on loans which is charged against income. In determining the allowance for loan losses, management makes significant estimates and has identified this policy as one of our most critical accounting policies.

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Management performs a quarterly evaluation of the allowance for loan losses. Consideration is given to a variety of factors in establishing this estimate including, but not limited to, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal loan reviews and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change.

The analysis has two components, specific and general allowances. The specific allowance is for unconfirmed losses related to loans that are determined to be impaired. Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. If the fair value of the loan is less than the loan’s carrying value, a charge is recorded for the difference. The general allowance, which is for loans reviewed collectively, is determined by segregating the remaining loans by type of loan, risk weighting (if applicable) and payment history. We also analyze historical loss experience, delinquency trends, general economic conditions and geographic and industry concentrations. This analysis establishes historical loss percentages and qualitative factors that are applied to the loan groups to determine the amount of the allowance for loan losses necessary for loans that are reviewed collectively. The qualitative component is critical in determining the allowance for loan losses as certain trends may indicate the need for changes to the allowance for loan losses based on factors beyond the historical loss history. Not incorporating a qualitative component could misstate the allowance for loan losses. Actual loan losses may be significantly more than the allowances we have established which could result in a material negative effect on our financial results.

Fair Value Measurements. The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Bank estimates the fair value of a financial instrument and any related asset impairment using a variety of valuation methods. Where financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair value. When the financial instruments are not actively traded, other observable market inputs, such as quoted prices of securities with similar characteristics, may be used, if available, to determine fair value. When observable market prices do not exist, the Bank estimates fair value. These estimates are subjective in nature and imprecision in estimating these factors can impact the amount of revenue or loss recorded. A more detailed description of the fair values measured at each level of the fair value hierarchy and the methodology utilized by the Bank can be found in Note 13 of the Financial Statements — “Disclosures About Fair Value of Assets and Liabilities.”

Comparison of Financial Condition at December 31, 2014 and December 31, 2013

Total Assets. Total assets increased by $1.2 million, or 1.0%, to $122.3 million at December 31, 2014 from $121.2 million at December 31, 2013. The increase was primarily the result of increases in loans of $3.4 million and cash and cash equivalents of $3.1 million, offset by decreases in available for sale securities of $2.9 million, other real estate of $702,000 and premises and equipment of $561,000.

Net Loans. Net loans increased by $3.4 million, or 3.9%, to $89.5 million at December 31, 2014 from $86.1 million at December 31, 2013. During the year ended December 31, 2014 we originated $15.3 million of one- to four-family residential real estate loans, and sold $6.9 million in the secondary market. During the year ended December 31, 2014, one- to four-family residential real estate loans increased $1.7 million or 4.0%, to $45.4 million at December 31, 2014 from $43.6 million at December 31, 2013, commercial real estate loans increased $3.2 million, or 13.0%, to $27.9 million from $24.7 million; construction and land loans decreased $95,000, or 5.9%, to $1.5 million from $1.6 million; and consumer loans, including home equity loans and lines of credit, decreased $1.4 million, or 12.4%, to $10.2 million from $11.7 million. Decreases in loan balances reflect repayments in excess of originations and loan sales.

Investment Securities. Investment securities available for sale decreased $2.9 million, or 18.4%, to $12.7 million at December 31, 2014 from $15.6 million at December 31, 2013. Mortgage-backed securities including collateralized mortgage obligations, decreased $1.4 million, or 24.0%, to $4.4 million at December 31, 2014 from $5.8 million at December 31, 2013, and municipal securities increased $23,000, or 1.0%, to $3.4 million at December 31, 2014 from $3.3 million at December 31, 2013. U.S. government and federal agency securities decreased $1.5 million, or 23.3%, to $4.9 million at December 31, 2014 from $6.4

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million at December 31, 2013. We did not purchase or sell any securities during 2014. The yield on our investment securities increased to 1.39% at December 31, 2014 from 1.36% at December 31, 2013 as a result of the pay downs and increased yields on securities during the period. Net unrealized losses on securities recognized in accumulated other comprehensive loss decreased $118,000 to an unrealized loss of $17,000 at December 31, 2014 compared to a unrealized loss of $135,000 at December 31, 2013, reflecting changes in interest rates during the period. At December 31, 2014, investment securities classified as available-for-sale consisted entirely of government-sponsored mortgage-backed securities, government-sponsored debentures, municipal securities, and U.S. government and agency securities with a focus on suitable government-sponsored securities to augment risk-based capital.

Real Estate Owned and Other Repossessed Assets. Real estate owned held for sale decreased $702,000, or 60.4% to $467,000 at December 31, 2014 from $1.2 million at December 31, 2013, as we sold $1.1 million of foreclosed properties and foreclosed on $387,000 of non-performing loans, recorded $5,000 valuation adjustments and $2,000 in net gains on sales. At December 31, 2014 our real estate owned included two commercial real estate properties, the largest of which was a commercial property with a carrying value of $207,000.

Deposits. Deposits decreased by $9.6 million, or 8.9%, to $98.5 million at December 31, 2014 from $108.1 million at December 31, 2013. Our core deposits increased $1.3 million, or 1.9%, to $71.6 million at December 31, 2014 from $70.3 million at December 31, 2013. Certificates of deposit decreased $10.9 million, or 28.9%, to $26.9 million at December 31, 2014 from $37.8 million at December 31, 2013. The decreases resulted primarily from management’s efforts to reduce our balance sheet in order to improve capital ratios and reduce interest expenses. The sale of our Decatur office, on January 24, 2014, resulted in a decrease of approximately $13.3 million in deposits, including $8.4 million in core deposits and $4.9 million in certificates of deposit.

Federal Home Loan Bank Advances. Federal Home Loan Bank advances increased $10.0 million, or 100%, to $10.0 million at December 31, 2014 from $0 at December 31, 2013. We incurred $10.0 million in additional Federal Home Loan Bank advances in January, 2014 in order to fund the sale of our Decatur office.

Stock Conversion Proceeds Held in Escrow and Other Liabilities. Stock conversion proceeds held in escrow were $3.1 million on December 31, 2013. The Bank was accepting stock subscriptions over year end with the stock conversion occurring on January 16, 2014. Other liabilities which includes interest and accounts payable, customer escrow balances and accruals for items such as employee pension and insurance premiums were $548,000 on December 31, 2014 and $690,000 on December 31, 2013, a decrease of $142,000, or 20.6%.

Total Equity. Total equity increased $4.0 million, or 43.0%, to $13.3 million at December 31, 2014 from $9.3 million at December 31, 2013. The increase resulted from proceeds received from the stock conversion that was completed on January 16, 2014.

Comparison of Operating Results for the Years Ended December 31, 2014 and December 31, 2013

General. Net loss for the year ended December 31, 2014 was $816,000, compared to net loss of $1.6 million for the year ended December 31, 2013. The decrease in net loss was primarily due to decreases in provision for loan losses, losses on real estate owned, professional fees and other expenses related to real estate owned, offset by an increase in income related to mortgage banking activities.

Interest and Dividend Income. Total interest and dividend income decreased $195,000, or 4.5%, to $4.1 million for the year ended December 31, 2014 from $4.3 million for the year ended December 31, 2013. The decrease was primarily the result of a $154,000 decrease in interest and fee income on loans receivable and an $18,000 decrease in interest on investment securities. The average balance of loans during the year ended December 31, 2014 increased $2.7 million to $ 88.7 million for the year ended December 31, 2014 from $85.9 million for the year ended December 31, 2013, while the average yield on loans decreased by 31 basis points to 4.37% for the year ended December 31, 2014 from 4.68% for the year ended December 31, 2013. The decrease in yield on loans was due to the declining interest rate environment, our conversion of certain higher-yield, higher-risk loans to lower-yielding, lower risk loans, and an increase in payoffs of higher interest rate loans as customers refinanced loans at lower rates. The average balance of

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investment securities decreased $2.3 million to $14.0 million for the year ended December 31, 2014 from $16.3 million for the year ended December 31, 2013, and the yield on investment securities increased by 3 basis points to 1.39% for the year ended December 31, 2014 from 1.36% for the year ended December 31, 2013. The slight increase in average yield on securities was due to the pay downs of lower yielding securities, as well as our decision to manage liquidity by investing in shorter-term securities, which generally bear interest at a lower rate than longer-term securities.

Interest Expense. Total interest expense decreased $65,000, or 11.7%, to $493,000 for the year ended December 31, 2014 from $558,000 for the year ended December 31, 2013. Interest expense on deposit accounts decreased $163,000, or 29.6%, to $386,000 for the year ended December 31, 2014 from $549,000 for the year ended December 31, 2013. The decrease was primarily due to a decrease of 11 basis points in average cost of interest-bearing deposits to 0.46% for the year ended December 31, 2014 from 0.57% during the year ended December 31, 2013, reflecting the declining interest rate environment, and a decrease of $13.4 million, or 13.9%, in the average balance of interest-bearing deposits to $83.4 million for the year ended December 31, 2014 from $96.8 million for the year ended December 31, 2013.

Interest expense on Federal Home Loan Bank of Indianapolis advances increased $98,000, or 1,102.7%, to $106,000 for the year ended December 31, 2014 from $9,000 for the year ended December 31, 2013. The average balance of advances increased by $7.7 million to $9.6 million for the year ended December 31, 2014 from $1.9 million for the year ended December 31, 2013, as we borrowed funds to complete the sale of the Decatur branch, and the costs increased 63 basis points to 1.11% for the year ended December 31, 2014 from 0.48% for the year ended December 31, 2013.

Net Interest Income. Net interest income decreased $130,000, or 3.4%, to $3.6 million for the year ended December 31, 2014 from $3.8 million for the year ended December 31, 2013. The decrease resulted primarily from a decrease of $195,000 in interest income offset by a decrease of $65,000 in interest expense. Our average net interest-earning assets increased to $19.1 million for the year ended December 31, 2014 from $14.7 million for the year ended December 31, 2013, and our net interest rate spread decreased to 3.17% for the year ended December 31, 2014 from 3.26% for the year ended December 31, 2013. Our net interest margin also decreased to 3.26% for the year ended December 31, 2014 from 3.33% for the year ended December 31, 2013. The decrease in our interest rate spread and net interest margin reflected primarily the more rapid repricing of our interest-bearing liabilities in a decreasing interest rate environment compared to our interest-earning assets. An increase in interest rates and a decline in refinancing activity in future periods may materially decrease our income from mortgage banking activities.

Provision for Loan Losses. Based on our analysis of the factors described in “Critical Accounting Policies — Allowance for Loan Losses,” we recorded a provision for loan losses of $0 for the year ended December 31, 2014, compared to a provision of $640,000 for the year ended December 31, 2013. The decrease in the provision for loan losses for the year ended December 31, 2014 was largely the result of management’s estimates regarding losses that were both probable and reasonable to estimate. There are two primary reasons for the $0 provision. First, classified assets at December 31, 2014 were $1.7 million less compared to December 31, 2013. Second, we experienced net recoveries of $14,000 in 2014 compared to net charge-offs of $1.1 million in 2013. The allowance for loan losses was $1.1 million or 1.19% of total loans at December 31, 2014, compared to $1.1 million or 1.22% of total loans at December 31, 2013. Total nonperforming loans were $2.9 million at December 31, 2014 compared to $2.7 million at December 31, 2013. As a percentage of nonperforming loans, the allowance for loan losses was 37.1% at December 31, 2014 compared to 38.6% at December 31, 2013. At December 31, 2014 and 2013, $1.5 million of nonperforming loans were contractually current.

Non-Interest Income. Non-interest income decreased $298,000, or 28.3% to $756,000 for the year ended December 31, 2014 from $1.1 million for the year ended December 31, 2013. The decrease was primarily related to a decrease of $155,000 in income related to mortgage banking activities, primarily resulting from a decrease in one- to four-family mortgage loan origination and sold, and a decrease in service charge on deposits of $119,000 which is partially related to the deposit accounts sold with the Decatur branch.

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Non-Interest Expense. Non-interest expenses decreased $586,000, or 10.1%, to $5.2 million for the year ended December 31, 2014 from $5.8 million for the year ended December 31, 2013. The decrease primarily reflected a decrease of $385,000 in expenses related to real estate owned, a decrease of $176,000 in data processing, and a decrease in other expenses of $98,000 which was offset by an increase of $102,000 in salaries and employee benefits.

Average Balances and Yields. The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of net deferred costs, discounts and premiums that are accreted to interest income.

	For the Year Ended December 31,
	2014								2013
	(Dollars in thousands)
	Average Outstanding Balance			Interest			Yield/ Rate(1)		Average Outstanding Balance			Interest			Yield/ Rate(1)
	(Dollars in thousands)
Interest-earning assets:
Loans		$	88,650		$	3,870		4.37%		$	85,947		$	4,024		4.68%
Investment securities			13,977			194		1.39			16,263			221		1.36
Other interest-earning assets(1)			9,347			76		0.81			11,073			90		0.81
Total interest-earning assets			111,974			4,140		3.70			113,283			4,335		3.83
Noninterest-earning assets			7,281								9,166
Allowance for loan losses			(1,097)								(1,267)
Total assets		$	118,158							$	121,182
Interest-earning liabilities:
Demand deposits		$	17,571			40		0.23%		$	17,515			28		0.16%
Money market accounts			22,858			66		0.29			25,579			74		0.29
Savings accounts			13,840			27		0.20			13,492			18		0.13
Certificates of deposit			29,091			253		0.87			40,187			429		1.07
Total deposits			83,360			386		0.46			96,773			549		0.57
FHLB-Indianapolis advances			9,564			106		1.11			1,857			9		0.48
Total interest-bearing liabilities			92,924			492		0.53			98,630			558		0.57
Noninterest-bearing demand deposits			12,525								10,966
Other noninterest-bearing liabilities			944								970
Total liabilities			106,393								110,566
Equity			11,765								10,616
Total liabilities and equity		$	118,158							$	121,182
Net interest income					$	3,648							$	3,777
Net interest spread(2)								3.17%								3.26%
Net interest-earning assets(3)		$	19,050							$	14,653
Net interest margin(4)								3.26%								3.33%
Average interest-earning assets to interest-bearing liabilities								120.50%								114.86%

(1)

Consists of stock in the FHLB-Indianapolis and interest bearing deposits in other banks.

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(2)

Net interest spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(3)

Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

(4)

Net interest margin represents net interest income divided by average total interest-earning assets.

Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated to the changes due to volume and the changes due to rate in proportion to the relationship of the absolute dollar amounts of change in each.

	For the Years Ended December 31, 2014 vs. 2013									For the Years December 31, 2013 vs. 2012
	Increase (Decrease) Due to						Total Increase (Decrease)			Increase (Decrease) Due to						Total Increase (Decrease)
	Volume			Rate			Total Increase (Decrease)			Volume			Rate			Total Increase (Decrease)
	(Dollars in thousands)
Interest-earning assets:
Loans		$	124		$	(278)		$	(154)		$	(718)		$	(255)		$	(973)
Investment securities			(32)			5			(27)			28			(57)			(29)
Other interest-earning assets			(14)			—			(14)			49			(30)			19
Total interest-earning assets			78			(273)			(195)			(641)			(342)			(983)
Interest-bearing liabilities:
Demand deposit accounts			—			12			12			4			2			6
Money market accounts			(8)			—			(8)			2			(8)			(6)
Savings accounts			1			8			9			—			(3)			(3)
Certificates of deposit			(106)			(70)			(176)			(67)			(118)			(185)
Total deposits			(113)			(50)			(163)			(61)			(127)			(188)
FHLB of Indianapolis advances			74			23			97			(88)			(104)			(192)
Total interest-bearing liabilities			(39)			(27)			(66)			(149)			(231)			(380)
Change in net interest income		$	117		$	(246)		$	(129)		$	(492)		$	(111)		$	(603)

Management of Market Risk

General. Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our financial condition and results of operations to changes in market interest rates. Our Asset-Liability Committee is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the policy and guidelines approved by our board of directors.

Our asset/liability management strategy attempts to manage the impact of changes in interest rates on net interest income, our primary source of earnings. Among the techniques we use to manage interest rate risk are:

•

originating commercial and industrial, consumer and commercial real estate loans, all of which tend to have shorter terms and higher interest rates than one- to four-family residential real estate loans, and which generate customer relationships that can result in larger non-interest bearing checking accounts;

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•

selling substantially all of our fixed-rate one- to four-family residential real estate loans that we originate and retaining certain fixed-rate loans and the majority of the adjustable-rate one- to four-family residential real estate loans that we originate, subject to market conditions and periodic review of our asset/liability management needs;

•

lengthening the weighted average maturity of our liabilities through retail deposit pricing strategies and through longer-term wholesale funding sources such as fixed-rate advances from the Federal Home Loan Bank of Indianapolis;

•

reducing our dependence on the acquisition of certificate of deposits to support lending and investment activity;

•

investing in shorter- to medium-term investment securities; and

•

increasing non-interest income as a percentage of total income to decrease our reliance on net interest margin and interest rate spread.

Our Board of Directors is responsible for the review and oversight of our Asset/Liability Committee, which is comprised of our executive management team and other essential operational staff. This committee is charged with developing and implementing an asset/liability management plan, and meets at least quarterly to review pricing and liquidity needs and assess our interest rate risk. We currently utilize a third-party modeling program, prepared on a quarterly basis, to evaluate our sensitivity to changing interest rates, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the Board of Directors. In addition, we regularly perform a “gap analysis” of the discrepancy between the repricing of our assets and liabilities. We also engage a third party asset/liability advisor, who meets with our Asset/Liability Committee on a quarterly basis and with our Board of Directors at least annually.

Net Interest Income Analysis. We analyze our sensitivity to changes in interest rates through our net interest income simulation model which is provided to us by an independent third party. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings. We estimate what our net interest income would be for a one-year period based on current interest rates. We then calculate what the net interest income would be for the same period under different interest rate assumptions. We also estimate the impact over a five year time horizon. The following table shows the estimated impact on net interest income for the one-year period beginning December 31, 2013 resulting from potential changes in interest rates. The model is run at least quarterly showing shocks from +400bp to -100bp, because a decline of greater than -100bp is currently improbable. These estimates require certain assumptions to be made, including loan and mortgage-related investment prepayment speeds, reinvestment rates, and deposit maturities and decay rates. These assumptions are inherently uncertain. As a result, no simulation model can precisely predict the impact of changes in interest rates on our net interest income. Although the net interest income table below provides an indication of our interest rate risk exposure at a particular point in time, such estimates are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results.

Rate Shift(1)	Net Interest Income Year 1 Forecast			Year 1 Change from Level
(Dollars in thousands)
+400		$	3,825		5.9%
+300			3,799		5.2%
+200			3,772		4.4%
+100			3,693		2.3%
Level			3,612		—
-100			3,521		-2.5%

(1)

The calculated changes assume an immediate shock of the static yield curve.

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Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement. Modeling changes in net portfolio value requires making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the tables presented assume that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. The tables also do not measure the changes in credit and liquidity risk that may occur as a result of changes in general interest rates. Accordingly, although the tables provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our economic value of equity and will differ from actual results.

In order to monitor and manage interest rate risk, we also use the net present value of equity at risk (“NPV”) methodology. This methodology calculates the difference between the present value of expected cash flows from assets and liabilities. The comparative scenarios assume an immediate parallel shifts in the yield curve in increments of 100 basis point (bp) rate movements. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Change in Interest Rates” column below. The model is run at least quarterly showing shocks from +300bp to -100bp, because a decline of greater than -100bp is currently improbable. The Board of Directors and management review the methodology’s measurements on a quarterly basis.

The interest rate scenarios are used for analytical purposes and do not necessarily represent management’s view of future market movements. Results of the modeling are used to provide a measure of the degree of volatility interest rate movements may influence our earnings. Modeling the sensitivity of earnings to interest rate risk is decidedly reliant on numerous assumptions embedded in the model. These assumptions include, but are not limited to, management’s best assessment of the effect of changing interest rates on the prepayment speeds of certain assets and liabilities, projections for account balances in each of the product lines offered and the historical behavior of deposit rates and balances in relation to changes in interest rates. These assumptions are inherently changeable, and as a result, the model is not expected to precisely measure net interest income or precisely predict the impact of fluctuations in interest rate on net interest income. Actual results will differ from the simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in market conditions. Assumptions are supported with annual back testing of the model to actual market rate shifts.

The table below sets forth, as of December 31, 2014, the estimated changes in the net present value of equity that would result from the designated changes in the United States Treasury yield curve under an instantaneous parallel shift for Edgewater Bank. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.

At December 31, 2014
				Estimated Increase (Decrease) in EVE					EVE as Percentage of Economic Value of Assets(3)
Changes in Interest Rates (basis points)(1)	Estimated EVE(2)			Amount			Percent		EVE Ratio		Changes in Basis Points
(Dollars in thousands)
+300		$	12,675		$	(928)		(6.8)%		10.72%		(0.34)
+200			13,009			(594)		(4.4)		10.86		(0.20)
+100			13,323			(280)		(2.1)		10.98		(0.08)
Level			13,604			—		—		11.06		—
-100			14,156			552		4.1		11.40		0.34

(1)

Assumes instantaneous parallel changes in interest rates.

(2)

EVE or Economic Value of Equity at Risk measures the Bank’s exposure to equity due to changes in a forecast interest rate environment.

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(3)

EVE Ratio represents Economic Value of Equity divided by the economic value of assets which should translate into built in stability for future earnings.

The table above indicates that at December 31, 2014, in the event of an instantaneous parallel 100 basis point decrease in interest rates, we would experience a 4.1% increase in net portfolio value. In the event of an instantaneous 100 basis point increase in interest rates, we would experience a 2.1% decrease in net portfolio value.

Depending on the relationship between long-term and short-term interest rates, market conditions and consumer preference, we may place greater emphasis on maximizing our net interest margin than on strictly matching the interest rate sensitivity of our assets and liabilities. We believe that the increased net income which may result from an acceptable mismatch in the actual maturity or re-pricing of our assets and liabilities can, during periods of declining or stable interest rates, provide sufficient returns to justify an increased exposure to sudden and unexpected increases in interest rates. We believe that our level of interest rate risk is acceptable using this approach.

We do not engage in hedging activities, such as engaging in futures, options or swap transactions, or investing in high-risk mortgage derivatives, such as collateralized mortgage obligation residual interests, real estate mortgage investment conduit residual interests or stripped mortgage backed securities.

Liquidity and Capital Resources

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, proceeds from the sale of loans, and proceeds from maturities and calls of securities. We also have the ability to borrow from the FHLB-Indianapolis. At December 31, 2014, we had the capacity to borrow approximately $13.5 million from the FHLB-Indianapolis and an additional $2 million on a line of credit with the FHLB-Indianapolis with an additional $2 million line of credit with United Bankers Bank. We drew $10.0 million in January 2014 to fund the sale of the Decatur office however; historically we do not use Federal Home Loan Bank advances to fund our operations, and at December 31, 2014 and December 31, 2013, we had $10.0 million and $0, respectively, outstanding in advances from the FHLB-Indianapolis.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments including interest-bearing demand deposits. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash (used) in operating activities was ($267,000) and ($168,000) for the years ended December 31, 2014 and December 31, 2013, respectively. Net cash (used) provided by investing activities, which consists primarily of disbursements for loan originations and the purchase of securities, offset by principal collections on loans, proceeds from the sale of securities and proceeds from maturing securities and pay downs on mortgage-backed securities and sale of the Decatur branch, was ($12.7 million) and $1.7 million for the years ended December 31, 2014 and December 31, 2013, respectively. During the years ended December 31, 2014 and December 31, 2013, we purchased $0 and $4.9 million, respectively and sold no securities in 2014 and 2013, in securities held as available-for-sale. We sold the Decatur branch using $13.3 million to fund the deposit and facility sale. Net cash (used in) financing activities, consisting primarily of the activity in deposit accounts and Federal Home Loan Bank advances, and escrow deposits for the stock conversion was ($16.1 million) and ($261,000) for the years ended December 31, 2014 and December 31, 2013, respectively, resulting from our strategy of managing growth to preserve capital ratios and reduce expenses.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.

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At December 31, 2014, we exceeded all of our regulatory capital requirements with a tier 1 leverage capital level of $12.3 million, or 10.03% of adjusted total assets, which is above the required level of $6.1 million, or 5.00%; and total risk-based capital of $13.2 million, or 17.87% of risk-weighted assets, which is above the required level of $7.4 million, or 10.00%. At December 31, 2013, we exceeded all of our regulatory capital requirements with a tier 1 leverage capital level of $9.4 million, or 7.75% of adjusted total assets, which is above the required level of $6.1 million, or 5.00%; and total risk-based capital of $10.4 million, or 13.54% of risk-weighted assets, which is above the required level of $7.7 million, or 10.00%. Accordingly, Edgewater Bank was categorized as well capitalized at December 31, 2014 and December 31, 2013. Management is not aware of any conditions or events since the most recent notification that would change our category.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. At December 31, 2014, we had outstanding commitments to originate loans of $8.6 million, unused lines of credit totaling $11.4 million, and stand-by letters of credit of $10,000. We anticipate that we will have sufficient funds available to meet our current lending commitments. Certificates of deposit that are scheduled to mature in less than one year from December 31, 2014 totaled $14.5 million. Management expects that a substantial portion of the maturing certificates of deposit will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize Federal Home Loan Bank advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include data processing services, operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities.

Recent Accounting Pronouncements

Please refer to Note 1 to the Financial Statements for the years ended December 31, 2014 and 2013 beginning on page F-1 for a description of recent accounting pronouncements that may affect our financial condition and results of operations.

Impact of Inflation and Changing Price

The financial statements and related data presented herein have been prepared in accordance with generally accepted accounting principles in the United States of America which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

ITEM 7A.

Quantitative and Qualitative Disclosures about Market Risk

Not required for smaller reporting companies.

ITEM 8.

Financial Statements and Supplementary Data

The Company’s Consolidated Financial Statements, Notes to Consolidated Financial Statements and the Report of Independent Registered Public Accounting Firm, are presented in this Annual Report on Form 10-K beginning at page F-1 and are incorporated here by reference.

ITEM 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

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ITEM 9A.

Controls and Procedures

(a) Disclosure Controls and Procedures. An evaluation was performed under the supervision and with the participation of the Company’s management, including the President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of December 31, 2014. Based on that evaluation, the Company’s management, including the President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

(b) Internal Control Over Financial Reporting.

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The internal control process has been designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.

There have been no significant changes in our internal control over financial reporting during the quarter ended December 31, 2014, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). There are inherent limitations in the effectiveness of any system of internal control. Accordingly, even an effective system of internal control can provide only reasonable assurance with respect to financial statement preparation.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2014. This evaluation was based on criteria for effective internal control over financial reporting described in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our evaluation under the COSO framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2014.

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

March 30, 2015

REPORT BY EDGEWATER BANCORP, INC.’s MANAGEMENT
ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining an effective system of internal control over financial reporting that is designed to produce reliable financial statements presented in conformity with generally accepted accounting principles. There are inherent limitations in the effectiveness of any system of internal control. Accordingly, even an effective system of internal control can provide only reasonable assurance with respect to financial statement preparation.

Management assessed the Company’s system of internal control over financial reporting that is designed to produce reliable financial statements presented in conformity with generally accepted accounting principles as of December 31, 2014. This assessment was based on criteria for effective internal control over financial reporting described in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment,

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management believes that, as of December 31, 2014, Edgewater Bancorp, Inc. maintained an effective system of internal control over financial reporting that is designed to produce reliable financial statements presented in conformity with generally accepted accounting principles based on those criteria.

Edgewater Bancorp, Inc.

	By:			/s/ Richard E. Dyer Richard E. Dyer President and Chief Executive Officer
	By:			/s/ Coleen S. Frens-Rossman Coleen S. Frens-Rossman Senior Vice President and Chief Financial Officer

ITEM 9B.

Other Information

None.

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PART III

ITEM 10.

Directors, Executive Officers and Corporate Governance

The information presented under the caption “Proposal I — Election of Directors”, in our definitive Proxy Statement for our May 14, 2015 Annual Meeting of Stockholders (the “Proxy Statement”), a copy of which will be filed with the Securities and Exchange Commission, is incorporated here by reference. “Proposal I — Election of Directors” includes information about our audit committee and audit committee financial expert and about Section 16(a) beneficial ownership reporting compliance.

Executive Officers of Edgewater Bancorp and Edgewater Bank

The following table sets forth information regarding the executive officers of Edgewater Bancorp and Edgewater Bank. Age information is as of December 31, 2014. The executive officers of Edgewater Bancorp, our code of ethics and Edgewater Bank are elected annually.

Name	Age	Position
Richard E. Dyer	56	President and Chief Executive Officer
Coleen S. Frens-Rossman	54	Senior Vice President and Chief Financial Officer
Maria Kibler(1)	54	Vice President and Senior Retail Officer
Cheryl Moeslein(2)	54	Vice President and Secretary

(1)

Not an officer of Edgewater Bancorp, Inc.

(2)

Ms. Moeslein serves as Vice President of Administrative Services and Secretary at Edgewater Bank.

ITEM 11.

Executive Compensation

The information presented under the captions “Executive Officer Compensation”, “Director Compensation” and “Director Fees” in the Proxy Statement is incorporated here by reference.

ITEM 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

(a) and (b) Security Ownership of Certain Beneficial Owners and Management.

The information presented under the caption “Voting Securities and Principal Holders” in the Proxy Statement is incorporated here by reference.

(c) Change in Control. Management of the Company knows of no arrangements, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the registrant.

(d) Equity Compensation Plans.

We do not have any compensation plans under which equity securities are authorized for issuance.

ITEM 13.

Certain Relationships and Related Transactions and Director Independence

The information presented under the captions “Transactions With Certain Related Persons” and “Board and Committee Independence” in the Proxy Statement is incorporated here by reference.

ITEM 14.

Principal Accountant Fees and Services

The information presented under the caption “Proposal II — Ratification of Appointment of Independent Registered Public Accounting Firm” in the Proxy Statement is incorporated here by reference.

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PART IV

ITEM 15.

Exhibits and Financial Statement Schedules

(a)(1) Financial Statements

The documents filed as a part of this Form 10-K are:

(A) Report of Independent Registered Public Accounting Firm;

(B) Consolidated Balance Sheets — December 31, 2014 and 2013;

(D) Consolidated Statements of Comprehensive Loss — years ended December 31, 2014 and 2013;

(E) Consolidated Statements of Change in Equity — years ended December 31, 2014 and 2013;

(F) Consolidated Statements of Cash Flows — years ended December 31, 2014 and 2013;

(G) Notes to Consolidated Financial Statements.

(a)(2) Financial Statement Schedules

All financial statement schedules have been omitted as the required information is inapplicable or has been included in the Notes to Consolidated Financial Statements.

(b) Exhibits

	3.1			Articles of Incorporation of Edgewater Bancorp, Inc.*
	3.2			Bylaws of Edgewater Bancorp, Inc.*
	4			Form of Common Stock Certificate of Edgewater Bancorp, Inc.*
	10.1			Employee Stock Ownership Plan*†
	10.2			Employment Agreement between Edgewater Bank and Richard E. Dyer*†
	10.3			Employment Agreement between Edgewater Bank and Coleen S. Frens-Rossman*†
	21			Subsidiaries*
	23			Consent of BKD, LLP
	31.1			Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2			Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1			Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	101			The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Stockholders Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements**

(c) Financial Statement Schedules. All financial statement schedules have been omitted as the required information is inapplicable or has been included in the Notes to Consolidated Financial Statements.

Incorporated by reference to the Registration Statement on Form S-1 (file no. 333-191125), initially filed September 12, 2013.

Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.

†

Management contract or compensatory agreement or arrangement.

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Edgewater Bancorp, Inc.

Report of Independent Registered Public Accounting Firm
and Consolidated Financial Statements

December 31, 2014 and 2013

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Report of Independent Registered Public Accounting Firm

Audit Committee, Board of Directors and Stockholders
Edgewater Bancorp, Inc.
St. Joseph, Michigan

We have audited the accompanying consolidated balance sheets of Edgewater Bancorp, Inc. as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for the years then ended. The Company's management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing auditing procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits also included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Edgewater Bancorp, Inc. as of December 31, 2014 and 2013, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

BKD, LLP

Fort Wayne, Indiana
March 30, 2015

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Edgewater Bancorp, Inc.

Consolidated Balance Sheets
December 31, 2014 and 2013

	December 31, 2014			December 31, 2013
Assets
Cash and due from banks		$	763,968		$	683,930
Interest-earning demand accounts			12,680,629			9,638,146
Cash and cash equivalents			13,444,597			10,322,076
Available-for-sale securities			12,718,065			15,593,540
Federal Home Loan Bank (FHLB) stock			1,078,900			1,408,200
Loans held for sale			48,300			—
Loans receivable, net of allowance for losses of $1,075,351 and $1,061,141, respectively			89,479,525			86,092,038
Premises and equipment, net			3,912,291			4,473,690
Other real estate, net			467,000			1,168,796
Interest receivable			302,777			312,615
Mortgage servicing right			432,105			513,170
Other assets			460,562			1,242,327
Total assets		$	122,344,122		$	121,126,452
Liabilities and Equity
Liabilities
Deposits
Noninterest bearing		$	11,730,674		$	12,188,446
Interest-bearing			86,762,438			95,882,580
			98,493,112			108,071,026
Federal Home Loan Bank advances			10,000,000			—
Stock conversion proceeds in escrow			—			3,076,038
Accrued and other liabilities			547,550			690,457
Total liabilities			109,040,662			111,837,521
Commitments and contingencies
Temporary Equity
ESOP shares subject to mandatory redemption			22,193			—
Equity
Common Stock-shares authorized 7,000,000: shares issued and outstanding 667,898 at $.01 par value			6,679			—
Paid-in-capital			4,683,434			—
Retained earnings			8,607,914			9,424,187
Accumulated other comprehensive loss			(16,760)			(135,256)
Total equity			13,281,267			9,288,931
Total liabilities and equity		$	122,344,122		$	121,126,452

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Edgewater Bancorp, Inc.

Consolidated Statements of Operations
Years Ended December 31, 2014 and 2013

	December 31,
	2014			2013
Interest Income
Loans, including fees		$	3,869,586		$	4,023,681
Debt securities
Taxable			146,015			178,195
Tax-exempt			48,688			42,734
Federal Home Loan Bank stock			59,019			51,253
Other			17,231			39,388
Total interest income			4,140,539			4,335,251
Interest Expense
Deposits			386,137			548,700
Federal Home Loan Bank advances			106,463			8,852
Total interest expense			492,600			557,552
Net interest income			3,647,939			3,777,699
Provision for loan losses			—			640,000
Net Interest Income After Provision for Loan Losses			3,647,939			3,137,699
Other Income
Service charges, deposits			382,506			501,808
Mortgage banking activities			253,258			408,218
Other			120,680			144,294
Total other income			756,444			1,054,320
Other Expense
Salaries and employee benefits			2,523,934			2,422,275
Occupancy and equipment			827,111			840,298
Data processing			526,768			703,059
(Gain) Loss on sale of other real estate, net			(2,266)			233,250
Interchange			79,571			71,173
Advertising			90,520			80,228
FDIC insurance premiums			151,301			168,256
Other real estate			82,223			231,276
Professional fees			576,232			592,182
Insurance			76,371			77,626
Other			288,891			386,775
Total other expense			5,220,656			5,806,398
Loss Before Income Taxes			(816,273)			(1,614,379)
Provision for Income Taxes			—			—
Net Loss		$	(816,273)		$	(1,614,379)
Basic and Diluted Loss Per Share		$	(1.38)			N/A

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Edgewater Bancorp, Inc.

Consolidated Statements of Comprehensive Loss
Years Ended December 31, 2014 and 2013

	2014			2013
Net Loss		$	(816,273)		$	(1,614,379)
Other Comprehensive Income (Loss)
Net change in unrealized gains (losses) on investment securities available for sale			118,496			(372,045)
Less: reclassification adjustment for realized gains (losses) included in net loss			—			—
Other comprehensive income (loss) before income tax			118,496			(372,045)
Tax expense (benefit), net of deferred tax asset valuation impact of ($40,289) and $126,495, respectively			—			—
Comprehensive Loss		$	(697,777)		$	(1,986,424)

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Edgewater Bancorp, Inc.

Consolidated Statements of Changes in Equity
Years Ended December 31, 2014 and 2013

	Shares		Common Stock			Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total
Balance at January 1, 2013		—		$	—		$	—		$	11,038,566		$	236,789		$	11,275,355
Net loss		—			—			—			(1,614,379)			—			(1,614,379)
Other comprehensive loss		—			—			—			—			(372,045)			(372,045)
Balance at December 31, 2013		—			—			—			9,424,187			(135,256)			9,288,931
Issuance of common stock, net of offering costs		667,898			6,679			4,683,434			—			—			4,690,113
Net loss		—			—			—			(816,273)			—			(816,273)
Other comprehensive income		—			—			—			—			118,496			118,496
Balance at December 31, 2014		667,898		$	6,679		$	4,683,434		$	8,607,914		$	(16,760)		$	13,281,267

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Edgewater Bancorp, Inc.

Consolidated Statement of Cash Flows
Years Ended December 31, 2014 and 2013

	2014			2013
Operating Activities
Net loss		$	(816,273)		$	(1,614,379)
Items not requiring (providing) cash
Depreciation and amortization			466,839			509,332
Provision for loan losses			—			640,000
Amortization of premiums on available-for-sale securities			116,047			158,297
ESOP shares earned			22,193			—
Change in fair value of mortgage servicing rights			33,978			82,484
(Gain) Loss on sale of other real estate			(2,266)			233,250
Net realized gains on sales of available-for-sale securities			—			—
Amortization of mortgage servicing rights			106,819			92,255
Loans originated for sale			(6,887,612)			(15,790,320)
Proceeds from loans sold			6,921,030			16,585,736
Gain on sale of loans			(141,450)			(249,435)
Loss on sale of premises and equipment			18,631			5,588
Change in
Interest receivable and other assets			37,639			(789,564)
Interest payable and other liabilities			(142,906)			(31,446)
Net cash used in operating activities			(267,331)			(168,202)
Investing Activities
Purchases of available-for-sale securities			—			(4,894,274)
Proceeds from calls and maturities of available-for-sale securities			2,877,924			3,325,737
Proceeds sale of FHLB Stock			329,300			—
Net change in loans			(3,774,831)			1,038,114
Proceeds from sale of other real estate			1,091,406			2,515,988
Payment for sale of branch, net			(13,327,513)			—
Proceeds from sale of premises and equipment			220,823			204,412
Purchases of premises and equipment			(144,894)			(461,518)
Net cash provided by (used in) investing activities			(12,727,785)			1,728,459
Financing Activities
Net change in deposits			3,749,599			1,662,985
Proceeds from stock conversion escrow			2,368,038			3,076,038
Proceeds from Federal Home Loan Bank advances			11,000,000			—
Repayment of Federal Home Loan Bank advances			(1,000,000)			(5,000,000)
Net cash provided by (used in) financing activities			16,117,637			(260,977)
Net Increase in Cash and Cash Equivalents			3,122,521			1,299,280
Cash and Cash Equivalents, Beginning of Period			10,322,076			9,022,796
Cash and Cash Equivalents, End of Period		$	13,444,597		$	10,322,076
Additional Cash Flows Information:
Interest paid		$	487,376		$	557,553
Loans transferred to other real estate			387,344			726,897
Capitalization of mortgage serving rights			59,732			137,019
Deferred gain on sale/leaseback transaction			—			66,119

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Note 1:

Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations and Conversion

Edgewater Bank, a federally chartered mutual savings association (the “Bank”) is primarily engaged in providing a full range of banking and financial services to individual and corporate customers in the Berrien, Van Buren and to a lesser extent Cass Counties, Michigan. The Bank is subject to competition from other financial institutions. The Bank is subject to the regulation of the certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.

The Banks’s wholly-owned subsidiaries, Explorer Financial Service Corporation (EFSC) and Edgewater Insurance Agency, Inc. (EIA) are included in the consolidated financial statements. EFSC is primarily engaged in providing title insurance services and EIA is used to collect premiums and receive commissions for insurance related benefits the Bank offers its employees.

On January 16, 2014, in accordance with a Plan of Conversion and Reorganization, the Bank completed a mutual-to-stock conversion pursuant to which the Bank became the wholly owned subsidiary of Edgewater Bancorp, Inc. (the “Company”), a Maryland stock holding corporation. In connection with the Conversion, the Company sold 667,898 shares of common stock, at an offering price of $10 per share. The Company’s stock began being quoted on the OTC Bulletin Board on January 17, 2014 under the symbol “EGDW,” and is currently quoted on the OTCQB operated by OTC Markets Group, Inc. under the symbol “EGDW.”

The net proceeds from the stock offering, net of offering costs of approximately $1,455,000, amounted to approximately $4,690,000.

Also, in connection with the Conversion, the Bank established an employee stock ownership plan (the “ESOP”), which purchased 53,431 shares of the Company’s common stock at a price of $10 per share.

In accordance with the OCC regulations, at the time of the Conversion of the mutual bank to a stock holding company, the Company was required to substantially restrict retained earnings by establishing a liquidation account and the Bank established a parallel liquidation account. The liquidations account will be maintained for the benefit of eligible holders who continue to maintain their accounts at the Bank after conversion. The liquidation account will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holders’ interest in the liquidation account. In the event of a complete liquidation of the Bank, and only in such event, each account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the adjusted qualifying account balances then held. The Bank may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount. All information as of and for the periods ended December 31, 2013 is Bank only pre-conversion data.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses and fair values of financial instruments.

Cash and Cash Equivalents

The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. At December 31, 2014 and 2013, the Company had no cash equivalents.

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At December 31, 2014, none of the Company’s cash accounts at nonfederal government or governmental related entities exceeded federally insured limits, which is $250,000 per covered institution.

Securities

Certain debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and recorded at amortized cost. Securities not classified as held to maturity, including equity securities with readily determinable fair values, are classified as “available-for-sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

For debt securities with fair value below amortized cost when the Company does not intend to sell a debt security, and it is more likely than not the Company will not have to sell the security before recovery of its cost basis, it recognizes the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income. For held-to-maturity debt securities, the amount of an other-than-temporary impairment recorded in other comprehensive income for the noncredit portion of a previous other-than-temporary impairment is amortized prospectively over the remaining life of the security on the basis of the timing of future estimated cash flows of the security.

Federal Home Loan Bank Stock

Federal Home Loan Bank stock is a required investment for institutions that are members of the Federal Home Loan Bank system. The required investment in the common stock is based on a predetermined formula, carried at cost and evaluated for impairment.

Loans Held for Sale

Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to noninterest income. Gains and losses on loan sales are recorded in noninterest income, and direct loan origination costs and fees are deferred at origination of the loan and are recognized in noninterest income upon sale of the loan.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoffs are reported at their outstanding principal balances adjusted for unearned income, charge-offs, the allowance for loan losses, any unamortized deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.

For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized as a level yield adjustment over the respective term of the loan.

The accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past-due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual or charged off are reversed against interest income. The interest on these loans is applied to the principal balance until the loan can be returned to an accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

For all loan portfolio segments, the Company promptly charges off loans, or portions thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values,

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and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial charge-off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.

When cash payments are received on impaired loans in each loan class, the Company records the payment as interest income unless collection of the remaining recorded principal amount is doubtful, at which time payments are used to reduce the principal balance of the loan. Troubled debt restructured loans recognize interest income on an accrual basis at the renegotiated rate if the loan is in compliance with the modified terms.

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 income. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility 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 allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers nonclassified loans and is based on historical charge-off experience and expected loss given default derived from the Company’s internal risk rating process. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

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. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.

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In the course of working with borrowers, the Company may choose to restructure the contractual terms of certain loans. In restructuring the loan, the Company attempts to work out an alternative payment schedule with the borrower in order to optimize collectability of the loan. A troubled debt restructuring (TDR) occurs when, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status, and the restructuring of the loan may include the transfer of assets from the borrower to satisfy the debt, a modification of loan terms, or a combination of the two.

Nonaccrual loans, including TDRs that have not met the six month minimum performance criterion, are reported in this report as non-performing loans. For all loan classes, it is the Company’s policy to have any restructured loans which are on nonaccrual status prior to being restructured remain on nonaccrual status until six months of satisfactory borrower performance, at which time management would consider its return to accrual status. A loan is generally classified as nonaccrual when the Company believes that receipt of principal and interest is questionable under the terms of the loan agreement. Most generally, this is at 90 or more days past due.

With regard to determination of the amount of the allowance for credit losses, restructured loans are considered to be impaired. As a result, the determination of the amount of impaired loans for each portfolio segment within troubled debt restructurings is the same as detailed previously above.

Premises and Equipment

Depreciable assets are stated at cost less accumulated depreciation. Depreciation is charged to expense using the straight-line method over the estimated useful lives of the assets.

The estimated useful lives for premises and equipment are as follows:

	Buildings			39 years
	Building and land improvements			10 years
	Furniture, fixtures and equipment			3 – 7 years

Other Real Estate

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in net income or expense from other real estate.

Mortgage Servicing Rights

Mortgage servicing assets are recognized separately when rights are acquired through purchase or through sale of financial assets. Under the servicing assets and liabilities accounting guidance (ASC 860-50), servicing rights resulting from the sale or securitization of loans originated by the Company are initially measured at fair value at the date of transfer. The Company subsequently measures each class of servicing asset using either the fair value or the amortization method. Under the fair value method, the servicing rights are carried in the balance sheet at fair value and the changes in fair value are reported in earnings in the period in which the changes occur. Amortized mortgage servicing rights include commercial mortgage servicing rights. Under the amortization method, servicing rights are amortized in proportion to and over the period of estimated net servicing income. The amortized assets are assessed for impairment or increased obligation based on fair value at each reporting date.

Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an

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inflation rate, ancillary income, prepayment speeds and default rates and losses. These variables change from quarter to quarter as market conditions and projected interest rates change, and may have an adverse impact on the value of the mortgage servicing right and may result in a reduction to noninterest income.

Each class of separately recognized servicing assets subsequently measured using the amortization method are evaluated and measured for impairment. Impairment is determined by stratifying rights into tranches based on predominant characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual tranche, to the extent that fair value is less than the carrying amount of the servicing assets for that tranche. The valuation allowance is adjusted to reflect changes in the measurement of impairment after the initial measurement of impairment. Changes in valuation allowances, if any, are reported with mortgage banking activities on the statements of operations. Fair value in excess of the carrying amount of servicing assets for that stratum is not recognized.

Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. The amortization of mortgage servicing rights and servicing fee income are included with mortgage banking activities on the statements of operations.

Off-Balance Sheet Instruments

In the ordinary course of business, the Company has entered into commitments under commercial letters of credit and standby letters of credit. Such financial instruments are recorded when they are funded.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.

Income Taxes

The Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

Tax positions are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely- than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to management’s judgment. With a few exceptions, the Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years before 2011.

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The Company recognizes interest and penalties, if any, on income taxes as a component of income tax expense.

The Company files consolidated income tax returns with its subsidiary.

Comprehensive Loss

Comprehensive loss consists of net loss and other comprehensive income (loss), net of applicable loss taxes. Other comprehensive income (loss) includes unrealized appreciation (depreciation) on available-for-sale securities.

Note 2:

Restriction on Cash and Due From Banks

The Company is required to maintain reserve funds in cash and/or on deposit with the Federal Reserve Bank. The reserve required was $486,000 and $502,000 at December 31, 2014 and 2013, respectively.

Note 3:

Securities

The amortized cost and approximate fair values, together with gross unrealized gains and losses, of securities are as follows:

	2014
	Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Approximate Fair Value
Available-for-sale securities:
U.S. Government and federal agency		$	5,002,617		$	3,230		$	66,017		$	4,939,830
State and political subdivisions			3,354,828			20,436			14,179			3,361,085
Mortgage-backed – Government-Sponsored Enterprise (GSE)-residential			3,357,163			32,790			5,951			3,384,002
Collateralized mortgage obligations – GSE			1,020,217			12,931			—			1,033,148
Total available-for-sale securities		$	12,734,825		$	69,387		$	86,147		$	12,718,065

	2013
	Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Approximate Fair Value
Available-for-sale securities:
U.S. Government and federal agency		$	6,557,658		$	9,682		$	126,202		$	6,441,138
State and political subdivisions			3,359,021			18,008			39,304			3,337,725
Mortgage-backed – Government Sponsored Enterprise (GSE)-residential			4,224,511			36,873			30,254			4,231,130
Collateralized mortgage obligations – GSE			1,587,606			9,908			13,967			1,583,547
Total available-for-sale securities		$	15,728,796		$	74,471		$	209,727		$	15,593,540

The amortized cost and fair value of available-for-sale securities at December 31, 2014, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

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	December 31, 2014
	Amortized Cost			Fair Value
Within one year		$	795,000		$	795,723
After one through five years			7,562,445			7,505,192
			8,357,445			8,300,915
Mortgage-backed – GSE residential			3,357,163			3,384,002
Collateralized debt obligations			1,020,217			1,033,148
		$	12,734,825		$	12,718,065

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $345,931 and $459,263 at December 31, 2014 and 2013, respectively.

For the years ended December 31, 2014 and December 31 2013, there were no sales of securities available for sale.

Certain investments in debt securities are reported in the consolidated financial statements at an amount less than their historical cost. Total fair value of these investments at December 31, 2014 and 2013, was $6,066,781 and $10,024,662, which is approximately 48% and 64%, respectively, of the Company’s available-for-sale investment portfolio. These declines primarily resulted from recent increases in market interest rates since the securities were purchased.

Management believes the declines in fair value for these securities are temporary.

The following table shows the Company’s investments’ gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment class and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2014 and 2013:

	2014
	Less than 12 Months						12 Months or Longer						Total
	Fair Value			Gross Unrealized Losses			Fair Value			Gross Unrealized Losses			Fair Value			Gross Unrealized Losses
Available-for-sale securities:
U.S. Government and federal agency		$	—		$	—		$	3,492,139		$	66,017		$	3,492,139		$	66,017
State and political subdivisions			804,572			2,604			488,425			11,575			1,292,997			14,179
Mortgage-backed – GSE residential residential			1,281,645			5,951			—			—			1,281,645			5,951
		$	2,086,217		$	8,555		$	3,980,564		$	77,592		$	6,066,781		$	86,147

	2013
	Less than 12 Months						12 Months or Longer						Total
	Fair Value			Gross Unrealized Losses			Fair Value			Gross Unrealized Losses			Fair Value			Gross Unrealized Losses
Available-for-sale securities:
U.S. Government and federal agency		$	4,423,805		$	126,202								$	4,423,805		$	126,202
State and political subdivisions			2,015,891			39,304									2,015,891			39,304
Mortgage-backed – GSE-residential			2,948,777			30,254									2,948,777			30,254
Collateralized debt obligations			636,189			13,967									636,189			13,967
		$	10,024,662		$	209,727		$	—		$	—		$	10,024,662		$	209,727

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The unrealized losses on the Company’s investments in direct obligations of U.S. Government and federal agencies were caused by interest rate changes. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2014.

Note 4:

Loans and Allowance for Loan Losses

Classes of loans at December 31, 2014 and 2013, include:

	2014			2013
Real estate loans:
Residential 1 – 4 family		$	45,353,599		$	43,612,578
Commercial Real Estate			27,908,662			24,705,387
Construction and land development			1,523,281			1,618,445
Total real estate			74,785,542			69,936,410
Commercial and industrial			5,536,805			5,524,011
Consumer loans:
Home equity loans and lines of credit			9,331,608			10,984,782
Other consumer loans			883,864			672,560
Total consumer			10,215,472			11,657,342
Total loans			90,537,819			87,117,763
Less other items:
Net deferred loan costs			(17,057)			(35,416)
Allowance for loan losses			1,075,351			1,061,141
Total loans, net		$	89,479,525		$	86,092,038

Risk characteristics applicable to each segment of the loan portfolio are described as follows.

Residential 1 – 4 Family, Home Equity Loans and Lines of Credit and Other Consumer: The residential 1 – 4 family real estate loans are generally secured by owner-occupied 1 – 4 family residences. Home equity loans and lines of credit are typically secured by a subordinate interest in 1 – 4 family residences and consumer loans are secured by consumer assets such as automobiles and other personal property. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers. Credit risk in these loans can be impacted by economic conditions within the Bank’s market areas that might impact either property values or a borrower’s personal income. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

Commercial Real Estate including Construction and Land: Commercial real estate loans typically involve larger principal amounts, and repayment of these loans is generally dependent on the successful operations of the property securing the loan or the business conducted on the property securing the loan. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Construction and land real estate loans are usually based upon estimates of costs and estimated value of the completed project and include independent appraisal reviews and a financial analysis of the developers and property owners. Sources of repayment of these loans may include permanent loans, sales of developed property or an interim loan commitment from the Bank until permanent financing is obtained. These loans are considered to be higher risk than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, general economic conditions and the availability of long-term financing. Credit risk in these loans may be impacted by the creditworthiness of a borrower, property values and the local economies in the Company’s market areas.

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Commercial and Industrial: The commercial and industrial portfolio includes loans to commercial customers for use in financing working capital needs, equipment purchases and expansions. The loans in this category are repaid primarily from the cash flow of a borrower’s principal business operation. Credit risk in these loans is driven by creditworthiness of a borrower and the economic conditions that impact the cash flow stability from business operations.

The following tables present by portfolio segment, the activity in the allowance for loan losses for the years ended December 31, 2014 and 2013, and the recorded investment in loans and impairment method as of December 31, 2014 and 2013:

	2014
	Residential 1 – 4 Family			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses
Balance, beginning of period		$	188,325		$	587,331		$	138,268		$	147,217		$	1,061,141
Provision (credit) for loan losses			58,217			(174,664)			110,120			6,327			—
Loans charged to the allowance			(27,134)			—			—			(73,220)			(100,354)
Recoveries of loans previously charged off			3,210			90,954			—			20,400			114,564
Balance, end of year		$	222,618		$	503,621		$	248,388		$	100,724		$	1,075,351
Ending balance: individually evaluated for impairment		$	16,325		$	644		$	—		$	533		$	17,502
Ending balance: collectively evaluated for impairment		$	206,293		$	502,977		$	248,388		$	100,191		$	1,057,849
Loans:
Ending balance		$	45,353,599		$	29,431,943		$	5,536,805		$	10,215,472		$	90,537,819
Ending balance individually evaluated for impairment		$	2,727,712		$	1,356,103		$	—		$	152,879		$	4,236,694
Ending balance collectively evaluated for impairment		$	42,625,887		$	28,075,840		$	5,536,805		$	10,062,593		$	86,301,125

	2013
	Residential 1 – 4 Family			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses
Balance, beginning of period		$	243,867		$	1,089,654		$	32,663		$	137,985		$	1,504,169
Provision (credit) for loan losses			133,163			(19,670)			431,844			94,663			640,000
Loans charged to the allowance			(202,262)			(483,426)			(351,239)			(88,007)			(1,124,934)
Recoveries of loans previously charged off			13,557			773			25,000			2,576			41,906
Balance, end of year		$	188,325		$	587,331		$	138,268		$	147,217		$	1,061,141
Ending balance: individually evaluated for impairment		$	16,704		$	3,447		$	—		$	2,328		$	22,479
Ending balance: collectively evaluated for impairment		$	171,621		$	583,884		$	138,268		$	144,889		$	1,038,662
Loans:
Ending balance		$	43,612,578		$	26,323,832		$	5,524,011		$	11,657,342		$	87,117,763
Ending balance individually evaluated for impairment		$	3,245,415		$	1,777,437		$	—		$	237,558		$	5,260,410
Ending balance collectively evaluated for impairment		$	40,367,163		$	24,546,395		$	5,524,011		$	11,419,784		$	81,857,353

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Internal Risk Categories

In adherence with policy, the Bank uses the following internal risk grading categories and definitions for loans:

RISK RATING 1 — EXCELLENT

General: The highest quality asset rating reflects superior, in-depth management, and superior financial flexibility. Conservative balance sheets are both strong and liquid, and historic cash flows (last five years) have provided exceptionally large and stable margins of protection.

Specific: Financial statements are current, audited, of superior quality and in complete detail. Financial condition is superior and compares favorably to the industry average. Cash flow is outstanding relative to historical and projected debt service requirements. The borrower adheres to all loan covenants. Management (or individual) integrity and ability are outstanding.

RISK RATING 2 — STRONG

General: The borrower is fully responsible for the credit. Asset quality and liquidity are very good, and debt capacity and coverage are strong. The company has strong management in all positions, and is highly regarded with excellent financial flexibility including access to other sources of financing.

Specific: Financial statements are current, of excellent quality and in adequate detail. Financial condition is very good and compares favorably to the industry average. Statements reflect a stable record of earnings over time and consistent profitability. Cash flow is strong relative to historical and projected debt service requirements. The borrower consistently adheres to the repayment schedules for both principal and interest. The borrower adheres to all loan covenants. Management (or individual) integrity and ability are outstanding.

RISK RATING 3 — ACCEPTABLE

General: Asset quality and liquidity are strong, and debt capacity and coverage are good to above average. General financial trends are stable to favorable and financial and profitability ratios are consistent with industry peers. Management strength is apparent but may be limited to key positions. The industry is average. Some elements of uncertainty may be present due to liquidity, margin and cash flow stability, asset of customer concentrations, dependence on one business type, or cyclical trends that may affect the borrower. Adverse economic conditions may lead to declining trends.

Specific: The financial statements are generally current, of adequate detail, and of average quality. Publication of statements is at least once annually. Financial condition is average relative to the industry. The earnings record is satisfactory, although year-to-year earnings patterns may fluctuate more than for borrowers rated Excellent (1) or Strong (2). Cash flow may vary during the repayment of the loan but does not fall below debt service requirements. Historical profitability may be inconsistent and may have losses in recent years. Liquidity and leverage may be below the industry average, and the borrower may be highly leveraged. The borrower consistently adheres to repayment schedules for both principal and interest, and adheres to all loan covenants. Any waivers are immaterial, and do not negatively impact the strength of the credit. Management (or individual) integrity and ability are sound. Depth and breadth of management is also sound.

RISK RATING 4 — WATCH

General: Loans in this category are considered to be acceptable credit quality, but contain greater credit risk than Risk Rating 3 loans due to weak balance sheets, marginal earnings or cash flow, lack of financial information, weakening markets, insufficient or questionable collateral coverage, or other uncertainties. These loans warrant a higher than average level of monitoring to ensure that potential weaknesses do not emerge. The level of risk in a Watch loan is within acceptable underwriting guidelines so long as the loan is given the proper level of management supervision.

Specific: The financial statements may be missing, outdated, of poor quality, or lacking in important details. Financial condition is below the industry average. The borrower may be experiencing negative trends and/or erratic or unstable financial performance. The borrower may have suffered a loss in a recent period; however, losses have not been of the magnitude to have adversely affected the balance sheet. The

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borrower generally adheres to repayment schedules for principal and consistently for interest. Cash flow from primary sources has generally been adequate but, if existing trends continue may not be adequate to meet projected debt service requirements in the future. The borrower may have violated one or more financial or other covenants, but such has not materially impacted financial condition or performance. Industry outlook may be unfavorable. The integrity and quality of management remains good; however, management depth may be limited.

RISK RATING 5 — SPECIAL MENTION

General: Assets in this category have potential weaknesses that deserve the Bank’s close attention. If potential weaknesses are left unchecked or uncorrected, they may result in deterioration of the repayment prospects for the asset or inadequately protect the Bank’s credit position at some future date. These assets pose elevated risk, but their weakness does not expose the Bank to sufficient risk to warrant adverse classification.

Specific: Borrowers may be experiencing adverse operating trends (declining revenues or margins) or an ill-proportioned balance sheet (increasing inventory without an increase in sales, high leverage, tight liquidity). Adverse economic or market conditions, such as interest rate increases or the entry of a new competitor, may also support a Special Mention (5) rating. Nonfinancial reasons for rating a credit Special Mention (5) include management problems, pending litigation, an ineffective loan agreement or other material structural weaknesses, and any other significant deviation from prudent lending practices.

RISK RATING 6 — SUBSTANDARD

General: Assets in this category are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. These assets have a well-defined weakness or weaknesses that jeopardize the timely liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Specific: Substandard assets have a high probability of payment default, or they have other well-defined weaknesses. The financial statements may be missing, seriously outdated, of poor quality, or lacking in important details. Financial condition is less than satisfactory. The borrower is experiencing negative trends and material losses. The primary source of cash flow is inadequate to meet current debt service requirements, and unless present conditions improve is potentially inadequate to meet projected debt service requirements. The borrower may have reached the point of employing its secondary source of cash flow. The borrower inconsistently adheres to repayment schedules for either principal or interest. The borrower may have violated one or more financial or other covenants, reflecting unsatisfactory liquidity and/or capitalization. Either the integrity or the ability of management may be in question. For some Substandard (6) assets, the likelihood of full collection of interest and principal may be in doubt; such assets should be placed on nonaccrual.

RISK RATING 7 — DOUBTFUL

General: Assets in this category have all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Specific: An asset in this category has a high probability of total or substantial loss, but because of specific pending events that may strengthen the asset, its classification as loss is deferred. Doubtful borrowers are usually in default, lack adequate liquidity and capital, and lack the resources necessary to remain an operating entity. Pending events can include mergers, acquisitions, liquidations, capital injections, the perfection of liens on additional collateral, the valuation of collateral and refinancing. Generally, pending events should be resolved within a relatively short period and the ratings will be adjusted based on new information. Because of high probability of loss, nonaccrual accounting treatment is required for Doubtful (7) assets.

RISK RATING 8 — LOSS

General: Assets in this category are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be obtained in the future.

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Specific: With Loss (8) assets, the underlying borrowers are often in bankruptcy, have formally suspended debt repayments, or have otherwise ceased normal business operations. Once an asset is classified Loss (8), there is little prospect of collecting either its principal or interest. Losses are to be recorded in the period an obligation becomes uncollectable.

The following table presents the credit risk profile of the Bank’s loan portfolio based on internal rating category and payment activity as of December 31, 2014 and 2013:

	2014
	Residential 1 – 4 Family			Commercial Real Estate			Construction and Land			Commercial and Industrial			Home Equity			Other Consumer			Total
Pass(1 – 4)		$	44,618,696		$	25,726,754		$	1,344,107		$	5,536,805		$	9,321,255		$	883,864		$	87,431,481
Special Mention(5)			—			219,157			—			—			—			—			219,157
Substandard(6)			734,903			1,962,751			179,174			—			10,353			—			2,887,181
Doubtful(7)			—			—			—			—			—			—			—
Loss(8)			—			—			—			—			—			—			—
Total		$	45,353,599		$	27,908,662		$	1,523,281		$	5,536,805		$	9,331,608		$	883,864		$	90,537,819

	2013
	Residential 1 – 4 Family			Commercial Real Estate			Construction and Land			Commercial and Industrial			Home Equity			Other Consumer			Total
Pass(1 – 4)		$	42,899,910		$	21,414,636		$	1,341,806		$	5,059,361		$	10,828,478		$	672,560		$	82,216,751
Special Mention(5)			—			798,627			250,000			—			—			—			1,048,627
Substandard(6)			712,668			2,492,124			26,639			464,650			156,304			—			3,852,385
Doubtful(7)			—			—			—			—			—			—			—
Loss(8)			—			—			—			—			—			—			—
Total		$	43,612,578		$	24,705,387		$	1,618,445		$	5,524,011		$	10,984,782		$	672,560		$	87,117,763

The Bank evaluates the loan risk grading system definitions and allowance for loan loss methodology on an ongoing basis. No significant changes were made to either during the past year.

The following tables present the Bank’s loan portfolio aging analysis of the recorded investment in loans as of December 31, 2014 and 2013:

	2014
	30 – 59 Days Past Due			60 – 89 Days Past Due			Greater Than 90 Days			Total Past Due			Current			Total Loans			Total Loans > 90 Days & Accruing
Residential 1 – 4 family		$	1,147,797		$	557,817		$	734,903		$	2,440,517		$	42,913,082		$	45,353,599		$	—
Commercial real estate			11,782			—			—			11,782			27,896,880			27,908,662			—
Construction and land			27,817			—			21,972			49,789			1,473,492			1,523,281			—
Commercial and industrial			—			—			—			—			5,536,805			5,536,805			—
Home equity			54,224			25,601			10,353			90,178			9,241,430			9,331,608			—
Other consumer			—			6,057			—			6,057			877,807			883,864			—
		$	1,241,620		$	589,475		$	767,228		$	2,598,323		$	87,939,496		$	90,537,819		$	—

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	2013
	30 – 59 Days Past Due			60 – 89 Days Past Due			Greater Than 90 Days			Total Past Due			Current			Total Loans			Total Loans > 90 Days & Accruing
Residential 1 – 4 family		$	529,097		$	537,596		$	1,583,953		$	2,650,646		$	40,961,932		$	43,612,578		$	—
Commercial real estate			16,862			—			—			16,862			24,688,525			24,705,387			—
Construction and land			26,639			—			32,418			59,057			1,559,388			1,618,445			—
Commercial and industrial			—			—			—			—			5,524,011			5,524,011			—
Home equity			156,304			51,663			54,136			262,103			10,722,679			10,984,782			—
Other consumer			—			9,144			1,565			10,709			661,851			672,560			—
		$	728,902		$	598,403		$	1,672,072		$	2,999,377		$	84,118,386		$	87,117,763		$	—

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable the Bank will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans but also include loans modified in troubled debt restructurings.

The following table presents impaired loans and specific valuation allowance based on class level for the years ended December 31, 2014 and 2013:

	2014
	Residential 1 – 4 Family			Commercial Real Estate			Construction and Land			Commercial and Industrial			Home Equity			Total
Impaired loans without a specific allowance:
Recorded investment		$	1,396,878		$	1,003,575		$	290,956		$	—		$	86,296		$	2,777,705
Unpaid principal balance			1,475,218			1,121,615			304,827			—			92,277			2,993,937
Impaired loans with a specific allowance:
Recorded investment			1,330,834			11,782			49,790			—			66,583			1,458,989
Unpaid principal balance			1,373,484			12,700			56,120			—			69,627			1,511,931
Specific allowance			16,325			46			598			—			533			17,502
Total impaired loans:
Recorded investment			2,727,712			1,015,357			340,746			—			152,879			4,236,694
Unpaid principal balance			2,848,702			1,134,315			360,947			—			161,904			4,505,868
Specific allowance			16,325			46			598			—			533			17,502

	2013
	Residential 1 – 4 Family			Commercial Real Estate			Construction and Land			Commercial and Industrial		Home Equity			Total
Impaired loans without a specific allowance:
Recorded investment		$	1,904,315		$	1,063,947		$	170,071				$	—		$	3,138,333
Unpaid principal balance			2,008,561			1,222,080			171,073					—			3,401,714
Impaired loans with a specific allowance:
Recorded investment			1,341,100			516,780			26,639		—			237,558			2,122,077
Unpaid principal balance			1,376,123			649,136			31,083		—			240,295			2,296,637
Specific allowance			16,704			3,447			—		—			2,328			22,479
Total impaired loans:
Recorded investment			3,245,415			1,580,727			196,710		—			237,558			5,260,410
Unpaid principal balance			3,384,684			1,871,216			202,156		—			240,295			5,698,351
Specific allowance			16,704			3,447			—		—			2,328			22,479

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The following presents by portfolio class, information related to the average recorded investment and interest income recognized on impaired loans for the years ended December 31, 2014 and 2013:

	2014
	Residential 1 – 4 Family			Commercial Real Estate			Construction and Land			Commercial and Industrial			Home Equity			Total
Average recorded investment in impaired loans		$	2,394,222		$	1,078,123		$	330,360		$	—		$	137,430		$	3,940,135
Interest income recognized			38,882			16,369			5,945			—			303			61,499
Interest income recognized on a cash basis			38,748			16,369			5,945			—			303			61,435

	2013
	Residential 1 – 4 Family			Commercial Real Estate			Construction and Land			Commercial and Industrial			Home Equity			Total
Average recorded investment in impaired loans		$	3,236,448		$	3,027,818		$	377,399		$	482,422		$	127,422		$	7,251,509
Interest income recognized			107,053			21,949			—			—			1,033			130,035
Interest income recognized on a cash basis			103,188			21,314			—			—			1,033			125,535

The following table presents the Bank’s nonaccrual loans at December 31, 2014 and 2013. This table excludes performing troubled debt restructurings.

	2014			2013
Residential 1 – 4 family		$	1,397,529		$	1,237,062
Commercial real estate			729,032			841,612
Construction and land			49,789			26,639
Commercial and industrial			—			—
Home equity			76,937			207,967
Other consumer			—			—
		$	2,253,287		$	2,313,280

At December 31, 2014 and 2013, the Company had a number of loans that were modified in troubled debt restructurings and impaired. The modification of terms of such loans included one or a combination of the following: an extension of maturity, a reduction of the stated interest rate or a permanent reduction of the recorded investment in the loan.

The following table presents information regarding troubled debt restructurings by class for the year ended December 31, 2014 and 2013.

Newly classified troubled debt restructurings:

	2014								2013
	Number of Loans		Pre- Modification Recorded Balance			Post Modification Recorded Balance			Number of Loans		Pre- Modification Recorded Balance			Post Modification Recorded Balance
Residential 1 – 4 family		3		$	418,350		$	418,350		2		$	317,908		$	312,673
Commercial real estate		—			—			—		1			308,000			308,000
Construction and land development		—			—			—		—			—			—
Commercial and industrial		—			—			—		—			—			—
Home equity		—			—			—		—			—			—
Other consumer		—			—			—		—			—			—
		3		$	418,350		$	418,350		3		$	625,908		$	620,673

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The troubled debt restructurings described above increased the allowance for loan losses by $3,502 and $5,338 and resulted in charge offs of $19,937 during the year ended December 31, 2014 and no charge offs during year ended December 31, 2013.

Newly restructured loans by type of modification:

	2014
	Interest Only			Term			Combination			Total Modification
Residential 1 – 4 family		$	93,832		$	61,000		$	263,518		$	418,350
Commercial real estate			—			—			—			—
Construction and land development			—			—			—			—
Commercial and industrial			—			—			—			—
Home equity			—			—			—			—
Other consumer			—			—			—			—
		$	93,832		$	61,000		$	263,518		$	418,350

	2013
	Interest Only			Term			Combination			Total Modification
Residential 1 – 4 family		$	—		$	7,284		$	310,624		$	317,908
Commercial real estate			308,000			—			—			308,000
Construction and land development			—			—			—			—
Commercial and industrial			—			—			—			—
Home equity			—			—			—			—
Other consumer			—			—			—			—
		$	308,000		$	7,284		$	310,624		$	625,908

Troubled debt restructurings modified in the past 12 months that subsequently defaulted:

	2014					2013
	Number of Loans		Recorded Balance			Number of Loans		Recorded Balance
Residential 1 – 4 family		—		$	—		—		$	—
Commercial real estate		1			214,736		1			172,886
Construction and land development		—			—		—			—
Commercial and industrial		—			—		—			—
Home equity		—			—		1			77,073
Other consumer		—			—		—			—
		1		$	214,736		2		$	249,959

As of December 31, 2014, borrowers with loans designated as TDRs and totaling $1,009,396 of residential 1 – 4 family loans, $286,325 of commercial real estate loans, $133,754 of construction and land development and $2,368 of home equity loans, met the criteria for placement on accrual status.

As of December 31, 2013, borrowers with loans designated as TDRs and totaling $2,014,058 of residential 1 – 4 family loans, $443,705 of commercial real estate loans, $23,885 of home equity loans, met the criteria for placement on accrual status.

This criteria is a minimum of six months of payment performance under existing or modified terms.

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The Company has had, and may be expected to have in the future, lending transactions in the ordinary course of business with principal stockholder, directors, executive officer and their affiliates (related parties), all of which have been, in the opinion of management, on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated parties and which do not represent more than the normal risk of collectability or present other unfavorable features.

Aggregate loan transaction with related parties for the year ended December 31, 2014 were as follows (loan transaction with related parties as of and for the year ended December 31, 2013, were not material):

	2014
Balance, January 1,		$	96,059
New loans and advances on lines			1,043,733
Repayments			(667,229)
Other, newly established related party			1,273,972
Balance, December 31,		$	1,746,535
Balance available on lines of credit or loan commitments			558,191

None of these loans are past due, in nonaccrual status or have been restructured to provide a reduction or deferral of interest or principal because of deterioration in the financial position of the borrower. These were no loans to a related party that were considered classified at December 31, 2014.

Note 5:

Premises and Equipment

Major classifications of premises and equipment, stated at cost, are as follows:

	2014			2013
Land		$	864,420		$	947,901
Land improvements			322,809			351,504
Building and improvements			4,509,902			4,893,320
Furniture, fixtures and equipment			3,651,942			3,895,245
Total cost			9,349,073			10,087,970
Accumulated depreciation			(5,436,782)			(5,614,280)
Net premises and equipment		$	3,912,291		$	4,473,690

The Decatur branch sale was closed on January 24, 2014. Approximately $222,000 in net premises and equipment was included in the sale. These assets were considered to be held for sale at December 31, 2013, and were recorded at their estimated fair value. In adjusting the assets to fair value, the Company recorded an impairment loss of $6,588 which is included in other noninterest expense in the accompanying consolidated statements of operations in 2013. Due to the immaterial amount, these assets have not been segregated on the consolidated balance sheets.

Note 6:

Loan Servicing

The Company accounts for loan servicing rights applicable to serviced loans originated prior to January 1, 2011, using the fair value method of accounting and are considered a specific class. Loan servicing rights applicable to serviced loans originated after January 1, 2011, are valued using the amortization method and are considered a different specific class. Under both methods, the mortgage servicing rights are recorded at fair value at inception. Under the fair value method, the asset continues to be recorded at fair value each reporting period, with changes in fair value being recorded through noninterest income. Under the amortization method, the recorded asset is amortized over its estimated life.

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The fair value method approach of accounting was adopted because the Company believed the fair values of servicing rights were substantially undervalued and thus understated on the balance sheet. The fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Subsequent valuation adjustments for servicing assets related to loan originations prior to January 1, 2011, will be made to noninterest income and included in mortgage banking activities in the statement of operations.

Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The risks inherent in mortgage servicing assets relate primarily to changes in prepayments that result from shifts in mortgage interest rates. The unpaid principal balances of mortgage loans serviced for others was $73,575,000 and $76,659,000 at December 31, 2014 and 2013, respectively.

The following summarizes the activity pertaining to mortgage servicing rights measured using the amortization method. There were no valuation allowance recorded or reversed during 2014 or 2013.

	2014			2013
Balance, beginning of year		$	364,999		$	320,235
Additions			59,732			137,019
Amortization			(106,819)			(92,255)
Balance, end of year		$	317,912		$	364,999
Fair value as of the beginning of the year		$	543,975		$	320,235
Fair value as of the end of year			526,647			543,975

The following summarizes the activity in mortgage servicing rights measured using the fair value method for the years ended December 31, 2014 and 2013:

	2014			2013
Balance, beginning of year		$	148,171		$	230,655
Additions			—			—
Change in fair value adjusted through earnings			(33,978)			(82,484)
Balance, end of year		$	114,193		$	148,171

Note 7:

Intangible Assets

The carrying basis and accumulated amortization of recognized intangible assets (consisting of core deposit intangibles relating to a previous deposit purchase) at December 31, 2014 and 2013 were:

	2014						2013
	Gross Carrying Amount			Accumulated Amortization			Gross Carrying Amount			Accumulated Amortization
Core Deposit Intangibles		$	—		$	—		$	927,256		$	927,256

Amortization expense for the year ended December 31, 2013 was $51,972.

Note 8:

Deposits

	2014			2013
Non-interest bearing demand deposits		$	11,730,674		$	12,188,447
Interest bearing deposits			24,528,025			17,605,503
Money market			20,350,496			27,108,422
Savings accounts			15,027,699			13,413,009
Certificates of deposit			26,856,218			37,755,645
Total deposits		$	98,493,112		$	108,071,026

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Interest-bearing time deposits in denominations of $100,000 or more were $7,664,166 at December 31, 2014, and $10,576,028 at December 31, 2013.

At December 31, 2014 and 2013, the Bank had deposits from executive officers, directors and their affiliates (related parties), of $1,516,175 and $1,041,453, respectively. In management’s opinion, such deposits were made in the ordinary course of business and were made on substantially the same terms as those prevailing at the time for comparable transactions with other persons.

At December 31, 2014, the scheduled maturities of time deposits are as follows:

2015	$	14,500,593
2016		7,568,693
2017		3,086,220
2018		744,568
2019		815,218
Thereafter		140,927
Total	$	26,856,218

Note 9:

Federal Home Loan Bank Advances

Federal Home Loan Bank advances totaled $10,000,000 and $0 at December 31, 2014 and 2013, respectively. Federal Home Loan Bank advances and line of credit are secured by mortgage loans totaling approximately $35.3 million and $24.0 million at December 31, 2014 and 2013, respectively. Advances, at interest rates from .34 percent to 1.79 percent were subject to restrictions or penalties in the event of prepayment as of December 31, 2014. The Bank has a $2.0 million line of credit with the Federal Home Loan Bank and a $2.0 million federal funds line with United Bankers Bank, none of which was outstanding at December 31, 2014.

Scheduled maturities on advances are as follows:

2015	$	2,000,000
2016		2,000,000
2017		2,000,000
2018		2,000,000
2019		2,000,000
Total	$	10,000,000

Note 10:

Income Taxes

The provision (credit) for income taxes includes these components:

	2014			2013
Taxes currently payable		$	—		$	—
Deferred income taxes			—			—
Income tax expense (benefit)		$	—		$	—

A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense is shown below:

	2014			2013
Computed at the statutory rate (34%)		$	(277,533)		$	(548,887)
Increase (decrease) resulting from Tax exempt interest			—			(13,647)
Changes in the deferred tax asset valuation allowance			252,896			566,553
Other			24,637			(4,019)
Actual tax expense (benefit)		$	—		$	—

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The tax effects of temporary differences related to deferred taxes shown on the consolidated balance sheets were:

	2014			2013
Deferred tax assets
Allowance for loan losses		$	48,592		$	369,790
Valuation of other real estate			1,729			19,333
Net operating loss carryforward			3,169,105			3,021,485
Charitable contribution carryforward			26,665			39,911
Unrealized loss on available-for-sale securities			5,698			45,987
Other			216,299			—
Total assets			3,468,088			3,496,506
Deferred tax liability
Depreciation			(197,153)			(265,295)
State tax			—			—
Unrealized gain on available-for-sale securities			—			—
Mortgage servicing rights			—			—
Deferred loan fees			(5,900)			(12,342)
FHLB stock dividends			(36,742)			(48,317)
Other			—			(88,387)
Total liabilities			(239,795)			(414,341)
Net deferred tax asset before valuation allowance			3,228,293			3,082,165
Valuation allowance
Beginning balance			(3,082,165)			(2,377,422)
Increase during the period			(146,128)			(704,743)
Ending balance			(3,228,293)			(3,082,165)
Net deferred tax asset (liability)		$	—		$	—

As of December 31, 2014, the Company has approximately $9.0 million of federal net operating loss carryforwards that begin expiring in 2029 and approximately $1.3 million of state net operating loss carryforwards that begin expiring in 2024.

Retained earnings at December 31, 2014 and 2013, include approximately $702,000 for which no deferred federal income tax liability has been recognized. These amounts represent an allocation of income to bad debt deductions for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes only, which would be subject to the then-current corporate income tax rate.

Note 11:

Regulatory Matters

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 Company’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 Company’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. Furthermore, the Company’s regulators could require adjustments to regulatory capital not reflected in these financial statements.

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Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below). Management believes, as of December 31, 2014 and 2013, that the Company meets all capital adequacy requirements to which it is subject.

As of December 31, 2014, the most recent notification from Office of Comptroller of the Currency categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank’s category.

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

	Actual					Minimum Amount Required for Adequate Capital(1)					Minimum Amount To Be Well Capitalized(1)
	Amount			Ratio		Amount			Ratio		Amount			Ratio
December 31, 2014
Total capital(1) (to risk-weighted assets)		$	13,188		17.87%		$	5,904		8.00%		$	7,380		10.00%
Tier I capital(1) (to risk-weighted assets)			12,264		16.62			2,952		4.00			4,428		6.00
Tier I capital(1) (to average assets)			12,264		10.03			4,893		4.00			6,116		5.00
December 31, 2013
Total capital(1) (to risk-weighted assets)		$	10,384		13.54%		$	6,137		8.00%		$	7,672		10.00%
Tier I capital(1) (to risk-weighted assets)			9,424		12.28			3,069		4.00			4,603		6.00
Tier I capital(1) (to average assets)			9,424		7.75			4,864		4.00			6,080		5.00

(1)

As defined by regulatory agencies.

Effective October 20, 2009, the Company entered into a formal consent agreement with its primary regulator (formerly the Office of Thrift Supervision who functions were transferred to the Office of the Comptroller of the Currency (OCC) on July 21, 2012). Effective February 2, 2013, the OCC terminated the consent order. On January 23, 2013, the Company received notice from the OCC that it was subject to certain individual minimum capital ratio requirements. Effective during the fourth quarter of 2014, the OCC cancelled the individual minimum capital ratio requirements.

Note 12:

Employee Benefits

The Company has a retirement savings 401(k) plan which covers all full-time employees who are age 21 or older and who have worked 1,000 hours and completed three months of service. Employees may contribute up to 25% of their compensation up to a maximum of $17,500 a year with the Company matching 100% of the employee’s contribution on the first 3% and 50% of the next 2% of the employee’s compensation. Employer contributions charged to expense for the years ended December 31, 2014 and 2013, were $59,645 and $42,212, respectively.

The Company participates in the Pentegra Defined Benefit Plan for Financial Institutions (Pentegra Plan), an industry-wide, tax-qualified defined-benefit pension plan. The Pentegra Plan’s Employer Identification Number is 13-5645888 and the Plan Number is 6135. The Pentegra Plan operates as a multiemployer plan for accounting purposes and as a multiple employer plan under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. There are no collective bargaining agreements in place that require contributions to the Pentegra Plan. The Pentegra Plan is a single plan under Internal Revenue Code Section 413(c) and, as a result, all of the assets stand behind all of the liabilities.

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The risks of participating in a multiemployer plan are different from a single-employer plan in the following aspects:

Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers.

If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.

If the Company chooses to stop participating in some of its multiemployer plans, the Company may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

The Company froze the benefits in the Pentegra Plan effective June 1, 2010. Full-time employees of the Company who had attained at least 21 years of age and completed one year of service were eligible to participate in the Pentegra Plan. In addition, employees who would have been eligible after June 1, 2010, are not eligible to participate. No further benefits will accrue subsequent to the freeze, and the freeze does not reduce the benefits accrued up to the date of the freeze.

Pension expense related to this plan was $142,715 and $91,031 for years ended December 31, 2014 and 2013.

Calculations to determine full-funding status are made annually by the third-party plan administrator as of June 30. At June 30, 2014 and 2013, the funding target, which is defined as the market value of plan assets divided by the plan liabilities, of the Company’s portion of the Pentegra Plan was 74.37% and 67.25%, respectively, funded.

Total contributions by all employer participants in the Pentegra Plan, as reported on Form 5500, totaled $136,477,565 and $196,473,170, respectively, for the plan years ended June 30, 2013 and 2012. The Company’s contributions to the Pentegra Plan totaled $133,156 and $136,127, respectively, for the years ended December 31, 2014 and 2013, respectively, and do not represent more than 5% of the total contributions made by all employer participants in the Pentegra Plan. There have been no significant changes that affect the comparability of 2014 and 2013 contributions. Given the current interest rate environment, the lower asset valuations, and other factors impacting the operations of the Pentegra Plan, it is likely that our future funding obligations could increase.

In connection with the conversion to an entity owned by stockholders, the Company established an Employee Stock Ownership Plan (ESOP) for the exclusive benefit of eligible employees (all salaried employees who have completed at least 1,000 hours of service in a consecutive twelve-month period and have attained the age of 21). The ESOP borrowed funds from the Company in an amount sufficient to purchase 53,431 shares (approximately 8% of the common stock issued in the stock offering). The loan is secured by the shares purchased and will be repaid by the ESOP with funds from contributions made by the Company and dividends received by the ESOP. Contributions will be applied to repay interest on the loan first, then the remainder will be applied to principal. The loan is expected to be repaid over a period of up to 25 years. Shares purchased with the loan proceeds are held in a suspense account for allocation among participants as the loan is repaid. Contributions to the ESOP and shares released from the suspense account are allocated among participants in proportion to their compensation, relative to total compensation of all active participants. Participants will vest in their accrued benefits under the employee stock ownership plan at the rate of 20 percent per year. Vesting is accelerated upon retirement, death or disability of the participant, or a change in control of the Association. Forfeitures will be reallocated to remaining plan participants. Benefits may be payable upon retirement, death, disability, separation from service, or termination of the ESOP.

The debt of the ESOP is eliminated in consolidation. Contributions to the ESOP shall be sufficient to pay principal and interest currently due under the loan agreement. As shares are committed to be released from collateral, the Company reports compensation expense equal to the average market price of the shares for the respective period, and the shares become outstanding for earnings per share computations. Dividends on unallocated ESOP shares, if any, are recorded as a reduction of debt and accrued interest. ESOP compensation expense was $22,196 the year ended December 31, 2014.

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A summary of ESOP shares are as of December 31 are as follows:

	2014
Released Shares			—
Shares committed for release			2,186
Unreleased shares			51,245
Total			53,431
Fair value of unreleased shares		$	520,137

In the event the ESOP is unable to satisfy the obligation to repurchase the shares held by each beneficiary upon the beneficiary’s termination or retirement, the Company is obligated to repurchase the shares. At December 31, 2014, the fair value of these shares is $22,193. In addition, there are no outstanding shares held by former employees that are subject to an ESOP related repurchase option.

Note 13:

Disclosures About Fair Value of Assets and Liabilities

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:

Level 1

Quoted prices in active markets for identical assets or liabilities

Level 2

Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3

Unobservable inputs supported by little or no market activity and are significant to the fair value of the assets or liabilities

Recurring Measurements

The following table presents the fair value measurements of assets recognized in the accompanying consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2014 and 2013:

	December 31, 2014 Fair Value Measurements Using
Assets	Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Available-for-sale securities:
U.S. Government and federal agency		$	4,939,830		$	—		$	4,939,830		$	—
State and political subdivisions			3,361,085			—			3,361,085			—
Mortgage-backed – GSE residential			3,384,002			—			3,384,002			—
Collateralized mortgage obligations – GSE			1,033,148			—			1,033,148			—
Mortgage servicing rights			114,193			—			—			114,193

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	December 31, 2013 Fair Value Measurements Using
Assets	Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Available-for-sale securities:
U.S. Government and federal agency		$	6,441,138		$	—		$	6,441,138		$	—
State and political subdivisions			3,337,725			—			3,337,725			—
Mortgage-backed – GSE residential			4,231,130			—			4,231,130			—
Collateralized mortgage obligations – GSE			1,583,547			—			1,583,547			—
Mortgage servicing rights			148,171			—						148,171

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the years ended December 31, 2014 and 2013. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Available-for-Sale Securities

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy including U.S. Government and federal agencies, state and political subdivisions, mortgage-backed securities, and collateralized mortgage obligations. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. The Company has no securities classified as Level 3.

Mortgage Servicing Rights

Mortgage servicing rights do not trade in an active, open market with readily observable prices. Accordingly, fair value is estimated using discounted cash flow models having significant inputs of discount rate, prepayment speed and default rate. Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level 3 of the hierarchy.

Mortgage servicing rights are tested for impairment on a quarterly basis. The Chief Financial Officer’s (CFO) office contracts with a pricing specialist to generate fair value estimates on at least an annual basis. The CFO’s office challenges the reasonableness of the assumptions used and reviews the methodology to ensure the estimated fair value complies with accounting standards generally accepted in the United States.

Level 3 Reconciliation

The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying balance sheets using significant unobservable (Level 3) inputs:

	2014			2013
Balance, beginning of year		$	148,171		$	230,655
Total changes in fair value included in earnings			(33,978)			(82,484)
Balance, end of year		$	114,193		$	148,171

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Nonrecurring Measurements

The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2014 and 2013:

	Fair Value Measurements Using
Assets	Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
December 31, 2014
Other real estate owned		$	190,000		$	—		$	—		$	190,000
Collateral-dependent impaired loans, Net of ALLL			1,441,487			—			—			1,441,487
December 31, 2013
Other real estate owned		$	234,000		$	—		$	—		$	234,000
Collateral-dependent impaired loans, Net of ALLL			2,099,598			—			—			2,099,598

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Other Real Estate Owned

Other real estate owned (OREO) is carried at the lower of fair value at acquisition date or current estimated fair value, less estimated cost to sell when the real estate is acquired. Estimated fair value of OREO is based on appraisals or evaluations. OREO is classified within Level 3 of the fair value hierarchy.

Appraisals of OREO are obtained when the real estate is acquired and subsequently as deemed necessary by the CFO’s office. Appraisals are reviewed for accuracy and consistency by the CFO’s office. Appraisers are selected from the list of approved appraisers maintained by management.

Collateral-Dependent Impaired Loans, Net of ALLL

The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.

The Company considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary by the CFO’s office. Appraisals are reviewed for accuracy and consistency by the CFO’s office. Appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts and estimates are developed by the CFO’s office by comparison to historical results.

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Unobservable (Level 3) Inputs:

The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements other than goodwill.

Fair Value

Valuation
Technique

Unobservable Inputs

Weighted
Average

At December 31, 2014:

Other real estate owned

190,000

Market
comparable
properties

Comparability adjustment (%)

Not available

Collateral-dependent impaired loans, net
of ALLL

1,441,487

Market
comparable
properties

Market ability discount

10% – 15% (12%)

Mortgage servicing rights

114,193

Discounted
cash flow

Constant prepayment rate Probability
of default Discount rate

8.5% – 16% (11.2%)
1% – 8% (2.1%)
7.6% – 13% (10.4%)

At December 31, 2013:

Other real estate owned

234,000

Market
comparable
properties

Comparability adjustment (%)

Not available

Collateral-dependent impaired loans, net
of ALLL

2,099,598

Market
comparable
properties

Market ability discount

10% – 15% (12%)

Mortgage servicing rights

148,171

Discounted
cash flow

Constant prepayment rate Probability of default Discount rate

14% – 24% (19.2%)
1% – 8% (5.8%)
5.8% – 12.9% (8.4%)

Fair Value of Financial Instruments

The following tables present estimated fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2014 and 2013.

	Fair Value Measurements Using
	Carrying Amount			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
At December 31, 2014:
Financial assets:
Cash and cash equivalents		$	13,444,597		$	13,444,597		$	—		$	—
FHLB Stock			1,078,900			—			1,078,900			—
Loans held for sale			48,300						48,300
Loans, net of allowance for loan losses			89,479,525			—			—			89,756,000
Accrued interest receivable			302,777			—			302,777			—
Mortgage servicing rights			317,912			—			—			526,647
Financial liabilities:
Deposits			98,493,112			11,730,674			86,842,438			—
Federal Home Loan Bank advances			10,000,000						10,098,000
Accrued interest payable			6,256			—			6,256			—

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	Fair Value Measurements Using
	Carrying Amount			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
At December 31, 2013:
Financial assets:
Cash and cash equivalents		$	10,322,076		$	10,322,076		$	—		$	—
FHLB Stock			1,408,200			—			1,408,200			—
Loans held for sale			—			—			—
Loans, net of allowance for loan losses			86,092,038			—			—			86,442,000
Accrued interest receivable			312,615			—			312,615			—
Mortgage servicing rights			364,999			—			—			543,975
Financial liabilities:
Deposits			108,071,026			12,188,447			96,800,644			—
Accrued interest payable			1,032			—			1,032			—

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying consolidated balance sheets at amounts other than fair value.

Cash and Cash Equivalents

The carrying amount approximates fair value.

Loans Held For Sale

The carrying amount approximates fair value due to the insignificant time between origination and date of sale. The carrying amount is the amount funded and accrued interest.

Loans, Net of Allowance for Loan Losses

Fair value is estimated by discounting the future cash flows using the market rates at which similar notes would be made to borrowers with similar credit ratings and for the same remaining maturities. The market rates used are based on current rates the Banks would impose for similar loans and reflect a market participant assumption about risks associated with nonperformance, illiquidity, and the structure and term of the loans along with local economic and market conditions.

Accrued Interest Receivable and Payable

The carrying amount approximates fair value. The carrying amount is determined using the interest rate, balance and last payment date.

Deposits

Fair value of term deposits is estimated by discounting the future cash flows using rates of similar deposits with similar maturities. The market rates used were obtained from a knowledgeable independent third party and reviewed by the Company. The rates were the average of current rates offered by local competitors of the Company.

The estimated fair value of demand, savings and money market deposits is the book value since rates are regularly adjusted to market rates and amounts are payable on demand at the reporting date.

Federal Home Loan Bank Advances

Fair value is estimated by discounting the future cash flows using rates of similar advances with similar maturities. These rates were obtained from current rates offered by the FHLB.

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Note 14:

Significant Estimates and Concentrations

Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Estimates related to the allowance for loan losses are reflected in the footnote regarding loans. Current vulnerabilities due to certain concentrations of credit risk are discussed in the footnote on commitments and credit risk. Significant estimates associated with financial instruments are discussed in the footnote on fair value of financial instruments.

Note 15:

Commitments and Credit Risk

The Company maintains off-balance sheet investments in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Loan 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. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

The instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized, if any, in the balance sheet. The Company’s maximum exposure to loan loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the face amount of these instruments. Commitments to extend credit are recorded when they are funded and standby letters of credit are carried at fair value.

The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. Collateral, such as accounts receivable, securities, inventory, property and equipment, is generally obtained based on management’s credit assessment of the borrower.

Fair value of the Company’s off-balance-sheet instruments (commitments to extend credit and standby letters of credit) is based on rates currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. At December 31, 2014 and 2013, the rates on existing off-balance-sheet instruments were equivalent to current market rates, considering the underlying credit standing of the counterparties.

Loan commitments and standby letters of credit outstanding as December 31, 2014 and 2013, were as follows:

	2014			2013
Commitments to extend credit – variable rate		$	14,687,657		$	12,257,541
Commitments to extend credit – fixed rate			5,402,290			780,604
Standby letters of credit			10,000			23,000

Note 16:

Recent Accounting Pronouncements

In January 2014, the FASB issued ASU2014-01, “Accounting for Investments in Qualified Affordable Housing Projects.” ASU 2014-01 applies to all reporting entities that invest in qualified affordable housing projects through limited liability entities. The pronouncement permits reporting entities to make an accounting policy election to account for these investments using the proportional amortization method if certain conditions exist. The pronouncement also requires disclosure that enables users of its financial statements to understand the nature of these investments. Under the proportional amortization method, an entity amortized the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The pronouncement should be applied retrospectively for all period presented, effective for annual period and interim reporting period within those annual period, beginning after December 15, 2014. Early adoption is permitted. The adoption of this guidance is not expected to have a significant effect on the Company’s consolidated financial statements.

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In January 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-04 “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure,” is to reduce diversity by clarifying when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. An entity can elect to adopt the amendments using either a modified retrospective transition method or a prospective transition method. Early adoption is permitted. The adoption of this guidance is not expected to have a significant effect on the Company’s consolidated financial statements.

In August 2014, the FASB issued ASU 2014-14, “Receivables — Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure,” The amendments in this ASU require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if (1) the loan has a government guarantee that is not separable from the loan before foreclosure; (2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim; and (3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The amendments in this ASU are effective for annual periods, and interim periods within those annual period, beginning after December 15, 2014. The adoption of the guidance is not expected to have a significant effect on the Company’s consolidated financial statements.

Note 17:

Loss Per Share

Loss per share amount is based on the weighted average number of shares outstanding for the period and the net loss applicable to common stockholders. Loss per share data is not presented for the year ended December 31, 2013, as there were no outstanding shares of common stock until the conversion on January 16, 2014. ESOP shares are excluded from shares outstanding until they have been committed to be released.

	December 31, 2014
Net Loss		$	(816,273)
Shares outstanding for basic EPS:
Average shares outstanding			640,450
Less: Average unearned ESOP shares			50,245
			590,205
Additional dilutive shares			—
Shares outstanding for basic and diluted EPS			590,205
Basic and diluted loss per share		$	(1.38)

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Note 18:

Condensed Financial Information (Parent Company Only)

Presented below is condensed financial information as to the financial position, results of operations and cash flows of the company:

Condensed Balance Sheet

	2014
Assets
Cash and due from banks		$	1,059,374
Investment in bank			12,247,581
Total assets		$	13,306,955
Liabilities
Other			3,495
			3,495
Temporary Equity
ESOP shares subject to mandatory redemption			22,193
Stockholders’ Equity			13,281,267
Total liability and stockholders’ equity		$	13,306,955

Condensed Statement of Operations and Comprehensive Loss

	2014
Income
Other income		$	9,349
Expense
Other expenses			165,776
Loss Before Income Tax and Equity in Undistributed Income of Subsidiary			(156,427)
Income Tax Benefit			—
Loss Before Equity in Undistributed Income of Subsidiary			(156,427)
Equity in Undistributed Loss of Subsidiary			(659,846)
Net Loss		$	(816,273)
Comprehensive Loss		$	(697,777)

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Condensed Statement of Cash Flows

	2014
Operating Activities
Net income (loss)		$	(816,273)
Items not requiring (providing) cash
Equity in undistributed loss of subsidiary			659,846
Compensation expense on allocated ESOP shares			22,193
Change in other liabilities			3,495
Net cash used in operating activities			(130,739)
Investing Activities
Investment in Bank			(3,500,000)
Financing Activities
Net proceeds from stock conversion			4,690,113
Net Change in Cash and Due From Banks			1,059,374
Cash and Due From Banks at Beginning of Year			—
Cash and Due From Banks at End of Year		$	1,059,374

Note 19:

Plan of Conversion and Change in Corporate Form

On January 16, 2014, the Bank converted into a stock savings bank structure with the establishment of a stock holding company, Edgewater Bancorp, Inc. (Company), as parent of the Bank. The Bank converted to the stock form of ownership, followed by the issuance of all of the Bank’s outstanding stock to the Company. A total of 667,898 shares of the Company were issued at $10.00 per share for total gross offering proceeds of $6,678,980. In addition, the Banks’s Board of Directors adopted an employee stock ownership plan (ESOP) which subscribed for 8% of the common stock sold in the offering, for a total of $534,310. The Company is incorporated under the laws of the State of Maryland and owns all of the outstanding common stock of the Company.

The conversion costs of issuing the common stock, approximately $1,455,000, were deducted from the sales proceeds of the offering. Conversion costs incurred for the year ended December 31, 2013 were $753,964, which are included in other assets in the consolidated balance sheets.

In accordance with federal regulations, at the time of the conversion, the Company established a parallel liquidation account. The liquidation account will be maintained for the benefit of eligible account holders who continue to maintain their accounts at the Bank after conversion. The liquidation account will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s interest in the liquidation account. In the event of a complete liquidation of the Bank, and only in such event, each eligible account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the adjusted qualifying account balances then held. The Bank may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount.

The conversion was be accounted for as a change in corporate form with the historic basis of the Company’s assets, liabilities and equity unchanged as a result.

Stock conversion proceeds held in escrow totaling $3,076,038 as of December 31, 2013, were the funds received, or held, from potential investors as part of the subscription offering.

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Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Edgewater Bancorp, Inc.
Date: March 30, 2015	By:	/s/ Richard E. Dyer
		Richard E. Dyer, President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signatures	Title	Date
/s/ Richard E. Dyer	President and Chief Executive Officer (Principal Executive Officer)	March 30, 2015
Richard E. Dyer
/s/ Coleen S. Frens-Rossman	Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)	March 30, 2015
Coleen S. Frens-Rossman
/s/ Kenneth F. Ankli III	Chairman of the Board	March 30, 2015
Kenneth F. Ankli III
/s/ F. Ronald Gelesko	Director	March 30, 2015
F. Ronald Gelesko
/s/ Robert D. Gottlieb	Director	March 30, 2015
Robert D. Gottlieb
/s/ James R. Marohn	Director	March 30, 2015
James R. Marohn
/s/ Stephen Ross	Director	March 30, 2015
Stephen Ross
/s/ Thomas L. Starks	Director	March 30, 2015
Thomas L. Starks

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EXHIBIT INDEX

3.1		Articles of Incorporation of Edgewater Bancorp, Inc.*
3.2		Bylaws of Edgewater Bancorp, Inc.*
4		Form of Common Stock Certificate of Edgewater Bancorp, Inc.*
10.1		Employee Stock Ownership Plan*†
10.2		Employment Agreement between Edgewater Bank and Richard E. Dyer*†
10.3		Employment Agreement between Edgewater Bank and Coleen S. Frens-Rossman*†
21		Subsidiaries*
23		Consent of BKD, LLP
31.1		Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	��	Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101		The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Stockholders Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements.**

Incorporated by reference to the Registration Statement on Form S-1 (file no. 333-191125), initially filed September 12, 2013.

†

Management contract or compensatory agreement or arrangement.

Positive
Negative
Uncertain
Constraining
Legalese
Litigious
Readability	H.S. freshman Avg

Edgewater Bancorp (EGDW) Inactive 10-K2014 FY Annual report

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