Edgewater Bancorp (EGDW) 10-Q 2016 Q3 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2016

OR

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______________ to _______________

Commission File No. 000-55129

Edgewater Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Maryland	46-3687434
(State or other jurisdiction of in Company or organization)	(I.R.S. Employer Identification Number)
321 Main Street, St. Joseph, Michigan	49085
(Address of Principal Executive Offices)	Zip Code

(269) 982-4175

(Registrant’s telephone number)

N/A

(Former name or former address, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.

YESx     NO¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YESx     NO¨

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

Large accelerated filer¨	Accelerated filer¨
Non-accelerated filer¨	Smaller reporting companyx
(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES¨     NOx

As of November 8, 2016, there were issued and outstanding 667,898 shares of the Registrant’s Common Stock with a par value of $0.01 per share.

Edgewater Bancorp, Inc.

Form 10-Q

Index

		Page
Part I. Financial Information
Item 1.	Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets as of September  30, 2016 (unaudited) and December 31, 2015	3
	Condensed Consolidated Statements of Income for the Three Months Ended and Nine Months Ended September  30, 2016 and 2015 (unaudited)	4
	Condensed Consolidated Statements of Comprehensive  Income for the Three Months Ended and Nine Months Ended September  30, 2016 and 2015 (unaudited)	5
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2016 (unaudited)	6
	Condensed Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2016 and 2015 (unaudited)	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	44
Item 4.	Controls and Procedures	44
Part II. Other Information
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.	Defaults upon Senior Securities	45
Item 4.	Mine Safety Disclosures	45
Item 5.	Other Information	45
Item 6.	Exhibits	45
	Signature Page	46

2

Part I. – Financial Information

Financial Statements

Edgewater Bancorp, Inc.

Condensed Consolidated Balance Sheets

	September 30,		December 31,
	2016		2015
	(Unaudited)
Assets
Cash and due from banks	$	732,184	$	877,780
Interest-bearing demand deposits in banks		16,949,696		10,029,113
Cash and cash equivalents		17,681,880		10,906,893
Available-for-sale securities		9,939,859		11,713,738
Loans held for sale		387,800		-
Loans receivable, net of allowance for losses of $1,220,646 and $1,075,374, respectively		120,591,746		106,955,455
Premises and equipment, net		3,394,696		3,606,170
Federal Home Loan Bank (FHLB) stock		686,200		686,200
Other real estate, net		276,167		262,100
Interest receivable		312,808		314,174
Mortgage servicing rights		398,007		408,715
Other assets		374,935		521,943
Total assets	$	154,044,098	$	135,375,388
Liabilities and Stockholders' Equity
Liabilities
Deposits
Noninterest bearing	$	15,026,426	$	13,940,853
Interest-bearing		109,537,922		99,390,003
Total deposits		124,564,348		113,330,856
Federal Home Loan Bank advances		15,000,000		8,000,000
Accrued and other liabilities		928,597		672,470
Total liabilities		140,492,945		122,003,326
Commitments and Contingencies
Temporary Equity
ESOP shares subject to mandatory redemption		64,972		46,197
Stockholders' Equity
Preferred Stock-shares authorized 1,000,000-2016 and 5,000,000-2015:  none issued or outstanding at $.01 par value		-		-
Common Stock-shares authorized 4,000,000-2016 and 50,000,000-2015: shares issued and outstanding 667,898 at $.01 par value		6,679		6,679
Paid-in-capital		4,683,434		4,683,434
Retained earnings		8,744,409		8,650,052
Accumulated other comprehensive income (loss)		51,659		(14,300	)
Total equity		13,486,181		13,325,865
Total liabilities and stockholders' equity	$	154,044,098	$	135,375,388

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

3

Edgewater Bancorp, Inc.

Condensed Consolidated Statements of Income

	Three Months September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
	(Unaudited)				(Unaudited)
Interest Income
Loans, including fees	$	1,288,426	$	1,167,746	$	3,706,077	$	3,406,986
Debt securities
Taxable		22,601		29,105		86,780		88,970
Tax-exempt		6,799		10,938		24,159		34,785
Federal Home Loan Bank stock		7,251		5,423		21,553		27,185
Other		11,457		3,104		28,816		12,788
Total interest income		1,336,534		1,216,316		3,867,385		3,570,714
Interest Expense
Deposits		125,838		99,503		375,463		296,136
Federal Home Loan Bank advances		36,257		36,505		89,089		95,872
Total interest expense		162,095		136,008		464,552		392,008
Net Interest Income		1,174,439		1,080,308		3,402,833		3,178,706
Provision for Loan Losses		80,000		30,000		143,000		45,000
Net Interest Income After Provision for Loan Losses		1,094,439		1,050,308		3,259,833		3,133,706
Noninterest Income
Service charges, deposits		97,617		95,934		276,095		287,855
Mortgage banking activities		184,766		108,641		371,574		313,034
Other		34,043		32,184		75,878		95,058
Total noninterest income		316,426		236,759		723,547		695,947
Noninterest Expense
Salaries and employee benefits		686,852		657,809		2,058,676		1,965,154
Occupancy and equipment		184,514		205,589		571,680		595,751
Data processing		142,487		138,289		420,172		404,173
Loss on sale of other real estate, net		-		1,167		16,500		5,167
Interchange		30,908		23,107		78,764		71,898
Advertising		17,876		13,825		58,519		47,049
FDIC insurance premiums		25,454		23,305		76,468		77,892
Other real estate		4,460		12,716		10,843		26,059
Professional fees		110,839		117,513		331,218		343,503
Insurance		14,767		14,852		44,167		44,662
Other		78,645		59,419		222,016		186,720
Total noninterest expense		1,296,802		1,267,591		3,889,023		3,768,028
Net Income Before Income Taxes		114,063		19,476		94,357		61,625
Provision for Income Taxes		-		-		-		-
Net Income	$	114,063	$	19,476	$	94,357	$	61,625
Basic and Diluted Earnings Per Share	$	0.18	$	0.03	$	0.15	$	0.10

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

4

Edgewater Bancorp, Inc.

Condensed Consolidated Statements of Comprehensive Income

	Three Months Ended September 30,					Nine Months Ended September 30,
	2016			2015		2016		2015
	(Unaudited)					(Unaudited)
Net Income	$	114,063		$	19,476	$	94,357	$	61,625
Other Comprehensive Income (Loss)
Net change in unrealized gains (losses) on investment securities available-for-sale		(8,705	)		16,893		65,959		53,949
Less: reclassification adjustment for realized gains (losses) included in net income		-			-		-		-
Other comprehensive income (loss) before income tax		(8,705	)		16,893		65,959		53,949
Tax expense (benefit), net of deferred tax asset valuation impact  of ($2,960), $5,744, $22,426 and $18,343, respectively		-			-		-		-
Comprehensive Income	$	105,358		$	36,369	$	160,316	$	115,574

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

5

Edgewater Bancorp, Inc.

Condensed Consolidated Statement of Changes in Stockholders’ Equity

	Nine Months Ended September 30, 2016
	(Unaudited)
									Accumulated
									Other
			Common		Paid-in		Retained		Comprehensive
	Shares		Stock		Capital		Earnings		Income (Loss)			Total
Balance at January 1, 2016		667,898	$	6,679	$	4,683,434	$	8,650,052	$	(14,300	)	$	13,325,865
Net income		-		-		-		94,357		-			94,357
Other comprehensive income		-		-		-		-		65,959			65,959
Balance at September 30, 2016		667,898	$	6,679	$	4,683,434	$	8,744,409	$	51,659		$	13,486,181

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

6

Edgewater Bancorp, Inc.

Condensed Consolidated Statements of Cash Flows

	Nine Months Ended September 30,
	2016			2015
	(Unaudited)
Operating activities:
Net income	$	94,357		$	61,625
Items not requiring cash:
Depreciation		307,897			321,774
Provision for loan losses		143,000			45,000
Amortization of premiums on securities		64,056			74,424
Change in fair value of mortgage servicing rights		18,111			22,723
Loss on sale of other real estate		16,500			5,167
ESOP shares earned		18,775			17,192
Amortization of mortgage servicing rights		105,618			89,971
Loans originated for sale		(13,105,029	)		(11,134,085	)
Proceeds from loans sold		12,837,425			10,742,251
Gain on sale of loans		(233,217	)		(192,253	)
Gain on sale of premises and equipment		(3,929	)		-
Net change in:
Interest receivable and other assets		148,374			1,091
Interest payable and other liabilities		256,127			72,627
Net cash provided by operating activities		668,065			127,507
Investing activities:
Purchases of available-for-sale securities		(2,969,680	)		-
Proceeds from calls and maturities of available-for-sale securities		4,745,462			1,660,278
Proceeds from sale of FHLB Stock		-			392,700
Net change in loans		(13,828,358	)		(19,689,629	)
Proceeds from sale of other real estate		18,500			298,733
Proceeds from sale of premises and equipment		4,500			-
Purchases of premises and equipment		(96,994	)		(107,147	)
Net cash used in investing activities		(12,126,570	)		(17,445,065	)
Financing activities:
Net change in deposits		11,233,492			5,275,646
Proceeds from short term Federal Home Loan Bank advances		6,000,000			11,100,000
Proceeds from long term Federal Home Loan Bank advances		5,000,000			-
Repayment of short term Federal Home Loan Bank advances		-			(7,100,000	)
Repayment of long term Federal Home Loan Bank advances		(4,000,000	)		-
Net cash provided by financing activities		18,233,492			9,275,646
Net Change in Cash and Cash Equivalents		6,774,987			(8,041,912	)
Cash and Cash Equivalents, Beginning of Period		10,906,893			13,444,597
Cash and Cash Equivalents, End of Period	$	17,681,880		$	5,402,685
Additional Cash Flows Information:
Interest paid	$	405,929		$	338,499
Loans transferred to other real estate		49,067			99,000
Capitalization of mortgage serving rights		113,021			90,766

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

7

Edgewater Bancorp, Inc.

Form 10-Q

Notes to Condensed Consolidated Financial Statements

Note 1: Nature of Operation and Conversion

Edgewater Bank, a federally chartered stock 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.

Note 2: Basis of Presentation

The accompanying condensed consolidated financial statements were prepared in accordance with instructions for Form 10-Q and Rule 10-01 of Regulation S-X and, therefore, certain information or footnotes necessary for a complete presentation of financial position, results of operations, and cash flows in conformity with U.S. generally accepted accounting principles (GAAP) for interim financial information have been condensed or omitted pursuant to such rules and regulations. The

8

preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Estimates used in the preparation of the financial statements are based on various factors including the current interest rate environment and the general strength of the local economy.  Changes in the overall interest rate environment can significantly affect the Company’s net interest income and the value of its recorded assets and liabilities.  Actual results could differ from those estimates used in the preparation of the financial statements. However, in the opinion of management, all adjustments (consisting of only normal recurring accruals) which are necessary for a fair presentation of the financial statements have been included. The results of operations for the three-month and nine-month periods ended September 30, 2016, are not necessarily indicative of the results which may be expected for the entire year. Accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto of the Company as of December 31, 2015 included in Edgewater Bancorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2015.

Note 3: Principles of Consolidation

The consolidated financial statements include the accounts of the Edgewater Bancorp, Inc. and its wholly owned subsidiary, Edgewater Bank. All significant intercompany accounts and transactions have been eliminated in consolidation.

Note 4: Securities

The amortized cost and approximate fair values of investment securities are as follows:

	September 30, 2016
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(Unaudited)
Available-for-sale securities:
U.S. Government and federal agency	$	5,415,919	$	7,024	$	470	$	5,422,473
State and political subdivisions		2,053,108		8,647		-		2,061,755
Mortgage-backed-Government Sponsored Enterprise (GSE)-residential		1,988,044		31,592		26		2,019,610
Collateralized mortgage obligations-GSE		431,129		4,892		-		436,021
Total available-for-sale securities	$	9,888,200	$	52,155	$	496	$	9,939,859

9

	December 31, 2015
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Available-for-sale securities:
U.S. Government and federal agency	$	5,952,239	$	925	$	28,222	$	5,924,942
State and political subdivisions		2,555,544		8,357		5,015		2,558,886
Mortgage-backed -Government- Sponsored Enterprise (GSE)-residential		2,566,762		14,222		10,728		2,570,256
Collateralized mortgage obligations-GSE		653,493		6,161		-		659,654
Total available-for-sale securities	$	11,728,038	$	29,665	$	43,965	$	11,713,738

The amortized cost and fair value of investment securities at September 30, 2016 and December 31, 2015, 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.

	September 30, 2016
	Amortized		Fair
	Cost		Value
	(Unaudited)
Within one year	$	1,283,468	$	1,288,572
After one through five years		6,185,559		6,195,656
		7,469,027		7,484,228
Mortgage-backed - GSE residential		1,988,044		2,019,610
Collateralized mortgage obligations-GSE		431,129		436,021
	$	9,888,200	$	9,939,859

The carrying value of investment securities pledged as collateral, to secure public deposits and for other purposes was $205,313 at September 30, 2016 (unaudited) and $246,401 at December 31, 2015.

For the three and nine month period ended September 30, 2016 and September 30, 2015, there were no sales of securities available-for-sale.

Certain investments in debt securities have fair values at an amount less than their historical cost. Total fair value of these investments at September 30, 2016 (unaudited) and December 31, 2015 was $2,000,084 and $6,612,243, which is approximately 20% and 56%, respectively, of the Company’s investment portfolio. These declines primarily resulted from changes in market interest rates since the securities were purchased.

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

Should the impairment of any of these investment securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.

10

Investment securities with unrealized losses were as follows:

	September 30, 2016
	Less than 12 Months				12 Months or Longer				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
	(Unaudited)
Available-for-sale securities:
U.S. Government and federal agency	$	1,998,500	$	470	$	-	$	-	$	1,998,500	$	470
Mortgage-backed -GSE residential		-		-		1,584		26		1,584		26
	$	1,998,500	$	470	$	1,584	$	26	$	2,000,084	$	496

	December 31, 2015
	Less than 12 Months				12 Months or��Longer				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Available-for-sale securities:
U.S. Government and federal agency	$	3,524,074	$	19,656	$	990,379	$	8,566	$	4,514,453	$	28,222
State and political subdivisions		-		-		494,985		5,015		494,985		5,015
Mortgage-backed -GSE residential		1,602,805		10,728		-		-		1,602,805		10,728
	$	5,126,879	$	30,384	$	1,485,364	$	13,581	$	6,612,243	$	43,965

The unrealized losses on the Company’s investments in direct obligations of U.S. Government and federal agencies and mortgage-backed GSE residential securities 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 September 30, 2016, and December 31, 2015.

Note 5: Loans and Allowance

The Company’s loan and allowance policies are as follows:

Loans Receivable

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.

11

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. There were no changes in the Company’s nonaccrual policy during the three and nine month periods ended September 30, 2016 (unaudited) and September 30, 2015 (unaudited).

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 accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. 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, 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

12

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.

Categories of loans receivable include:

	September			December 31,
	2016			2015
	(Unaudited)
Real estate loans:
Residential 1-4 family	$	47,568,440		$	45,402,431
Commercial real estate		37,614,858			32,374,013
Construction and land		4,010,158			1,975,842
Total real estate		89,193,456			79,752,286
Commercial and industrial		9,433,055			8,147,480
Warehouse line		14,274,318			10,000,000
Consumer loans:
Home equity loans and lines of credit		7,731,560			9,003,016
Other consumer loans		1,155,271			1,101,856
Total consumer		8,886,831			10,104,872
Gross loans		121,787,660			108,004,638
Net deferred loan fees		(24,732	)		(26,191	)
Allowance for loan losses		1,220,646			1,075,374
Net loans	$	120,591,746		$	106,955,455

The risk characteristics of each loan portfolio segment are 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.

13

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.

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.

Warehouse Line:The residential mortgage warehouse line is a wholesale mortgage line participation. The lending is done with a specific mortgage company that is a customer with the participating bank. The participating bank underwrites each individual mortgage and the related mortgagee. Financing is provided to an approved mortgage company for the origination and sale of residential mortgage loans. A portion of each individual mortgage is assigned to the Edgewater Bank until the loans is sold on the secondary market. These loans are typically sold within 30 days and are seldom held more than 90 days. Interest income is accrued during this period and collected at the time each loan is sold. Edgewater Bank has established several controls to minimize potential risks including reviewing documents provided on the approved mortgage warehouse participants. Also, certain loan documents are received and reviewed on each loan in which Edgewater Bank is asked to participate in that allows Edgewater Bank to accept or reject the individual loan participation.

The following presents by portfolio segment, the activity in the allowance for loan losses:

	Residential			Commercial			Commercial			Warehouse
	1-4 Family			Real Estate			and Industrial			Line		Consumer			Total
	(Unaudited)
Three Months Ended September 30, 2016:
Balance, beginning of period	$	339,435		$	644,586		$	34,273		$	65,596	$	56,526		$	1,140,416
Provision (credit) for loan losses		15,596			59,590			1,985			12,785		(9,956	)		80,000
Loans charged to the allowance		-			(291	)		-			-		-			(291	)
Recoveries of loans previously charged off		521			-			-			-		-			521
Balance, end of period	$	355,552		$	703,885		$	36,258		$	78,381	$	46,570		$	1,220,646
Nine Months Ended September 30, 2016:
Balance, beginning of period	$	337,230		$	504,023		$	69,337		$	60,787	$	103,997		$	1,075,374
Provision (credit) for loan losses		18,389			197,523			(33,079	)		17,594		(57,427	)		143,000
Loans charged to the allowance		(2,020	)		(291	)		-			-		-			(2,311	)
Recoveries of loans previously charged off		1,953			2,630			-			-		-			4,583
Balance, end of period	$	355,552		$	703,885		$	36,258		$	78,381	$	46,570		$	1,220,646

14

	Residential			Commercial			Commercial			Warehouse
	1-4 Family			Real Estate			and Industrial			Line		Consumer			Total
	(Unaudited)
Three Months Ended September 30, 2015:
Balance, beginning of period	$	205,076		$	479,157		$	229,584		$	54,988	$	55,273		$	1,024,078
Provision (credit) for loan losses		30,751			173,933			(193,321	)		5,092		13,545			30,000
Loans charged to the allowance		(569	)		-			-			-		-			(569	)
Recoveries of loans previously charged off		365			600			-			-		-			965
Balance, end of period	$	235,623		$	653,690		$	36,263		$	60,080	$	68,818		$	1,054,474
Nine Months Ended September 30, 2015:
Balance, beginning of period	$	222,618		$	503,621		$	248,388		$	-	$	100,724		$	1,075,351
Provision (credit) for loan losses		209			210,084			(212,125	)		60,080		(13,248	)		45,000
Loans charged to the allowance		(569	)		(62,015	)		-			-		(18,657	)		(81,241	)
Recoveries of loans previously charged off		13,365			2,000			-			-		-			15,365
Balance, end of period	$	235,623		$	653,690		$	36,263		$	60,080	$	68,818		$	1,054,474

The following presents the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of September 30, 2016 and December 31, 2015:

	Residential		Commercial		Commercial		Warehouse
	1-4 Family		Real Estate		and Industrial		Line		Consumer		Total
	(Unaudited)
At September 30, 2016:
Allowance:
Balance, end of period	$	355,552	$	703,885	$	36,258	$	78,381	$	46,570	$	1,220,646
Ending balance: individually evaluated for impairment	$	14,749	$	141	$	-	$	-	$	230	$	15,120
Ending balance: collectively evaluated for impairment	$	340,803	$	703,744	$	36,258	$	78,381	$	46,340	$	1,205,526
Loans:
Ending balance	$	47,568,440	$	41,625,016	$	9,433,055	$	14,274,318	$	8,886,831	$	121,787,660
Ending balance individually evaluated for impairment	$	1,572,218	$	8,856	$	-	$	-	$	124,187	$	1,705,261
Ending balance collectively evaluated for impairment	$	45,996,222	$	41,616,160	$	9,433,055	$	14,274,318	$	8,762,644	$	120,082,399

	Residential		Commercial		Commercial		Warehouse
	1-4 Family		Real Estate		and Industrial		Line		Consumer		Total
At December 31, 2015:
Allowance:
Balance, end of period	$	337,230	$	504,023	$	69,337	$	60,787	$	103,997	$	1,075,374
Ending balance: individually evaluated for impairment	$	13,969	$	302	$	-	$	-	$	372	$	14,643
Ending balance: collectively evaluated for impairment	$	323,261	$	503,721	$	69,337	$	60,787	$	103,625	$	1,060,731
Loans:
Ending balance	$	45,402,431	$	34,349,855	$	8,147,480	$	10,000,000	$	10,104,872	$	108,004,638
Ending balance individually evaluated for impairment	$	2,051,278	$	315,658	$	-	$	-	$	122,809	$	2,489,745
Ending balance collectively evaluated for impairment	$	43,351,153	$	34,034,197	$	8,147,480	$	10,000,000	$	9,982,063	$	105,514,893

15

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 – GOOD

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. The industry is average. Some modest 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.

Specific: The financial statements are generally current, of adequate detail, and of good quality. Publication of statements is at least once annually but in most cases more frequent. Financial condition is good relative to the industry. The earnings record is stable and consistent, although modest year-to-year earnings 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 but losses are typically non-existent or infrequent. Liquidity and leverage are at the industry average. 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 – ACCEPTABLE

General: Asset quality and liquidity are good, and debt capacity and coverage are average to good. 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

16

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 Good (3). 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 5 – WATCH

General: Loans in this category are considered to be acceptable credit quality, but contain greater credit risk than Risk Rating 4 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 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 6 – 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 (6) rating. Nonfinancial reasons for rating a credit Special Mention (6) 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 7 – 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

17

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 (7) assets, the likelihood of full collection of interest and principal may be in doubt; such assets should be placed on nonaccrual.

RISK RATING 8 – 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, and 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 (8) assets.

RISK RATING 9 – 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.

Specific: With Loss (9) 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 (9), there is little prospect of collecting either its principal or interest. Losses are to be recorded in the period an obligation becomes uncollectable.

18

The following tables present the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of September 30, 2016:

	Residential		Commercial		Construction		Commercial		Warehouse				Other
	1-4 Family		Real Estate		and Land		and Industrial		Line		Home Equity		Consumer		Total
	(Unaudited)
Pass (1-5)	$	46,772,079	$	36,090,697	$	4,010,158	$	9,433,055	$	14,274,318	$	7,683,720	$	1,155,271	$	119,419,298
Special Mention (6)		-		33,830		-		-		-		-		-		33,830
Substandard (7)		796,361		1,490,331		-		-		-		47,840		-		2,334,532
Doubtful (8)		-		-		-		-		-		-		-		-
Loss (9)		-		-		-		-		-		-		-		-
Total	$	47,568,440	$	37,614,858	$	4,010,158	$	9,433,055	$	14,274,318	$	7,731,560	$	1,155,271	$	121,787,660

The following tables present the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of December 31, 2015:

	Residential		Commercial		Construction		Commercial		Warehouse				Other
	1-4 Family		Real Estate		and Land		and Industrial		Line		Home Equity		Consumer		Total
Pass (1-5)	$	44,838,588	$	30,037,894	$	1,966,182	$	8,147,480	$	10,000,000	$	9,003,016	$	1,101,856	$	105,095,016
Special Mention (6)		-		1,553,936		-		-		-		-		-		1,553,936
Substandard (7)		563,843		782,183		9,660		-		-		-		-		1,355,686
Doubtful (8)		-		-		-		-		-		-		-		-
Loss (9)		-		-		-		-		-		-		-		-
Total	$	45,402,431	$	32,374,013	$	1,975,842	$	8,147,480	$	10,000,000	$	9,003,016	$	1,101,856	$	108,004,638

The following tables present the Company’s loan portfolio aging analysis as of September 30, 2016:

													Total Loans >
	30-59 Days		60-89 Days		Greater Than		Total				Total		90 Days &
	Past Due		Past Due		90 Days		Past Due		Current		Loans		Accruimg
	(Unaudited)
Residential 1-4 family	$	353,562	$	428,317	$	755,430	$	1,537,309	$	46,031,131	$	47,568,440	$	13,246
Commercial real estate		33,830		-		8,856		42,686		37,572,172		37,614,858		-
Construction and land		-		-		21,918		21,918		3,988,240		4,010,158		21,918
Commercial and industrial		-		-		-		-		9,433,055		9,433,055		-
Warehouse Line		-		-		-		-		14,274,318		14,274,318		-
Home equity		89,667		22,628		-		112,295		7,619,265		7,731,560		-
Other consumer		236		-		-		236		1,155,035		1,155,271		-
	$	477,295	$	450,945	$	786,204	$	1,714,444	$	120,073,216	$	121,787,660	$	35,164

19

The following tables present the Company’s loan portfolio aging analysis as of December 31, 2015:

													Total Loans >
	30-59 Days		60-89 Days		Greater Than		Total				Total		90 Days &
	Past Due		Past Due		90 Days		Past Due		Current		Loans		Accruimg
	(Unaudited)
Residential 1-4 family	$	1,124,518	$	312,454	$	555,497	$	1,992,469	$	43,409,962	$	45,402,431	$	-
Commercial real estate		9,715		-		-		9,715		32,364,298		32,374,013		-
Construction and land		-		23,118		9,660		32,778		1,943,064		1,975,842		-
Commercial and industrial		99,541		-		-		99,541		8,047,939		8,147,480		-
Warehouse Line		-		-		-		-		10,000,000		10,000,000		-
Home equity		72,128		10,288		8,309		90,725		8,912,291		9,003,016		-
Other consumer		-		2,852		-		2,852		1,099,004		1,101,856		-
	$	1,305,902	$	348,712	$	573,466	$	2,228,080	$	105,776,558	$	108,004,638	$	-

The following table presents the Company’s nonaccrual loans at September 30, 2016 and December 31, 2015. This table excludes performing troubled debt restructurings.

	September 30,		December 31,
	2016		2015
	(Unaudited)
Residential 1-4 family	$	796,361	$	1,233,905
Commercial real estate		8,856		9,715
Construction and land		-		32,777
Commercial and industrial		-		-
Warehouse Line		-		-
Home equity		47,840		43,712
Other consumer		-		-
	$	853,057	$	1,320,109

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 Company 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.

20

The following table presents impaired loans and specific valuation allowance based on class level at September 30, 2016:

	Residential		Commercial		Construction		Commercial		Warehouse
	1-4 Family		Real Estate		and Land		and Industrial		Line		Home Equity		Total
	(Unaudited)
Impaired loans without a specific allowance:
Recorded investment	$	511,447	$	-	$	-	$	-	$	-	$	76,347	$	587,794
Unpaid principal balance		588,354		-		-		-		-		76,347		664,701
Impaired loans with a specific allowance:
Recorded investment		1,060,771		8,856		-		-		-		47,840		1,117,467
Unpaid principal balance		1,093,353		10,438		-		-		-		51,714		1,155,505
Specific allowance		14,749		141		-		-		-		230		15,120
Total impaired loans:
Recorded investment		1,572,218		8,856		-		-		-		124,187		1,705,261
Unpaid principal balance		1,681,707		10,438		-		-		-		128,061		1,820,206
Specific allowance		14,749		141		-		-		-		230		15,120

The following table presents average impaired loans based on class level for the three and nine months ended September 30, 2016 and 2015:

	Residential		Commercial		Construction		Commercial		Warehouse
	1-4 Family		Real Estate		and Land		and Industrial		Line		Home Equity		Total
	(Unaudited)
Average recorded investment in impaired loans for the three months ended September 30, 2016	$	1,155,575	$	9,286	$	-	$	-	$	-	$	109,913	$	1,274,774
Average recorded investment in impaired loans for the three months ended September 30, 2015		2,317,506		287,989		95,764		-		-		121,496	$	2,822,755

	Residential		Commercial		Construction		Commercial		Warehouse
	1-4 Family		Real Estate		and Land		and Industrial		Line		Home Equity		Total
	(Unaudited)
Average recorded investment in impaired loans for the nine months ended September 30, 2016	$	1,254,224	$	9,286	$	-	$	-	$	-	$	112,801	$	1,376,311
Average recorded investment in impaired loans for the nine months ended September 30, 2015		2,286,919		292,505		135,334		-		-		133,985		2,848,743

21

The following table presents impaired loans and specific valuation allowance based on class level at December 31, 2015:

	Residential		Commercial		Construction		Commercial		Warehouse
	1-4 Family		Real Estate		and Land		and Industrial		Line		Home Equity		Total
Impaired loans without a specific allowance:
Recorded investment	$	848,467	$	273,166	$	-	$	-	$	-	$	79,097	$	1,200,730
Unpaid principal balance		921,718		273,166		-		-		-		79,097		1,273,981
Impaired loans with a specific allowance:
Recorded investment		1,202,811		9,715		32,777		-		-		43,712		1,289,015
Unpaid principal balance		1,259,063		11,111		36,696		-		-		45,687		1,352,557
Specific allowance		13,969		129		173		-		-		372		14,643
Total impaired loans:
Recorded investment		2,051,278		282,881		32,777		-		-		122,809		2,489,745
Unpaid principal balance		2,180,781		284,277		36,696		-		-		124,784		2,626,538
Specific allowance		13,969		129		173		-		-		372		14,643

Interest income of $7,618, $21,695, $10,777, $32,296 and $41,740 was recognized on impaired loans for the three and nine months ended September 30, 2016 (unaudited) and September 30, 2015 (unaudited) and for year-end December 31, 2015, respectively.

At September 30, 2016, the Company had several 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. Total troubled debt restructured loan balance on nine loans was $899,000 as of September 30, 2016 (unaudited).

There were no new troubled debt restructurings for the three or nine months ended September 30, 2016 and 2015.

There was no troubled debt restructured loans modified in the past 12 months that subsequently defaulted.

At September 30, 2016, the Company had one residential real estate loan as foreclosed property totaling $26,000. There were no consumer mortgage loans in the process of foreclosure according to local requirements of the applicable jurisdictions.

Note 6: 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.

22

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 September 30, 2016 (unaudited) and for the year end December 31, 2015:

	September 30, 2016
	Fair Value Measurements Using
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair		Assets		Inputs		Inputs
Assets	Value		(Level 1)		(Level 2)		(Level 3)
	(Unaudited)
Available-for-sale securities:
U.S. Government and federal agency	$	5,422,473	$	-	$	5,422,473	$	-
State and political subdivisions		2,061,755		-		2,061,755		-
Mortgage-backed - GSE residential		2,019,610		-		2,019,610		-
Collateralized mortgage obligations-GSE		436,021		-		436,021		-
Mortgage servicing rights		65,065		-		-		65,065

	December 31, 2015
	Fair Value Measurements Using
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair		Assets		Inputs		Inputs
Assets	Value		(Level 1)		(Level 2)		(Level 3)
	(Unaudited)
Available-for-sale securities:
U.S. Government and federal agency	$	5,924,942	$	-	$	5,924,942	$	-
State and political subdivisions		2,558,886		-		2,558,886		-
Mortgage-backed - GSE residential		2,570,256		-		2,570,256		-
Collateralized mortgage obligations-GSE		659,654		-		659,654		-
Mortgage servicing rights		83,176		-		-		83,176

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 nine months ended September 30, 2016 (unaudited) and the year ended December 31, 2015. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described on the following page.

23

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 agency, state and political subdivisions, mortgage-backed securities GSE, and collateralized mortgage debt obligations GSE. 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 a quarterly 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:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
	(Unaudited)
Balance, beginning of period	$	67,766		$	100,170		$	83,176		$	114,193
Total changes in fair value  included in earnings		(2,701	)		(8,700	)		(18,111	)		(22,723	)
Balance, end of period	$	65,065		$	91,470		$	65,065		$	91,470

24

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 September 30, 2016 (unaudited) and December 31, 2015:

	Fair Value Measurements Using
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair		Assets		Inputs		Inputs
Assets	Value		(Level 1)		(Level 2)		(Level 3)
September 30, 2016 (Unaudited)
Collateral-dependent impaired loans, Net of ALLL	$	521,894		-		-		521,894
December 31, 2015
Other real estate owned	$	202,100	$	-	$	-	$	202,100
Collateral-dependent impaired loans, Net of ALLL		1,274,372		-		-		1,274,372

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

25

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.

Unobservable (Level 3) Inputs

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements:

			Valuation		Weighted
	Fair Value		Technique	Unobservable Inputs	Average
At September 30, 2016 (Unaudited):
Collateral-dependent impaired loans	$	521,894	Market comparable properties	Marketability discount	10% - 15% (13.5%)
Mortgage servicing rights		65,065	Discounted	Constant
			cash flow	prepayment rate	10.7%-19.2% (18.0%)
				Probability
				of default	1% - 8% (2.9%)
				Discount rate	5.7% - 14% (10.4%)
At December 31, 2015
Other real estate owned	$	202,100	Market comparable	Comparability
			properties	adjustment (%)	Not available
Collateral-dependent impaired loans		1,274,372	Market comparable properties	Marketability discount	10% - 15% (11.4%)
Mortgage servicing rights		83,176	Discounted	Constant
			cash flow	prepayment rate	8.8% - 16% (11.9%)
				Probability
				of default	1% - 8% (1.6%)
				Discount rate	5.6% - 12.0% (10.4%)

26

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 September 30, 2016 and December 31, 2015.

	Fair Value Measurements Using
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Carrying		Assets		Inputs		Inputs
	Amount		(Level 1)		(Level 2)		(Level 3)
	(Unaudited)
At September 30, 2016:
Financial assets:
Cash and cash equivalents	$	17,681,880	$	17,681,880	$	-	$	-
FHLB Stock		686,200		-		686,200		-
Loans held for sale		387,800		-		387,800
Loans, net of alloance for loan losses		120,591,746		-		-		121,573,000
Accrued interest receivable		312,808		-		312,808		-
Mortgage servicing rights		332,942		-		-		570,111
Financial liabilities:
Deposits		124,564,348		15,026,426		109,705,922		-
FHLB advances		15,000,000		-		15,018,000		-
Accrued interest payable		45,732		-		45,732		-

	Fair Value Measurements Using
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Carrying		Assets		Inputs		Inputs
	Amount		(Level 1)		(Level 2)		(Level 3)
At December 31, 2015:
Financial assets:
Cash and cash equivalents	$	10,906,893	$	10,906,893	$	-	$	-
FHLB Stock		686,200		-		686,200		-
Loans, net of allowance for loan losses		106,955,455		-		-		107,347,000
Accrued interest receivable		314,174		-		314,174		-
Mortgage servicing rights		325,539		-		-		612,290
Financial liabilities:
Deposits		113,330,856		13,940,853		99,414,003		-
Federal Home Loan Bank advances		8,000,000		-		8,063,000		-
Accrued interest payable		6,137		-		6,137		-

27

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

Cash and Cash Equivalents and Federal Home Loan Bank Stock

The carrying amount approximates fair value.

Loan 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 Bank 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 Bank. The rates were the average of current rates offered by local competitors of the Bank.

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.

Note 7: Accounting Developments

Financial Accounting Standards Board (“FASB”)

In February 2016, the FASB issuedASU No. 2016-02, “Leases (Topic 842).” The provisions of ASU 2016-02 was issued to increase transparency and comparability among entities by requiring lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by leases and disclosing key information about leasing arrangements. For public entities, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact of ASU 2016-02 on its consolidated financial statements.

28

In March 2016, the FASB issuedASU No. 2016-09, “Compensation-Stock Compensation (Topic 718)-Improvements to Employee Share-Based Payment Accounting.” The provisions of ASU 2016-09 simplify several aspects for share-based payment transactions, including income tax consequences, forfeitures, statutory tax withholding requirements and classifications of the income tax effects of certain share-based payment transactions in the statement of cash flows. ASU 2016-09 eliminates equity treatment for tax benefits or deficiencies that result from differences between compensation costs recognized for GAAP purposes and the related tax deduction and require such differences be recognized as income tax expense. Since excess tax benefits are no longer recognized in additional paid-in capital, the assumed proceeds from applying the treasury stock method will exclude the amount of excess tax benefits when calculating earnings per share. Under ASU 2016-09, forfeitures can be estimated and considered in the accrual of compensation expense, as in current practice, or accounted for as they occur. In addition, for awards to qualify as equity instruments the employer must have a statutory obligation to withhold taxes on the employee’s behalf and the withholdings cannot exceed the maximum statutory tax rates in the applicable jurisdictions. Excess tax benefits are now classified as operating activities and cash paid by an employer when directly withholding shares for tax-withholding purposes is classified as a financing activity. Since the Company qualifies as an emerging growth company, ASU 2016-09 is effective for annual reporting periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. The Company is currently evaluating the impact of ASU 2016-09 on its consolidated financial statements.

In June 2016, the FASB issuedASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326).” The provisions of ASU 2016-13 was issued to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments that are not accounted for at fair value through net income, including loans held for investment, held-to-maturity debt securities, trade and other receivables, net investment in leases and other commitments to extend credit held by a reporting entity at each reporting date. ASU 2016-13 requires that financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The amendments in ASU 2016-13 eliminate the probable initial recognition in current GAAP and reflect an entity’s current estimate of all expected credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the financial assets. For purchased financial assets with a more-than-insignificant amount of credit deterioration since origination (“PCD assets”) that are measured at amortized cost, the initial allowance for credit losses is added to the purchase price rather than being reported as a credit loss expense. Subsequent changes in the allowance for credit losses on PCD assets are recognized through the statement of income as a credit loss expense. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down to the security. Since the Company qualifies as an emerging growth company, ASU 2016-13 is effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The Company is currently evaluating the impact of ASU 2016-13 on its consolidated financial statements.

29

Note 8: Earnings Per Share

	Three Months Ended		Nine Months Ended
	September 30, 2016		September 30, 2016
	(Unaudited)		(Unaudited)
Net Income	$	114,063	$	94,357
Shares outstanding for basic EPS:
Average shares outstanding		667,898		667,898
Less: Average unearned ESOP shares		47,906		48,439
		619,992		619,459
Additional dilutive shares		-		-
Shares outstanding for basic and diluted EPS		619,992		619,459
Basic and diluted earnings per share	$	0.18	$	0.15

	Three Months Ended		Nine Months Ended
	September 30, 2015		September 30, 2015
	(Unaudited)		(Unaudited)
Net Income	$	19,476	$	61,625
Shares outstanding for basic EPS:
Average shares outstanding		667,898		667,898
Less: Average unearned ESOP shares		50,576		50,841
		617,322		617,057
Additional dilutive shares		-		-
Shares outstanding for basic and diluted EPS		617,322		617,057
Basic and diluted earnings per share	$	0.03	$	0.10

30

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

General

Management’s discussion and analysis of the financial condition and results of operations at and for three months and nine months ended September 30, 2016 and 2015 is intended to assist in understanding the financial condition and results of operations of the Company on a consolidated basis. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto, appearing on Part I, Item 1 of this quarterly report on

Form 10-Q.

Forward Looking Statements

This report contains forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and our company. Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “is likely,” “plans,” “projects,” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions (“Future Factors”) that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. We undertake no obligation to update, amend, or clarify forward looking-statements, whether as a result of new information, future events (whether anticipated or unanticipated), or other

Future Factors include, among others, changes in interest rates and interest rates relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; changes in banking regulation or actions by bank regulators; changes in tax laws; our ability to manage expenses; the impact of technological advances; governmental and regulatory policy changes; the outcomes of contingencies; trends in customer behavior as well as their ability to repay loans; changes in local real estate values; changes in the national and local economies; and risk factors described in our annual report on Form 10-K for the year ended December 31, 2015. These are representative of the Future Factors that could cause a difference between an ultimate actual outcome and a forward-looking statement.

Critical Accounting Policies

There are no material changes to the critical accounting policies disclosed in Edgewater Bancorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2015.

Comparison of Financial Condition at September 30, 2016 and December 31, 2015

Total Assets.Total assets increased by $18.7 million, or 13.8%, to $154.0 million at September 30, 2016 from $135.4 million at December 31, 2015. The increase was primarily the result of increases in loans and loans held for sale loans of $13.6 million and $388,000, respectively. Also, cash and cash equivalents increased $6.8 million. This is partially offset by decreases in available-for-sale securities.

Net Loans.Net loans increased by $13.6 million, or 12.8%, to $120.6 million at September 30, 2016 from $107.0 million at December 31, 2015. During the nine months ended September 30, 2016, one-to- four family residential real estate loans increased $2.2 million, or 4.8%, to $47.6 million at September 30, 2016 from $45.4 million at December 31, 2015; commercial real estate loans increased $5.2 million or 16.2%, to $37.6 million from $32.4 million; construction and land loans

31

increased $2.0 million, or 103.0%, to $4.0 million from $2.0 million; commercial and industrial loans increased $1.3 million, or 15.8%, to $9.4 million from $8.1 million; warehouse line increased $4.3 million or 42.7% to $14.3 million from $10.0 million at September 30, 2016 and December 31, 2015 and consumer loans, including home equity loans and lines of credit, decreased $1.2 million, or 12.0%, to $8.9 million from $10.1 million. The increase in residential 1-4 family loans is the result of new customer relationships established with second homes being purchased. The increase in commercial real estate is the result of new customer relationships being established. The increase in construction and land is due to market demand for residential home construction and commercial real estate construction. The increase in the warehouse line is result of increasing the threshold limit of the line. The decreases in the remaining loan classes reflect repayments in excess of originations, and loan sales of refinanced loans.

Investment Securities.Investment securities available for sale decreased $1.8 million, or 15.1%, to $9.9 million at September 30, 2016 from $11.7 million at December 31, 2015. Mortgage-backed securities including collateralized mortgage obligations, decreased $774,000, or 24.0%, to $2.5 million at September 30, 2016 from $3.2 million at December 31, 2015, and states and political subdivision securities decreased $497,000, or 19.4%, to $2.1 million at September 30, 2016 from $2.6 million at December 31, 2015. U.S. government and federal agency securities decreased $502,000, or 8.5%, to $5.4 million at September 30, 2016 from $5.9 million at December 31, 2015. There were four securities purchased for $3.0 million and four securities called or matured for $4.7 million during the nine months ended September 30, 2016. Net unrealized gains on securities recognized in accumulated other comprehensive income (loss) increased by $66,000 to an unrealized gain of $52,000 at September 30, 2016 compared to an unrealized loss of $14,300 at December 31, 2015. At September 30, 2016, investment securities classified as available-for-sale consisted entirely of government-sponsored mortgage-backed securities, government-sponsored debentures, state and political subdivision 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 and held for sale increased $14,000, or 5.4% to $276,167 at September 30, 2016 from $262,100 at December 31, 2015. The Company sold $35,000 of foreclosed properties during the nine months ended September 30, 2016. There were two residential properties that were foreclosed on during the nine months ended September 30, 2016. There were no foreclosed non-performing loans, no recorded valuation adjustments and $16,500 in net loss on sales during the nine months ended September 30, 2016. At September 30, 2016, real estate owned included two commercial real estate properties, the largest has a carrying value of $202,100 and two residential properties.

Deposits.Deposits increased by $11.2 million, or 9.9%, to $124.6 million at September 30, 2016 from $113.3 million at December 31, 2015. Interest-bearing deposits increased $10.1 million 10.2% to $109.5 million at September 30, 2016 from $99.4 million at December 31, 2015. Noninterest bearing increased $1.1 million, or 7.8% to $15.0 million at September 30, 2016 from $13.9 million at December 31, 2015.

Federal Home Loan Bank Advances and Other Liabilities.Federal Home Loan Bank advances increased $7.0 million, or 87.5% to $15.0 million at September 30, 2016 from $8.0 million at December 31, 2015. Other liabilities, which include, interest and accounts payable, customer escrow balances, and accruals for items such as employee pension and medical plans, increased $256,000 or 38.1%, to $929,000 at September 30, 2016 from $672,000 at December 31, 2015.

Total Equity.Total equity increased $160,000 or 1.2%, to $13.5 million at September 30, 2016. Retained earnings increased $94,000 due to the net income at September 30, 2016, as well as an increase of $66,000 in accumulated other comprehensive income (loss) due to unrecognized gains on investment securities.

32

Delinquencies, Classified Assets and Non-Performing Assets

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 September 30, 2016 (unaudited)
Real estate loans:
One- to four-family residential		7	$	354		7	$	428		12	$	755		26	$	1,537
Commercial real estate		1		33		-		-		1		9		2		42
Construction and land		-		-		-		-		1		21		1		21
Total real estate		8		387		7		428		14		785		29		1,600
Commercial and industrial		-		-		-		-		-		-		-		-
Warehouse Line		-		-		-		-		-		-		-		-
Consumer loans:		-		-		-		-		-		-		-		-
Home equity loans and lines of credit		5		90		2		23		-		-		7		113
Other consumer		1		1		-		-		-		-		1		1
Total consumer		6		91		2		23		-		-		8		114
Total loans		14	$	478		9	$	451		14	$	785		37	$	1,714
At December 31, 2015
Real estate loans:
One- to four-family residential		14	$	1,125		4	$	312		10	$	555		28	$	1,992
Commercial real estate		1		10		-		-		-		-		1		10
Construction and land		-		-		1		23		2		10		3		33
Total real estate		15		1,135		5		335		12		565		32		2,035
Commercial and industrial		1		99		-		-		-		-		1		99
Consumer loans:		-		-		-		-		-		-		-		-
Home equity loans and lines of credit
Other consumer		3		72		3		10		1		8		7		90
Total consumer		-		-		1		3		-		-		1		3
Total loans		3		72		4		13		1		8		8		93
		19	$	1,306		9	$	348		13	$	573		41	$	2,227

The decrease in delinquent loans at September 30, 2016 compared to December 31, 2015 was primarily attributable to loans that were paid off or brought to a current status.

Classified Assets. The following table sets forth our amounts of classified assets as of the dates indicated. Amounts shown at September 30, 2016 and December 31, 2015 include approximately $853,000 and $1.3 million of nonperforming loans, respectively. The related specific valuation allowance in the allowance for loan losses for such nonperforming loans was $15,120 and $15,000 at September 30, 2016 and December 31, 2015, respectively.

33

	At September 30,		At December 31,
	2016		2015
	(Dollars in thousands)
	(Unaudited)
Classifed assets:
Substandard loans (1)	$	2,335	$	1,356
Doubtful loans		-		-
Loss loans		-		-
Real estate owned and other				-
Real estate owned and other repossessed assets		276		262
Total classified assets	$	2,611	$	1,618

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

The increase in classified assets to $2.6 million at September 30, 2016 from $1.6 million at December 31, 2015 was primarily due to the enhanced review of a larger commercial real estate relationship that resulted in being changed to a classified status and moved to nonperforming assets. The largest component of classified loans is commercial real estate loans which totaled $1.5 million, or 63.8% of our total classified loans, at September 30, 2016. Our largest classified loan relationship, was a commercial real estate relationship totaling $968,000 at September 30, 2016.

Non-Performing Assets.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 reserves. 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.

34

	At September 30,		At December 31,
	2016		2015
	(Dollars in thousands)
	(Unaudited)
Non-accrual loans:
Real estate loans:
One- to four-family residential	$	796	$	1,234
Commercial real estate		9		9
Construction and land		-		33
Total real estate		805		1,276
Commercial and industrial		-		-
Warehouse line		-		-
Consumer loans:
Home equity loans and lines of credit		48		44
Other consumer		-		-
Total consumer		48		44
Total loans		853		1,320
Loans 90 days or more past due and still accruing:
Real estate loans:
One- to four-family residential		13		-
Commercial real estate		-		-
Construction and land		22		-
Total real estate		35		-
Commercial and industrial		-		-
Warehouse line		-		-
Consumer loans:
Home equity loans and lines of credit		-		-
Other consumer		-		-
Total consumer		-		-
Total loans		35		-
Total non-performing loans		888		1,320
Real estate owned and other repossessed assets:
Real estate loans:
One- to four-family residential		49		-
Commercial real estate		202		202
Construction and land		25		60
Total real estate		276		262
Commercial and industrial		-		-
Consumer loans:
Home equity loans and lines of credit		-		-
Other consumer		-		-
Total consumer		-		-
Total real estate owned before loans in redemption		276		262
Loans in redemption (1)		-		-
Total real estate owned and other repossessed assets		276		262
Total non-performing assets	$	1,164	$	1,582

(table continues on following page)

35

	At September 30,			At December 31,
	2016			2015
	(Dollars in thousands)
	(Unaudited)
Troubled debt restructurings:
Real estate loans:
One- to four-family residential	$	823		$	957
Commercial real estate		-			273
Construction and land		-			-
Total real estate		823			1,230
Commercial and industrial		-			-
Consumer loans:
Home equity loans and lines of credit		76			79
Other consumer		-			-
Total consumer		76			79
Total loans	$	899		$	1,309
Total non-performing loans and troubled debt restructurings	$	1,787		$	2,629
Ratios:
Non-performing loans to total loans		0.73	%		1.22	%
Non-performing assets to total assets		0.76	%		1.17	%
Non-performing assets and troubled debt restructurings to total assets		1.16	%		1.94	%

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

Non-performing assets decreased $418,000, or 0.76% of total assets, at September 30, 2016 from $1.6 million, or 1.17% of total assets, at December 31, 2015. Nonperforming one-to-four family real estate loans decreased $438,000 to $796,000. Total non-performing loans to total loans decreased 49 basis points to 0.73% at September 30, 2016 from 1.22% at December 31, 2015. Construction and land nonperforming loans decreased $33,000 to zero on September 30, 2016 from $33,000 at December 31, 2015. The largest non-performing loan relationship was a one-to-four family residential mortgage relationship totaling $158,000 at September 30, 2016.

Other Loans of Concern.At September 30, 2016, there was a $34,000 commercial real estate loan designated by management as “special mention,” where there is information about possible credit problems of the borrower that caused management to have doubts about the ability of the borrowers to comply with present loan repayment terms. Management continues to actively monitor the performance of this loan.

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

General. Net income for the three months ended September 30, 2016 was $114,000, compared to net income of $19,000 for the three months ended September 30, 2015, an increase of $95,000. The increase in earnings was primarily due to increases in net interest income and noninterest income offset by decreases in noninterest expense in occupancy and other real estate expenses.

Interest Income. Interest income increased $120,000, or 9.9%, to $1.3 million for the three months ended September 30, 2016 from $1.2 million for the three months ended September 30, 2015.

36

This increase was attributable to a $121,000 increase in interest and fee income on loans receivable. The increase was due to volume increase in new loans. The average balance of loans during the three months ended September 30, 2016 increased $11.5 million to $118.1 million compared to $106.6 million for the three months ended September 30, 2015, and the average yield on loans decreased by 2 basis points to 4.33% for the three months ended September 30, 2016 from 4.35% for the three months ended September 30, 2015. The average balance of investment securities decreased $2.4 million to $9.1 million for the three months ended September 30, 2016 from $11.5 million for the three months ended September 30, 2015, and the average yield on investment securities decreased by 7 basis point to 1.31% for the three months ended September 30, 2016 from 1.38% for the three months ended September 30, 2015, resulting in income on securities decreasing only $2,400.

Interest Expense. Total interest expense increased $26,000, or 19.1%, to $162,000 for the three months ended September 30, 2016 from $136,000 for the three months ended September 30, 2015. Interest expense on deposit accounts increased $26,000, or 26.0%, to $126,000 for the three months ended September 30, 2016 from $100,000 for the three months ended September 30, 2015. An increase of 4 basis points in the average cost of interest-bearing deposits to 0.49% for the three months ended September 30, 2016 from 0.45% for the three months ended September 30, 2015, and there was an increase of $14.5 million, or 16.5%, in the average balance of deposits to $102.5 million for the three months ended September 30, 2016 from $87.9 million for the three months ended September 30, 2015. The increase in deposits was in demand deposit of $11.7 million, savings accounts by $1.9 million, and money market account by $1.1 million for the three months ended September 30, 2016. This was offset by a slight decline of $187,000 in certificates of deposit for three months ended September 30, 2016.

Interest expense on FHLB-Indianapolis advances decreased $1,000 to $36,000 for the three months ended September 30, 2016 from $37,000 for the three months ended September 30, 2015. The average balance of advances decreased by $4.8 million to $12.6 million for the three months ended September 30, 2016 from $17.4 million for the three months ended September 30, 2015. The average cost on the advances increased 31 basis points to 1.13% for the three months ended September 30, 2016 from .82% for the three months ended September 30, 2015.

Net Interest Income. Net interest income increased $94,000, or 8.7%, to $1.2 million for the three months ended September 30, 2016 from $1.1 million for the three months ended September 30, 2015. The interest rate spread decreased to 3.27% for the three months ended September 30, 2016 from 3.33% for the three months ended September 30, 2015, and decreased the net interest margin to 3.36% for the three months ended September 30, 2016 from 3.41% for the three months ended September 30, 2015. The decrease in the interest rate spread and net interest margin reflected was a result of the decrease in yield on interest earning assets as well as the increase in yield on interest earning liabilities for the three months ended September 30, 2016.

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 $80,000 for the three months ended September 30, 2016 and $30,000 for the three months ended September 30, 2015. The allowance for loan losses was $1.2 million, or 1.00% of total loans, at September 30, 2016, compared to $1.1 million, or .96% of total loans, at September 30, 2015. Total nonperforming loans were $888,000 at September 30, 2016, compared to $1.6 million at September 30, 2015. As a percentage of nonperforming loans, the allowance for loan losses was 137.4% at September 30, 2016 compared to 64.5% at September 30, 2015. At September 30, 2016, $48,000 of the $888,000 in nonperforming loans were contractually current, compared to $762,000 of $1.6 million at September 30, 2015.

The allowance for loan losses reflects the estimate we believe to be appropriate to cover incurred probable losses which were inherent in the loan portfolio at September 30, 2016 and December 31, 2015. While we believe the estimates and assumptions used in our determination of the adequacy of the allowance are reasonable, such estimates and assumptions could be proven incorrect in the future, and the actual amount of future provisions may exceed the amount of past provisions, and the increase in future

37

provisions that may be required may adversely impact our financial condition and results of operations. In addition, bank regulatory agencies periodically review our allowance for loan losses and may require an increase in the provision for possible loan losses or the recognition of further loan charge-offs, based on judgments different than those of management.

Non-Interest Income.Non-interest income increased $80,000 or 33.7%, to $316,000 for the three months ended September 30, 2016 from $237,000 for the three months ended September 30, 2015. The increase was due to an increase of $76,000 in mortgage banking activities, which includes gains on sale of loans and changes in the value of mortgage servicing rights. Gains on sale of loans increased as originations, particularly on new home purchases and refinanced homes, increased during the period. There were increases of $2,000 on service charges on deposits and $2,000 in other noninterest income.

Non-Interest Expense. Non-interest expense increased $29,000, or 2.3%, to $1.3 million for the three months ended September 30, 2016 from $1.3 million for the three months ended September 30, 2015. The increase was reflected in salaries and benefits of $29,000 and other expense of $19,000 which was offset by decreases in occupancy and equipment of $21,000 and other real estate expenses of $8,000. At this time, we do not expect any reductions in non-interest expenses related to our participation in the defined benefit plan because of the continued participation in the plan.

38

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 Three Months Ended September 30,
	2016								2015
	(Dollars in thousands)
	Average								Average
	Outstanding					Yield/Rate			Outstanding					Yield/Rate
	Balance			Interest		(1)			Balance			Interest		(1)
	(Dollars in thousands)
Interest-earning assets:
Loans	$	118,109		$	1,288		4.33	%	$	106,570		$	1,168		4.35	%
Investment securities		9,119			30		1.31			11,538			40		1.38
Other interest-earning assets (2)		11,365			19		0.66			7,540			8		0.47
Total interst-earning assets		138,593			1,337		3.83			125,648			1,216		3.84
Noninterest-earning assets		6,868								8,248
Allowance for loan losses		(1,163	)							(1,038	)
Total assets	$	144,298							$	132,858
Interest-earning liabilities:
Demand deposits	$	37,204			38		0.41	%	$	25,477			21		0.33	%
Money market accounts		21,134			15		0.28			20,009			15		0.30
Savings accounts		16,533			8		0.19			14,662			7		0.19
Certificates of deposit		27,605			65		0.93			27,792			56		0.81
Total deposits		102,476			126		0.49			87,940			99		0.45
FHLB-Indianapolis advances		12,609			36		1.13			17,387			37		0.82
Total interest-bearing liabilities		115,085			162		0.56			105,327			136		0.51
Noninterest-bearing demand deposits		15,909								14,373
Other noninterest-bearing liabilities		815								754
Total liabilities		131,809								120,454
Equity		12,489								12,404
Total liabilities and equity	$	144,298							$	132,858
Net interest income				$	1,175							$	1,080
Net interest spread (3)							3.27	%							3.33	%
Net interest-earning assets (4)	$	23,508							$	20,321
Net interest margin (5)							3.36	%							3.41	%
Average interest-earning assets to interest-bearing liabilities							102.43	%							119.29	%

(1) Yield and rates are annualized.

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

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

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

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

39

Comparison of Operating Results for the Nine Months Ended September 30, 2016 and 2015

General. Net income for the nine months ended September 30, 2016 was $94,000, compared to net income of $62,000 for the nine months ended September 30, 2015, an increase of $33,000. The increase in earnings was primarily due to increases in net interest income and non-interest income offset by increases in the provision for loan losses and increases in noninterest expense in salaries and benefits and data processing.

Interest Income. Interest income increased $297,000, or 8.3%, to $3.9 million for the nine months ended September 30, 2016 from $3.6 million for the nine months ended September 30, 2015. This increase was attributable to a $299,000 increase in interest and fee income on loans receivable. The increase was due to volume increase in new loans. The average balance of loans during the nine months ended September 30, 2016 increased $12.1 million to $112.6 million compared to $100.4 million for the nine months ended September 30, 2015, and the average yield on loans decreased by 15 basis points to 4.39% for the nine months ended September 30, 2016 from 4.54% for the nine months ended September 30, 2015. The yield declined because $119,000 of interest was collected on a nonaccrual loan paid off during the first quarter ending March 31, 2015. The average balance of investment securities decreased $1.4 million to $10.7 million for the nine months ended September 30, 2016 from $12.1 million for the nine months ended September 30, 2015, while the average yield on investment securities increased slightly by 1 basis point to 1.38% for the nine months ended September 30, 2016 from 1.37% for the nine months ended September 30, 2015.

Interest Expense. Total interest expense increased $73,000, or 18.5%, to $465,000 for the nine months ended September 30, 2016 from $392,000 for the nine months ended September 30, 2015. Interest expense on deposit accounts increased $79,000, or 26.7%, to $375,000 for the nine months ended September 30, 2016 from $296,000 for the nine months ended September 30, 2015. An increase of 5 basis points in the average cost of interest-bearing deposits to 0.50% for the nine months ended September 30, 2016 from 0.45% for the nine months ended September 30, 2015, and there was an increase of $13.4 million, or 15.3%, in the average balance of deposits to $101.0 million for the nine months ended September 30, 2016 from $87.6 million for the nine months ended September 30, 2015. The increase in deposits is in demand deposits of $12.3 million, money market accounts by $639,000, and savings account by $522,000 for the nine months ended September 30, 2016. This was offset partially by decline of $116,000 in certificates of deposit for nine months ended September 30, 2016.

Interest expense on FHLB-Indianapolis advances decreased $7,000 to $89,000 for the nine months ended September 30, 2016 from $96,000 for the nine months ended September 30, 2015. The average balance of advances decreased by $4.1 million to $9.5 million for the nine months ended September 30, 2016 from $13.7 million for the nine months ended September 30, 2015. The average cost on the advances increased 31 basis points to 1.25% for the nine months ended September 30, 2016 from 0.94% for the nine months ended September 30, 2015 because shorter term advances with lower yields paid off.

Net Interest Income. Net interest income increased $224,000, or 7.0%, to $3.4 million for the nine months ended September 30, 2016 from $3.2 million for the nine months ended September 30, 2015. The interest rate spread decreased to 3.31% for the nine months ended September 30, 2016 from 3.40% for the nine months ended September 30, 2015, and decreased the net interest margin to 3.41% for the nine months ended September 30, 2016 from 3.49% for the nine months ended September 30, 2015. The decrease in our interest rate spread and net interest margin reflected was offset by an increase in our interest earning assets over interest earning liabilities of $2.0 million for the nine months ended September 30, 2016.

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 $143,000 for the nine ended September 30, 2016 and $45,000 for the nine months ended September 30, 2015. See

40

“Comparison of Operating Results for Three Months ended September 30, 2016 and 2015”. “Provision for Loan Losses” for additional information as the reasons for changes are comparable.

Non-Interest Income.Non-interest income increased $28,000, or 4.0%, to $724,000 for the nine months ended September 30, 2016 from $696,000 for the nine months ended September 30, 2015. Mortgage banking activities increased $59,000 or 18.7% to $372,000 for the nine months ended September 30, 2016 from $313,000 for the nine months ended September 30, 2015, which includes gains on sale of loans and changes in the value of mortgage servicing rights. This was offset by decreases in service charges, deposits of $12,000 and other noninterest income of $19,000. The other non-interest income category decreased $15,000 because late fee charges on loans are down $15,000.

Non-Interest Expense. Non-interest expense increased $121,000, or 3.2%, to $3.9 million for the nine months ended September 30, 2016 from $3.8 million for the nine months ended September 30, 2015. Salaries and benefits increased $94,000 and data processing increased $16,000. At this time, we do not expect any reductions in non-interest expenses related to our participation in the defined benefit plan because of the continued participation in the plan.

41

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 Nine Months Ended September 30,
	2016								2015
	(Dollars in thousands)
	Average								Average
	Outstanding					Yield/Rate			Outstanding					Yield/Rate
	Balance			Interest		(1)			Balance			Interest		(1)
	(Dollars in thousands)
Interest-earning assets:
Loans	$	112,571		$	3,706		4.39	%	$	100,443		$	3,407		4.54	%
Investment securities		10,674			111		1.38			12,090			124		1.37
Other interest-earning assets (2)		9,751			50		0.69			9,110			40		0.59
Total interst-earning assets		132,996			3,867		3.87			121,643			3,571		3.92
Noninterest-earning assets		7,062								7,154
Allowance for loan losses		(1,108	)							(1,056	)
Total assets	$	138,950							$	127,741
Interest-earning liabilities:
Demand deposits	$	37,590			124		0.44	%	$	25,246			67		0.36	%
Money market accounts		20,963			45		0.29			20,324			44		0.29
Savings accounts		14,866			20		0.18			14,344			21		0.19
Certificates of deposit		27,535			186		0.90			27,651			164		0.79
Total deposits		100,954			375		0.50			87,565			296		0.45
FHLB-Indianapolis advances		9,525			89		1.25			13,664			96		0.94
Total interest-bearing liabilities		110,479			464		0.56			101,229			392		0.52
							.
Noninterest-bearing demand deposits		14,837								13,505
Other noninterest-bearing liabilities		810								753
Total liabilities		126,126								115,487
Equity		12,824								12,254
Total liabilities and equity	$	138,950							$	127,741
Net interest income				$	3,403							$	3,179
Net interest spread (3)							3.31	%							3.40	%
Net interest-earning assets (4)	$	22,517							$	20,414
Net interest margin (5)							3.41	%							3.49	%
Average interest-earning assets to interest-bearing liabilities							120.38	%							120.17	%

(1) Yield and rates are annualized.

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

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

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

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

42

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 September 30, 2016, we had the capacity to borrow approximately $1.6 million from the FHLB-Indianapolis and an additional $2.0 million on a line of credit with the FHLB-Indianapolis and the United Bankers Bank. At September 30, 2016 and December 31, 2015, we had $15.0 million and $8.0 million, 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 provided by operating activities was $668,000 and $128,000 for the nine months ended September 30, 2016 and 2015, respectively. Net cash used in investing activities, which consists primarily of disbursements for loan originations, offset by principal collections on loan, purchase of securities, proceeds from maturing and callable securities and pay downs of securities was $12.1 million and $17.4 million for the nine months ended September 30, 2016 and 2015, respectively. Net cash provided by financing activities was $18.2 million and $9.3 million, which consisted primarily of the activity in deposit accounts, the Federal Home Loan Bank advances, during the nine months ended September 30, 2016 and 2015, respectively.

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.

At September 30, 2016, we exceeded all of our regulatory capital requirements with a Tier 1 leverage capital level of $12.9 million, or 8.98% of adjusted total assets, which is above the required level of $5.8 million, or 4.00%; the common equity tier 1 capital ratio of $12.9 million, or 12.79 %, which is above the required level of $4.6 million or 4.5%; the tier 1 capital ratio of $12.9 million or 12.79%, which is above the required level of $6.0 million or 6.0%, and the total capital ratio of $14.2 million, or 13.99% of risk-weighted assets, which is above the required level of $8.1 million, or 8.0%. We opted-out of the accumulated other comprehensive income (AOCI) capital rule that went into effect on January 1, 2015. Implementation of the deductions and other adjustment to Common Equity Tier 1 (CET1) began on January 1, 2015, and will phase in over a four-year period (beginning at 40% on January 1, 2015, and an additional 20% per year thereafter). Under the new rule, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization must hold a capital conservation buffer composed of CET1 capital above its minimum risk-based capital requirements. The implementation of the capital conservation buffer begins on January 1, 2016, at the 0.625% level and will phase in over a four-year period (increasing by that amount on each subsequent January 1 until it reaches 2.5% on January 1, 2019). At December 31, 2015, we exceeded all of our regulatory capital requirements with a tier 1 leverage capital level of $12.6 million, or 9.42% of adjusted total assets, which is above the required level of $6.7 million, or 5.00%; and total risk-based capital of $13.7 million, or 15.37% of risk-weighted assets, which is above the required level of $8.9 million, or 10.00%. Accordingly, the Bank was categorized as well capitalized at September 30, 2016 and December 31, 2015.

43

Management is not aware of any conditions or events since the most recent notification that would change our category.

Off-Balance Sheet Arrangements. In the normal course of operations, we engage in a variety of financial transactions that, in accordance with U.S. Generally Accepted Accounting Principles are not recorded in our financial statements. These transactions involved, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customer’s request for fun ding and take the form of loan commitments, lines of credit and standby letters of credit.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Quantitative and qualitative disclosures above market risk are not required by smaller reporting companies, such as the Company.

Item 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the 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) and 15d-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of September 30, 2016. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

During the quarter ended September 30, 2016, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II – Other Information

Item 1. Legal Proceedings

The Company is subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s financial condition or results of operations.

Item 1A. Risk Factors

Disclosure of risk factors is not required by smaller reporting companies, such as the Company.

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

(a) There were no sales of unregistered securities during the period covered by this Report.

(b) Not applicable.

44

(c) There were no issuer repurchases of securities during the period covered by this Report.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

On October 21, 2016, the Company filed a Form 15 Notice of Termination of Registration under Section 12(g) of the Securities Exchange Act of 1934. The Company continues to file SEC reports under Sections 13 and 15(d) and will continue to do so through January 17, 2017.

Item 6. Exhibits

The exhibits required by Item 601 of Regulation S-K are included with this Form 10-Q and are listed on the “Index to Exhibits” immediately following the signatures.

45

SIGNATURES

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

	Edgewater Bancorp, Inc.
Date:  November 10, 2016	/s/ Richard E. Dyer
	Richard E. Dyer
	President and Chief Executive Officer
Date:  November 10, 2016	/s/ Coleen S. Frens-Rossman
	Coleen S. Frens-Rossman
	Senior Vice President and Chief Financial Officer

46

INDEX TO EXHIBITS

3.1 Articles of Incorporation of Edgewater Bancorp, Inc., incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 (file no. 333-191125), initially filed by Edgewater Bancorp, Inc. on September 12, 2013.

3.2 Bylaws of Edgewater Bancorp, Inc., incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 (file no. 333-191125), initially filed by Edgewater Bancorp, Inc. on September 12, 2013.

31.1 Certification of Richard E. Dyer, President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes Oxley Act of 2002

31.2 Certification of Coleen S. Frens-Rossman, Senior Vice President and Chief Financial Officer, pursuant to Section 302 of the Sarbanes Oxley Act of 2002

32 Certification of Richard E. Dyer, President and Chief Executive Officer, and Coleen S. Frens-Rossman, Senior Vice President and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101 The following materials from the Company’s Quarterly Report on Form 10Q for the quarter ended September 30, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Comprehensive Loss; (iv) Condensed Consolidated Statement of Changes in Stockholders’ Equity; (v) Condensed Consolidated Statements of Cash Flows; and (v) Notes to Condensed Consolidated Financial Statements*

* 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.

47