SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~September~~March 3031, ~~2018~~2019

☐ 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. 001-36702

Melrose Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Maryland		47-0967316
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

638 Main Street, Melrose, Massachusetts		02176
(Address of Principal Executive Offices)		Zip Code

(781) 665-2500

(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.

YES ☒ NO ☐

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

YES ☒ NO ☐

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

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐☒ Smaller reporting company ☒ Emerging growth company ☒

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

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

YES ☐ NO ☒

AsSecurities registered ofpursuant ~~November~~to 9,Section ~~2018,~~12(b) ~~2,582,424 shares~~ of the ~~Registrant’s common stock, par value $0.01 per share, were issued and outstanding.~~Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.01		MELR		Nasdaq

As of May 10, 2019, 2,323,771 shares of the Registrant’s common stock, par value $0.01 per share, were issued and outstanding.

Melrose Bancorp, Inc.

Form 10-Q

		~~Page~~	Page
Part I. Financial Information
Item 1.	Condensed Consolidated Financial Statements
	Consolidated Balance Sheets as of September 30, 2018 (unaudited) and December 31, 2017	1
	Consolidated Balance Sheets as of March 31, 2019 (unaudited) and December 31, 2018		1
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2018 and 2017 (unaudited)	2
	Consolidated Statements of Income for the Three Months Ended March 31, 2019 and 2018 (unaudited)		2
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2018 and 2017 (unaudited)	3
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2019 and 2018 (unaudited)		3
	Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2018 and 2017 (unaudited)	4
	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2019 and 2018 (unaudited)		4
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017 (unaudited)	5
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018 (unaudited)		5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25	24
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	33	28
Item 4.	Controls and Procedures	33	28
Part II. Other Information
Item 1.	Legal Proceedings	34	29
Item 1A.	Risk Factors	34	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34	29
Item 3.	Defaults upon Senior Securities	34	29
Item 4.	Mine Safety Disclosures	34	29
Item 5.	Other Information	34	29
Item 6.	Exhibits	34	29
	Signature Page	35	30

Part I. – Financial Information

Item 1.

Condensed Consolidated Financial Statements

MELROSE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Data)

	September 30,			December 31,
	March 31,			December 31,
	2018			2017
	2019			2018
	(unaudited)
ASSETS
Cash and due from banks	$	12,~~742~~203		$	8,~~903~~734
Money market funds		21,~~570~~883			3,~~963~~387
Federal funds sold		34,~~667~~072			43,~~737~~074
Cash and cash equivalents		18,~~979~~158			1715,~~603~~195
Investments in available-for-sale securities, at fair value		27,342			26,496
Interest-bearing time deposits with other banks		675			675
Federal Home Loan Bank stock, at cost		2,285			1,800
Investments:
Loans, net of allowance for loan losses of $1,358 at September 30, 2018 and $1,134 at December 31, 2017		262,265			251,317
Available-for-sale securities, at fair value		23,751			25,834
Premises and equipment, net		2,675			1,993
Equity securities, at fair value		2,731			-
Co-operative Central Bank deposit		891			886
Total Investments		26,482			25,834
Bank-owned life insurance		6,207			6,090
Federal Home Loan Bank stock, at cost		1,776			2,285
Accrued interest receivable		834			702
Loans, net of allowance for loan losses of $1,354 at March 31, 2019 and $1,323 at December 31, 2018		267,270			268,211
Deferred tax asset, net		539			364
Premises and equipment, net		2,614			2,645
Other assets		310			275
Co-operative Central Bank deposit		881			881
Total assets	$	322,327		$	307,526
Bank-owned life insurance		6,343			6,303
Accrued interest receivable		888			778
Deferred tax asset, net		158			266
Other assets		743			881
Total assets	$	325,988		$	323,954
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	1817,~~138~~428		$	1617,~~180~~475
Interest-bearing		~~222~~237,~~513~~383			~~216~~226,~~741~~581
Total deposits		~~240~~254,~~651~~811			~~232~~244,~~921~~056
Federal Home Loan Bank advances		3628,000			2934,000
Other liabilities		~~668~~669			~~612~~683
Total liabilities		~~277~~283,~~319~~480			~~262~~278,~~533~~739
Stockholders’ equity:
Common stock, par value $0.01 per share, authorized 15,000,000 shares; issued 2,591,424 shares at September 30, 2018 and 2,600,743 shares at December 31, 2017		26			26
Common stock, par value $0.01 per share, authorized 15,000,000 shares; issued and outstanding 2,440,133 shares at March 31, 2019 and 2,573,024 shares at December 31, 2018		24			26
Additional paid-in-capital		23,454			23,496
Additional paid-in capital		20,701			23,153
Retained earnings		2423,~~091~~980			2324,~~674~~627
Unearned compensation - ESOP (190,526 shares unallocated at September 30, 2018 and 196,184 shares unallocated at December 31, 2017)		(1,905	)		(1,961	)
Unearned compensation - ESOP (186,752 shares unallocated at March 31, 2019 and 188,638 shares unallocated at December 31, 2018)		(1,867	)		(1,886	)
Unearned compensation - restricted stock		(~~350~~283	)		(~~451~~317	)
Accumulated other comprehensive (loss)/income		(308	)		209
Accumulated other comprehensive loss		(47	)		(388	)
Total stockholders’ equity		4542,~~008~~508			4445,~~993~~215
Total liabilities and stockholders’ equity	$	~~322~~325,~~327~~988		$	~~307~~323,~~526~~954

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

MELROSE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Share and Per Share Data)

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31,
	2018		2017		2018		2017
	2019		2018
Interest and dividend income:
Interest and fees on loans	$	2,~~559~~639	$	2,~~139~~314	$	~~7,327~~	$	~~6,025~~
Interest and dividends on securities:
Taxable		~~137~~155		~~129~~122		~~396~~		~~398~~
Tax-exempt		16		1816		48		51
Other interest		100		6253		~~223~~		~~112~~
Total interest and dividend income		2,~~812~~910		2,~~348~~505		~~7,994~~		~~6,586~~
Interest expense:
Interest on deposits		~~753~~950		~~479~~511		~~1,863~~		~~1,339~~
Interest on Federal Home Loan Bank advances		~~201~~167		~~112~~134		~~536~~		~~217~~
Total interest expense		~~954~~1,117		~~591~~645		~~2,399~~		~~1,556~~
Net interest and dividend income		1,~~858~~793		1,~~757~~860		~~5,595~~		~~5,030~~
Provision for loan losses		5331		341		~~224~~		94
Net interest and dividend income after provision for loan losses		1,~~805~~762		1,~~754~~819		~~5,371~~		~~4,936~~
Noninterest income:
Fees and service charges		1922		2224		66		62
Gain on sales and calls of available-for-sale securities, net		~~103~~-		~~388~~106		~~342~~		~~1,195~~
Income on bank-owned life insurance		2427		8430		77		~~133~~
Other income		3		-		11		4
Gain on equity securities		128		-
Total noninterest income		149		494		496		1,394
Other income		7		6
Noninterest expense:
Total noninterest income		184		166
Salaries and employee benefits		827		807		2,543		2,428
Noninterest expense:
Occupancy expense		85		155		243		307
Salaries and employee benefits		953		828
Equipment expense		20		11		54		32
Occupancy expense		80		77
Data processing expense		113		100		314		297
Equipment expense		21		15
Advertising expense		52		45		158		146
Data processing expense		111		106
Printing and supplies		11		9		43		38
Advertising expense		51		49
FDIC assessment		22		15		66		55
Printing and supplies		11		16
Audits and examinations		57		50		171		150
FDIC assessment		22		22
Other professional services		83		80		243		230
Audits and examinations		60		57
Other expense		85		45		271		151
Other professional services		90		80
Total noninterest expense		1,355		1,317		4,106		3,834
Other expense		111		72
Income before income tax expense		599		931		1,761		2,496
Total noninterest expense		1,510		1,322
Income tax expense		157		300		460		917
Income before income tax expense		436		663
Net income	$	442	$	631	$	1,301	$	1,579
Income tax expense		113		180
Weighted average common shares outstanding:
Net income	$	323	$	483
Basic		2,378,294		2,368,989		2,377,858		2,365,661
Weighted average common shares outstanding:
Diluted		2,411,000		2,380,820		2,407,997		2,370,063
Basic		2,314,202		2,377,196
Earnings per share:
Diluted		2,338,918		2,406,259
Basic	$	0.19	$	0.27	$	0.55	$	0.67
Earnings per share:
Diluted	$	0.18	$	0.27	$	0.54	$	0.67
Basic	$	0.14	$	0.20
Dividends per share	$	-	$	-	$	0.34	$	-
Diluted	$	0.14	$	0.20
Dividends per share	$	0.34	$	0.34

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

MELROSE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2018			2017			2018			2017
	2019			2018
Net income	$	~~442~~323		$	~~631~~483		$	~~1,301~~		$	~~1,579~~
Other comprehensive loss, net of tax:
Other comprehensive income (loss), net of tax:
Net unrealized holding (loss) gain on available-for-sale securities		(70	)		48			(350	)		545
Net unrealized holding gain (loss) on available-for-sale securities		354			(235	)
Reclassification adjustment for net realized gains included in net income		~~(103~~-	)		(~~388~~106	)		~~(342~~	)		~~(1,195~~	)
Other comprehensive loss before income tax effect		(173	)		(340	)		(692	)		(650	)
Other comprehensive income (loss) before income tax effect		354			(341	)
Income tax benefit		44			133			175			285
Income tax (expense)/benefit		(108	)		74
Other comprehensive loss, net of tax		(129	)		(207	)		(517	)		(365	)
Other comprehensive income (loss), net of tax		246			(267	)
Comprehensive income	$	~~313~~569		$	~~424~~216		$	~~784~~		$	~~1,214~~

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

MELROSE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the ~~Nine~~Three Months Ended ~~September 30~~March 31, ~~2018~~2019 and ~~2017~~2018

(In Thousands, Except Share Data)

(Unaudited)

	Common Stock						Additional Paid-in-			Retained			Unearned Compensation			Unearned Compensation - Restricted			Accumulated Other Comprehensive
	Shares			Amount			Capital			Earnings			- ESOP			~~- RSA~~Stock			(Loss)/Income			Total
Balance, December 31, 2016		2,602,079		$	26		$	23,292		$	21,912		$	(2,037	)	$	(585	)	$	696		$	43,304
Net income		-			-			-			1,579			-			-			-			1,579
Other comprehensive loss, net of tax		-			-			-			-			-			-			(365	)		(365	)
Shares repurchased for tax withholdings on stock-based compensation		(1,336	)		-			(22	)		-			-			-			-			(22	)
Restricted stock award expense		-			-			-			-			-			101			-			101
Stock option expense		-			-			124			-			-			-			-			124
Common stock held by ESOP committed to be allocated (7,546 shares annually)		-			-			43			-			57			-			-			100
Balance, September 30, 2017		2,600,743		$	26		$	23,437		$	23,491		$	(1,980	)	$	(484	)	$	331		$	44,821
Balance, December 31, 2017		2,600,743		$	26		$	23,496		$	23,674		$	(1,961	)	$	(451	)	$	209		$	44,993
Net income		-			-			-			~~1,301~~483			-			-			-			~~1,301~~483
Other comprehensive loss, net of tax		-			-			-			-			-			-			(~~517~~267	)		(~~517~~267	)
Dividends paid		-			-			-			(884	)		-			-			-			(884	)
Dividends paid ($0.34 per share)		-			-			-			(884	)		-			-			-			(884	)
Restricted stock award expense		-			-			-			-			-			~~101~~34			-			~~101~~34
Stock option expense		-			-			~~124~~42			-			-			-			-			~~124~~42
Repurchase of common stock		(17,200	)		-			(335	)		-			-			-			-			(335	)
Common stock held by ESOP committed to be allocated (7,546 shares annually)		-			-			17			-			18			-			-			35
Common stock held by ESOP committed to be allocated (7,546 shares annually)		-			-			56			-			56			-			-			112
Balance, March 31, 2018		2,600,743			26			23,555			23,273			(1,943	)		(417	)		(58	)	$	44,436
Shares repurchased for tax withholdings on stock-based compensation		(1,219	)		-			(24	)		-			-			-			-			(24	)
Balance, December 31, 2018		2,573,024			26			23,153			24,627			(1,886	)		(317	)		(388	)		45,215
Stock options exercised		9,100			-			137			-			-			-			-			137
Net income		-			-			-			323			-			-			-			323
Balance, September 30, 2018		2,591,424		$	26		$	23,454		$	24,091		$	(1,905	)	$	(350	)	$	(308	)	$	45,008
Other comprehensive income, net of tax		-			-			-			-			-			-			246			246
Dividends paid ($0.34 per share)		-			-			-			(875	)		-			-			-			(875	)
Restricted stock award expense		-			-			-			-			-			34			-			34
Stock option expense		-			-			42			-			-			-			-			42
Repurchase of common stock		(132,891	)		(2	)		(2,510	)		-			-			-			-			(2,512	)
Cumulative effect of change in accounting principle		-			-			-			(95	)		-			-			95			-
Common stock held by ESOP committed to be allocated (7,546 shares annually)		-			-			16			-			19			-			-			35
Balance, March 31, 2019		2,440,133			24			20,701			23,980			(1,867	)		(283	)		(47	)		42,508

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

MELROSE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2018			2017
	2019			2018
Cash flows from operating activities:
Net income	$	~~1,301~~323		$	~~1,579~~483
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of securities, net of accretion		~~160~~21			~~100~~71
Gain on sales and calls of available-for-sale securities, net		(342	)		(1,195	)
Gain on equity securities		(128	)		-
Provision for loan losses		224			94
Gain on sales and calls of available-for-sale securities, net		-			(106	)
Change in net deferred loan fees/costs		44			4
Provision for loan losses		31			41
Change in unamortized premiums		48			(74	)
Change in net deferred loan costs		(13	)		13
Depreciation		109			160
Change in unamortized premiums		29			4
Increase in accrued interest receivable		(132	)		(96	)
Depreciation		42			29
Increase in other assets		(35	)		(93	)
Increase in accrued interest receivable		(110	)		(42	)
Increase in other liabilities		56			161
Decrease in other assets		114			9
Income on bank-owned life insurance		(77	)		(133	)
Decrease in other liabilities		(14	)		(62	)
ESOP expense		112			100
Decrease in income taxes receivable		24			50
Stock-based compensation expense		225			225
Income on bank-owned life insurance		(27	)		(30	)
Net cash provided by operating activities		1,693			832
ESOP expense		35			35
Stock-based compensation expense		76			76
Net cash provided by operating activities		403			571
Cash flows from investing activities:
Purchases of available-for-sale securities		(81,~~169~~310	)		(3,~~193~~512	)
Proceeds from sales of available-for-sale securities		602			2,264
Proceeds from sales of available for sale securities		-			194
Proceeds from maturities and calls of available-for-sale securities		61,~~211~~123			32,~~814~~563
Purchases of Federal Home Loan Bank stock		~~(485~~-	)		(~~716~~400	)
Increase in Cooperative Central Bank deposit		(5	)		(5	)
Proceeds from redemption of Federal Home Loan Bank stock		509			-
Loan originations and principal collections, net		(11,264	)		(9,011	)
Increase in Cooperative Central Bank deposit		-			(5	)
Loans purchased		-			(12,605	)
Loan originations and principal collections, net		894			(430	)
Capital expenditures		(~~791~~11	)		(~~396~~681	)
Premiums paid on bank-owned life insurance		(4013	)		(4112	)
Net cash used in investing activities		(13,941	)		(19,889	)
Net cash provided by (used in) investing activities		1,192			(2,283	)
Cash flows from financing activities:
Net increase in demand deposits, NOW and savings accounts		2,298			1,951
Net increase (decrease) in demand deposits, NOW and savings accounts		2,603			(2,353	)
Net increase in time deposits		5,432			10,427
Net increase (decrease) in time deposits		8,152			(3,499	)
Proceeds from Federal Home Loan Bank advances		~~10,000~~-			1610,000
Repayment of Federal Home Loan Bank advances		(3,000	)		-
Repayment of advances from Federal Home Loan Bank		(6,000	)		-
Dividends paid		(884	)		-
Cash dividend paid		(875	)		(884	)
Repurchase of Melrose Bancorp, Inc. common stock		(~~335~~2,512	)		-
Shares repurchased for tax withholdings on stock-based compensation		(24	)		(22	)
Net cash provided by financing activities		1,368			3,264
Stock options exercised		137			-
Net increase in cash and cash equivalents		2,963			1,552
Net cash provided by financing activities		13,624			28,356
Cash and cash equivalents at beginning of the period		15,195			17,603
Net increase in cash and cash equivalents		1,376			9,321
Cash and cash equivalents at end of the period	$	18,158		$	19,155
Cash and cash equivalents at beginning of the period		17,603			13,792
Cash and cash equivalents at end of the period	$	18,979		$	23,113
Supplemental disclosures:
Interest paid	$	21,~~384~~117		$	~~1,551~~645
Income taxes paid		64			785

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

Melrose Bancorp, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 1 - NATURE OF OPERATIONS

Melrose Bancorp, Inc. (the “Company”) was incorporated in February 2014 under the laws of the State of Maryland. The Company’s activity consists of owning and supervising its subsidiary, Melrose Bank (the “Bank”). The Bank provides financial services to individuals, families and businesses through our full-service banking office. Our primary business activity consists of taking deposits from the general public in our market area and investing those deposits, together with funds generated from operations, in one- to- four family residential real estate loans, home equity loans and lines of credit, commercial real estate loans, construction loans and to a much lesser extent consumer loans. The Bank is a Massachusetts-chartered cooperative bank headquartered in Melrose, Massachusetts. The Bank is subject to the regulations of, and periodic examination by, the Massachusetts Division of Banks (“DOB”) and the Federal Deposit Insurance Corporation (“FDIC”). The Bank’s deposits are insured by the FDIC subject to limitations.

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America.

NOTE 2 - – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited interim, consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and Rule 10-01 of Regulation S-X. Information included herein as of ~~September~~March 3031, ~~2018~~2019 and for the interim periods ended ~~September~~March 3031, ~~2018~~2019 and ~~2017~~2018 is unaudited; however, in the opinion of management, all ~~adjustments~~ adjustments considered necessary for a fair presentation have been included and were of a normal recurring nature. These statements ~~should~~ should be read in conjunction with the audited consolidated financial statements and related notes thereto included in the Company’s Form 10-K for the year ended December 31, ~~2017~~2018 filed with the Securities and Exchange Commission on March 1615, ~~2018~~2019. The results of operations for the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019 are not necessarily indicative of the results that may be expected for future periods, including the year ending December 31, ~~2018~~2019.

The significant accounting policies are summarized below to assist the reader in better understanding the condensed consolidated financial statements and other data contained herein.

BASIS OF PRESENTATION:

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank, and the Bank’s wholly-owned subsidiary, MCBSC, Inc., which is used to hold investment securities. All significant intercompany accounts and transactions have been eliminated in the consolidation.

USE OF ESTIMATES:

In preparing consolidated financial statements in conformity with U.S. generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses.

CASH AND CASH EQUIVALENTS:

~~For purposes of reporting cash flows, cash~~Cash and cash equivalents include cash on hand, amounts due from banks, ~~money market funds~~ and federal funds sold with original maturities of less than ninety days.

INTEREST-BEARING TIME DEPOSITS WITH OTHER BANKS:

Interest-bearing time deposits with other banks mature within 5 years and are carried at cost.

SECURITIES:

Investments in debt securities are adjusted for amortization of premiums and accretion of discounts computed so as to approximate the interest method. Gains or losses on sales of investment securities are recorded on the trade date and computed on a specific identification basis.

The Company classifies ~~all~~ debt ~~and equity~~ securities as available-for-sale. Available-for-sale securities are carried at fair value ~~in the consolidated balance sheets~~. Unrealized holding gains and losses are not included in earnings, but ~~are~~ reported as a net amount (less expected ~~tax~~taxes) in a separate component of ~~stockholders~~stockholder’s equity until realized. ~~The security classification may be modified after acquisition only under certain specified conditions.~~

~~For~~Equity securities ~~any~~are ~~debt~~carried ~~security~~at ~~with a~~ fair value ~~less than its amortized cost basis~~, ~~the~~with ~~Company~~changes ~~will~~in ~~determine~~fair ~~whether~~value itreported ~~has~~in ~~the~~net ~~intent~~income. toEquity ~~sell~~securities ~~the~~with ~~debt~~readily ~~security or whether it~~determinable isfair ~~more~~values ~~likely~~are ~~than~~carried ~~not~~at ~~it will be required to sell the debt security before the recovery of its amortized~~ cost ~~basis. If either condition is met~~, ~~the~~minus ~~Company will recognize a full~~ impairment, ~~charge~~if ~~to earnings. For all other debt securities that are considered other-than-temporarily impaired and do not meet either condition~~any, ~~the~~plus ~~credit~~or ~~loss~~minus ~~portion~~changes ofresulting ~~impairment~~from ~~will~~observable beprices ~~recognized~~changes in ~~earnings~~orderly astransactions ~~realized~~for ~~losses.~~the ~~The~~identical ~~other-than-temporary~~or ~~impairment~~a ~~related~~similar ~~to all other factors will be recorded in other comprehensive loss~~investment.

~~Declines~~For any indebt ~~marketable~~security ~~equity~~with ~~securities~~a fair value less than its amortized cost basis, the Company will determine whether it has the intent to ~~below~~sell ~~their~~the debt security or whether it is more likely than not it will be required to sell the debt security before the recovery of its amortized cost basis. If either condition is met, the Company will recognize a full impairment charge to earnings. For all other debt securities that are ~~deemed~~considered other-than-~~temporary~~temporarily ~~are~~impaired ~~reflected~~and do not meet either condition, the credit loss portion of impairment will be recognized in earnings as realized losses. The other-than-temporary impairment related to all other factors will be recorded in other comprehensive income.

Prior to the adoption of Accounting Standards Update (ASU) 2016-01, for the Company’s equity securities classified as available-for-sale, for which the Company determined that the decline in fair value was other-than-temporary, the Company would recognize the impairment within non-interest income on the consolidated statements of income when identified. Upon adoption of ASU 2016-01, effective January 1, 2019, the changes in fair value of the Company’s equity securities are recorded within net income and are no longer assessed for other-than-temporary impairment.

FEDERAL HOME LOAN BANK STOCK:

AsThe Bank is a member of the Federal Home Loan Bank ~~of Boston~~ (FHLB). The FHLB is a cooperative bank that provides services, including funding in the ~~Bank~~form isof ~~required~~advances, to ~~invest~~its inmember ~~$100~~banking ~~par~~institutions. ~~value~~As a requirement of membership, the Bank must own a minimum amount of FHLB stock, calculated periodically based primarily on its level of borrowings from the FHLB. ~~The~~No ~~FHLB~~market ~~capital~~exists ~~structure~~for shares of ~~mandates~~the ~~that~~FHLB ~~members~~and ~~must~~therefore, ~~own~~they ~~stock~~are carried at par value. Dividends are reported as ~~determined~~income. byFHLB ~~their~~stock ~~Total~~may ~~Stock~~be ~~Investment~~redeemed ~~Requirement~~at par value five years following termination of FHLB membership, subject to limitations which ismay be imposed by the ~~sum~~FHLB ofor aits regulator, ~~member’s~~the ~~Membership~~Federal ~~Stock~~Housing ~~Investment~~Finance ~~Requirement~~Board, ~~and~~to ~~Activity-Based~~maintain ~~Stock~~capital ~~Investment~~adequacy ~~Requirement,~~of asthe ~~defined~~FHLB. Management evaluates the Company’s investment in FHLB stock for other-than-temporary impairment at least on a quarterly basis and more frequently when economic or market conditions warrant such evaluation. Based on its most recent analysis of the FHLB as of ~~September~~March 3031, ~~2018~~2019, management deems its investment in FHLB stock to be not other-than-temporarily impaired.

CO-OPERATIVE CENTRAL BANK AND SHARE INSURANCE FUND:

All Massachusetts-chartered co-operative banks are required to be members of the Co-operative Central Bank, which maintains the Share Insurance Fund that insures co-operative bank deposits in excess of federal deposit insurance coverage. The Co-operative Central Bank is authorized to charge co-operative banks an annual assessment fee on deposit balances in excess of amounts insured by the FDIC. Assessment rates are based on the institution’s risk category, similar to the method currently used to determine assessments by the FDIC.

LOANS:

Loans receivable that management has the intent and ability to hold until maturity or payoff are reported at their outstanding principal balances adjusted for amounts due to borrowers on outstanding home equity lines of credit, commercial lines of credit and construction loans, any charge-offs, the allowance for loan losses and any deferred fees or costs on originated loans, or unamortized premiums or discounts on purchased loans.

Loan origination and commitment fees and certain direct origination costs are deferred, and the net amount amortized as an adjustment of the related loan’s yield. The Company is amortizing these amounts over the expected lives of the related loans.

Residential real estate loans are generally placed on nonaccrual when reaching 90 days past due or are in the process of foreclosure. All closed-end consumer loans 90 days or more past due and any equity line in the process of foreclosure are placed on nonaccrual status. Secured consumer loans are written down to realizable value and unsecured consumer loans are charged off upon reaching 120 or 180 days past due depending on the type of loan. Commercial real estate loans and commercial business loans which are 90 days or more past due are generally placed on nonaccrual status, unless secured by sufficient cash or other assets immediately convertible to cash. When a loan has been placed on nonaccrual status, previously accrued and uncollected interest is reversed against interest on loans. A loan can be returned to accrual status when collectability of principal is reasonably assured and the loan has performed for a period of time, generally six months.

Cash receipts of interest income on impaired loans are credited to principal to the extent necessary to eliminate doubt as to the collectability of the net carrying amount of the loan. Some or all of the cash receipts of interest income on impaired loans are recognized as interest income if the remaining net carrying amount of the loan is deemed to be fully collectible. When recognition of interest income on an impaired loan on a cash basis is appropriate, the amount of income that is recognized is limited to that which would have been accrued on the net carrying amount of the loan at the contractual interest rate. Any cash interest payments received in excess of the limit and not applied to reduce the net carrying amount of the loan are recorded as recoveries of charge-offs until the charge-offs are fully recovered.

ALLOWANCE FOR LOAN LOSSES:

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

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

PREMISES AND EQUIPMENT:

Land is carried at cost. Buildings and equipment are stated at cost, less accumulated depreciation and amortization. Cost and related allowances for depreciation and amortization of premises and equipment retired or otherwise disposed of are removed from the respective accounts with any gain or loss included in income or expense.

Depreciation and amortization are calculated principally on the straight-line method over the estimated useful lives of the assets. Estimated lives are 15 to 4030 years for buildings and 3 to 10 years for furniture and equipment.

Premises and equipment are periodically evaluated for impairment when events or changes in circumstances indicate the carrying amount may not be recoverable.

BANK-OWNED LIFE INSURANCE:

The Company has purchased insurance policies on the lives of certain directors, executive officers and employees. Bank-owned life insurance policies are reflected on the consolidated balance sheets at cash surrender value. Changes in net cash surrender value of the policies, as well as insurance proceeds received, are reflected in non-interest income on the consolidated statements of income and are not subject to income taxes.

ADVERTISING:

The Company directly expenses costs associated with advertising as they are incurred.

INCOME TAXES:

The Company recognizes income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are established for the temporary differences between the accounting basis and the tax basis of the Company’s assets and liabilities at enacted tax rates expected to be in effect when the amounts related to such temporary differences are realized or settled.

EMPLOYEE STOCK OWNERSHIP PLAN:

Compensation expense for the Employee Stock Ownership Plan (“ESOP”) is recorded at an amount equal to the shares allocated by the ESOP multiplied by the average fair value of the shares during the period. Unearned compensation applicable to the ESOP is reflected as a reduction of stockholders’ equity in the consolidated balance sheets. The difference between the average fair value and the cost of shares allocated by the ESOP is recorded as an adjustment to additional paid-in-capital.

STOCK-BASED COMPENSATION:

The Company recognizes stock-based compensation based on the grant-date fair value of the award. Forfeitures will be recognized when they occur. The Company values share-based stock option awards granted using the Black-Scholes option-pricing model. The Company recognizes compensation expense for its awards on a straight-line basis over the requisite service period for the entire award (straight-line attribution method), ensuring that the amount of compensation cost recognized at any date at least equals the portion of the grant-date fair value of the award that is vested at that time.

EARNINGS PER SHARE (EPS):

Basic EPS is calculated by dividing net income by the weighted average number of common shares outstanding adjusted to exclude the weighted average number of unallocated shares held by the ESOP and weighted average shares of unearned restricted stock. Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in earnings of the entity. For the purposes of computing diluted EPS, the treasury stock method is used.

The calculation of basic and diluted EPS (unaudited) is presented below.

Three Months Ended September 30, 2018

Three Months Ended September 30, 2017

Nine Months Ended September 30, 2018

Nine Months Ended September 30, 2017

Three Months Ended March 31, 2019

Three Months Ended March 31, 2018

(In thousands, except share data)

(In Thousands, except share data)

Net income

~~442~~323

~~631~~483

~~1,301~~

~~1,579~~

Basic Common Shares:

Weighted average common shares outstanding

2,~~593~~521,~~648~~344

2,600,743

~~2,598,234~~

~~2,601,485~~

Weighted average shares - unearned restricted stock

(2319,~~885~~447

)

(3228,~~741~~308

)

~~(26,078~~

)

~~(34,925~~

)

Weighted average unallocated ESOP shares

(~~191~~187,~~469~~695

)

(~~199~~195,~~013~~239

)

~~(194,298~~

)

~~(200,899~~

)

Basic weighted average shares outstanding

2,~~378~~314,~~294~~202

2,~~368~~377,~~989~~196

~~2,377,858~~

~~2,365,661~~

Dilutive effect of unvested restricted stock awards

53,~~319~~422

86,~~502~~092

~~5,724~~

~~4,402~~

Dilutive effect of stock options

2721,~~387~~294

322,~~329~~971

~~24,415~~

Diluted weighted average shares outstanding

2,~~411~~338,~~000~~918

2,~~380~~406,~~820~~259

~~2,407,997~~

~~2,370,063~~

Basic earnings per share

0.1914

0.2720

~~0.55~~

~~0.67~~

Diluted earnings per share (1)

0.18

0.27

0.54

0.67

Diluted earnings per share

0.14

0.20

(1) For the nine months ended September 30, 2017, stock options were not included in the computation of dilutive earnings per share, because the effect is anti-dilutive.

FAIR VALUES OF FINANCIAL INSTRUMENTS:

Accounting Standards Codification (ASC) 825, “Financial Instruments,” requires that the Company disclose the estimated fair value for its financial instruments. Fair value methods and assumptions used by the Company in estimating its fair value disclosures are as follows:

Cash and cash equivalents: The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents approximate fair value.

Securities: Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Federal Home Loan Bank stock: The carrying amounts reported in the consolidated balance sheets for Federal Home Loan Bank stock approximate fair value.

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

Cooperative Central Bank deposits: The carrying amounts reported in the consolidated balance sheets for Cooperative Central Bank deposits approximate fair value.

Accrued interest receivable: The carrying amount of accrued interest receivable approximates fair value.

Deposit liabilities: The fair values for demand deposits (e.g., interest and non-interest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificate accounts are estimated using a discounted cash flow calculation that applies interest rates currently being offered on similar certificates to a schedule of aggregated expected monthly maturities on certificate accounts.

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

RECENT ACCOUNTING PRONOUNCEMENTS:

As an “emerging growth company,” as defined in Title 1 of Jumpstart Our Business Startups (JOBS) Act, the Company has elected to use the extended transition period to delay adoption of new or reissued accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, the consolidated financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards. As of ~~September~~March 3031, ~~2018~~2019, there is no significant difference in the comparability of the financial statements as a result of this extended transition period. The extended transition period for an emerging growth company is five years, and the Company’s emerging growth status will end on December 31, 2019.

~~In May 2014 and August 2015, respectively, the Financial~~ Accounting ~~Standards Board (FASB) issued Accounting Standards Update ASU 2014-09 and ASU 2015-14, “Revenue~~ from Contracts with Customers (Topic 606).” The objective of ASU 2014-09 is to clarify principles for recognizing revenue and to develop a common revenue standard for Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards. ~~The~~Adopted ~~guidance~~ in ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principal of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Under the extended transition period for an emerging growth company, the amendments in ASU 2015-14 defer the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2018 and interim periods within that period. Earlier application is permitted only as of an annual reporting period beginning after December 31, 2016, include interim reporting periods within that reporting period. The Company’s revenue is comprised of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU 2014-09, and non-interest income. Based on the Company’s preliminary analysis of the effect of the new standard on its recurring revenue streams, the net quantitative impact of these presentation changes to noninterest income and noninterest expense is expected to be immaterial and will not affect net income. The Company is in the process of completing a full evaluation of the impact of the new standard, however, anticipates the adoption of this ASU will not have a material impact on its consolidated financial statements.2019

10In May 2014 and August 2015, respectively, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates (ASU) 2014-09 and 2015-14, “Revenue from Contracts with Customers (Topic 606).” The objective of ASU 2014-09 is to clarify principles for recognizing revenue and to develop a common revenue standard for Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards. The guidance in ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principal of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Under the extended transition period for an emerging growth company, the amendments in ASU 2015-14 defer the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2018 and interim periods within that period. Earlier application is permitted only as of an annual reporting period beginning after December 31, 2016, include interim reporting periods within that reporting period. The Company’s revenue is comprised of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU 2014-09, and noninterest income. The Company completed its overall assessment of revenue streams and review of related contracts potentially affected by the ASU’s, including deposit related fees and interchange fees. Based on this assessment, the Company concluded ASU 2014-09 did not materially change the method in which the Company currently recognizes revenue for these revenue streams. The Company also completed its evaluation of certain costs related to these revenue streams to determine whether such costs should be presented as expenses or contra-revenue (i.e. gross vs. net), there was no change to the accounting for these costs. The Company adopted ASU 2014-19 and its related amendments on its required effective date of January 1, 2019 utilizing the modified retrospective approach. Since there was no net impact upon adoption of the new guidance, a cumulative effect adjustment to opening retained earnings was not deemed necessary.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The amendments in this ASU address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments and makes targeted improvements to GAAP as follows:

Require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, the entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same manner.

Simplify the impairment assessment of equity investments without determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value.

Eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet.

Require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.

Require an entity to present separately in other comprehensive loss the portion of the total change in fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.

Require separate presentation of financial assets and financial liabilities by measurement category and form of financial assets (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements.

Clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.

Under the extended transition period for an emerging growth company, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of item 5 above is permitted as of the beginning of fiscal years or interim periods for which financial statements have not been issued. Early adoption of all other amendments in this ASU is not permitted. ~~The~~ On January 1, 2019, the Company isadopted ~~currently~~the ~~evaluating~~new accounting standard requiring equity investments (except those accounted for under the ~~amendments~~equity method of ~~ASU~~accounting ~~No.~~for ~~2016-01~~those tothat ~~determine~~result in the ~~potential~~consolidation ~~impact~~of the investee) ~~new~~to ~~standard~~be ~~will~~measured ~~have~~at fair value with changes in fair value recognized in net income. The adoption of this guidance, recognized onas a cumulative effect of change in accounting principle, resulted in a $95,000 decrease to beginning retained earnings and a $95,000 increase to beginning accumulated other comprehensive income. In accordance with 4 above, the Company’s ~~consolidated~~measured ~~financial~~the ~~statements~~fair value of its loan portfolio as of March 31, 2019 using an exit price notion (see Note 10 Fair Value Measurements).

In March ~~February 2016~~2017, the FASB issued ASU ~~2016~~2017-0208, “~~Leases~~Premium ~~(Topic~~Amortization ~~842)~~on Purchased Callable Debt Securities.” This ASU ~~was~~shortens the ~~issued~~amortization toperiod ~~increase~~for ~~transparency~~the ~~and~~premium ~~comparability~~on ~~among~~certain ~~organizations~~purchased bycallable ~~requiring reporting~~debt ~~entities~~securities to ~~recognize~~the ~~all~~earliest ~~leases,~~call ~~including~~date. ~~operating~~Today, asentities generally ~~lease~~amortize ~~assets~~the ~~and~~premium ~~lease~~over ~~liabilities~~the oncontractual life of the ~~balance~~security. ~~sheet~~The ~~and~~new guidance does not change the accounting for ~~disclose~~purchased ~~key~~callable ~~information~~debt ~~about~~securities ~~leasing~~held ~~arrangements.~~at ~~The~~a ~~amendments~~discount; inthe ~~this~~discount continues to be amortized to maturity. ASU ~~are~~No. 2017-08 is effective for ~~fiscal~~annual ~~years~~reporting beginning after December 15, 2018, and interim periods therein; early adoption is permitted. The guidance ~~Company~~calls ~~anticipates~~for ~~that~~a modified retrospective transition approach under which a cumulative-effect adjustment will be made to retained earnings as of the ~~adoption~~beginning of the first reporting period in which the guidance is adopted. The Company adopted of ASU No. 2017-08 on January 1, 2019. Adoption of this ASU ~~will~~2017-08 did not have a material impact on ~~its~~the ~~consolidated~~Company’s ~~financial~~Consolidated ~~statements~~Financial Statements.

~~In June 2016, the FASB issued ASU No. 2016-13,~~Accounting ~~“Financial~~Standards ~~Instruments~~Pending – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. This update will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted in interim and annual reporting periods beginning after December 15, 2018. The Company is currently evaluating the amendments of ASU No. 2016-13 to determine the potential impact the new standard will have on the Company’s consolidated financial statements.Adoption

In June ~~March 2017~~2016, the FASB issued ASU ~~2017~~No. 2016-0813, “~~Premium~~Financial ~~Amortization~~Instruments on– ~~Purchased~~Credit ~~Callable~~Losses ~~Debt~~(Topic ~~Securities~~326): Measurement of Credit Losses on Financial Instruments.” ~~This~~The ASU ~~shortens~~requires ~~the~~an ~~amortization~~organization ~~period~~to ~~for~~measure ~~the~~all ~~premium on~~expected ~~certain~~credit ~~purchased~~losses ~~callable~~for ~~debt~~financial ~~securities~~assets held toat the ~~earliest~~reporting ~~call~~ date. ~~Today~~based on historical experience, ~~entities~~current ~~generally~~conditions, ~~amortize~~and ~~the~~reasonable ~~premium~~and ~~over~~supportable ~~the~~forecasts. Financial ~~contractual~~institutions ~~life~~and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the ~~security.~~loss ~~The~~estimation ~~new~~techniques ~~guidance~~applied ~~does~~today ~~not~~will ~~change~~still ~~the~~be ~~accounting~~permitted, ~~for~~although ~~purchased~~the ~~callable~~inputs ~~debt~~to ~~securities~~those ~~held~~techniques ~~at a~~will ~~discount;~~change to reflect the ~~discount~~full ~~continues~~amount of expected credit losses. Organizations will continue to beuse ~~amortized~~judgment to ~~maturity~~determine which loss estimation method is appropriate for their circumstances. Additionally, the ASU ~~No.~~amends ~~2017~~the accounting for credit losses on available-08for-sale debt issecurities and purchased financial assets with credit deterioration. This update will be effective for ~~annual~~fiscal ~~reporting~~years beginning ~~after~~ after December 15, ~~2018~~2019, ~~and~~including interim periods ~~therein;~~within ~~early~~those fiscal years. Early adoption is permitted in interim and annual reporting periods beginning after December 15, 2018. The ~~guidance~~Company ~~calls~~has ~~for~~formed a ~~modified~~committee ~~retrospective~~to ~~transition approach~~assess ~~under~~the ~~which~~implications aof ~~cumulative-effect~~this ~~adjustment~~new pronouncement ~~will~~and beis ~~made~~considering toa ~~retained~~software ~~earnings~~solution asfor ofpreparing the ~~beginning~~allowance offor ~~the~~credit ~~first~~loss ~~reporting~~calculation and related reports ~~period~~that inwill ~~which~~provide the ~~guidance~~Company iswith ~~adopted.~~stronger ~~The~~data ~~Company~~integrity, ~~anticipates~~ease and efficiency in the ~~adoption~~allowance offor ~~ASU~~credit Noloss preparation. The ~~2017-08~~Company ~~will~~is ~~not~~currently ~~have~~evaluating athe ~~material~~ impact of this ASU on ~~the~~its consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): “Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement”. The amendments in this update modify the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The update is effective for interim and annual periods in fiscal years beginning after December 15, 2019,. anAn entity is permitted to early adopt any removed or modified disclosures upon issuance of the update and delay adoption of these additional disclosures until their effective date. The removed and modified disclosures will be adopted on a retrospective basis, and the new disclosures will be adopted on a prospective basis. The adoption will not have a material effect on the Company’s consolidated financial statements.

NOTE 3 - INTEREST-BEARING TIME DEPOSITS WITH OTHER BANKS

At March 31, 2019, the Company’s interest-bearing time deposits with other banks mature as follows:

	(In Thousands)
Due in one year or less	$	-
Due in one year through three years		225
Due in three years through five years		450
	$	675

NOTE 4 - INVESTMENTS

On January 1, 2019, the Company adopted of ASU 2016-01. Accordingly, upon adoption of this guidance, the Company now recognizes the changes in fair value (i.e. unrealized gains/losses) of equity securities in net income and as a result has updated presentation and disclosures. In the period ended March 31, 2019 this adoption amounted to a gain on equity securities of $128,000. The activity related to the ASU is presented on the consolidated statement of income in noninterest income. The Company recognized a cumulative effect change in accounting principle, resulting in a $95,000 decrease to beginning retained earnings and a $95,000 increase to beginning accumulated other comprehensive income.

Investment securities have been classified in the consolidated balance sheets according to the type of security management’s intent. The amortized cost basis of securities and their approximate fair values are as follows as of March 31, 2019 (unaudited) and December 31, 2018:

	Amortized Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In Thousands)
March 31, 2019: (unaudited)
Available-for-sale securities (carried at fair value)
U.S. Government and federal agency obligations	$	4,016	$	-	$	40	$	3,976
Debt securities issued by states of the United States and political subdivisions of the states		2,924		27		6		2,945
Corporate bonds and notes		13,784		92		87		13,789
Preferred stock		1,000		11		-		1,011
Asset-backed securities		902		37		27		912
Mortgage-backed securities		1,147		3		32		1,118
	$	23,773	$	170	$	192	$	23,751

December 31, 2018:
Available-for-sale debt securities (carried at fair value)
U.S. Government and federal agency obligations	$	4,026	$	-	$	66	$	3,960
Debt securities issued by states of the United States and political subdivisions of the states		2,625		1		29		2,597
Corporate bonds and notes		13,791		5		201		13,595
Preferred stock		2,000		-		124		1,876
Asset-backed securities		975		-		43		932
Mortgage-backed securities		1,200		1		42		1,159
Marketable equity securities		1,719		1		5		1,715
Total available-for-sale debt securities	$	26,336	$	8	$	510	$	25,834

At March 31, 2019 and December 31, 2018, we had equity investments recorded in our consolidated balance sheets of $2.7 million.

The following is a summary of unrealized and realized gains and losses on equity investments recognized in noninterest income in the consolidated statement of income during the three months ended March 31, 2019 (unaudited):

	2019
	(In thousands)
Net gains recognized during the period on equity investments	$	128
Less: Net gains (losses) recognized during the period on equity investments sold during the period		-
Unrealized gains recognized during the reporting period on equity investments still held at the reporting date		128

~~NOTE~~The scheduled 3maturities -of ~~INVESTMENTS~~debt INsecurities ~~AVAILABLE-FOR-SALE SECURITIES~~were as follows as of March 31, 2019 (unaudited):

Debt and equity securities have been classified in the consolidated balance sheets according to management’s intent. The amortized cost basis of securities and their approximate fair values are as follows as of September 30, 2018 (unaudited) and December 31, 2017:

	Fair Value
	(In Thousands)
Due within one year	$	1,598
Due after one year through five years		16,806
Due after five years through ten years		1,788
Due after ten years		1,529
Asset-backed securities		912
Mortgage-backed securities		1,118
	$	23,751

	Amortized Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In Thousands)
September 30, 2018
U.S. Government and federal agency obligations	$	4,544	$	-	$	114	$	4,430
Debt securities issued by states of the United States and political subdivisions of the states		2,630		-		68		2,562
Corporate bonds and notes		14,465		4		210		14,259
Preferred stock		2,000		4		50		1,954
Asset-backed securities		1,013		-		53		960
Mortgage-backed securities		1,262		-		52		1,210
Marketable equity securities		1,817		160		10		1,967
	$	27,731	$	168	$	557	$	27,342
December 31, 2017:
U.S. Government and federal agency obligations	$	5,390	$	-	$	65	$	5,325
Debt securities issued by states of the United States and political subdivisions of the states		2,898		12		29		2,881
Corporate bonds and notes		11,364		7		77		11,294
Preferred stock		3,000		13		-		3,013
Mortgage-backed securities		1,495		-		47		1,448
Marketable equity securities		2,046		490		1		2,535
	$	26,193	$	522	$	219	$	26,496

There were no securities of issuers whose aggregate carrying amount exceeded 10% of stockholders’ equity as of March 31, 2019 (unaudited) and December 31, 2018.

~~The scheduled~~During ~~maturities~~the ofthree ~~debt~~months ~~securities~~ended ~~were~~March as31, ~~follows~~2019 as(unaudited) there were no sales of ~~September~~ 30available-for-sale securities. During the three months ended March 31, 2018 (unaudited): proceeds from the sales of available-for-sale securities were $194,000, and gross realized gains on these sales amounted to $121,000. The tax expense on the realized gains during the three months ended March 31, 2018, was $26,000. During the three months ended March 31, 2018 there was one security that was called prior to full amortization of the premium being taken. The Company recognized a loss of $15,000 as a result.

	Fair Value
	(In Thousands)
Due within one year	$	2,483
Due after one year through five years		16,494
Due after five years through ten years		2,069
Due after ten years		1,209
Asset-backed securities		960
Mortgage-backed securities		1,210
	$	24,425

The Company had no pledged securities as of March 31, 2019 (unaudited) and December 31, 2018.

~~Not included~~The aggregate fair value and unrealized losses of securities that have been in ~~the~~a ~~maturity~~continuous ~~table~~unrealized ~~above~~loss isposition ~~preferred~~for ~~stock~~less ~~with~~than twelve nomonths ~~stated~~and ~~maturity~~for oftwelve ~~$950~~months or more,~~000~~ ~~at September~~and 30are not other-than-temporarily impaired, ~~2018~~are as follows as of March 31, 2019 (unaudited). and December 31, 2018:

There were no securities of issuers whose aggregate carrying amount exceeded 10% of stockholders’ equity as of September 30, 2018 (unaudited) and December 31, 2017.

	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
March 31, 2019
U.S. Government and federal agency obligations	$	-	$	-	$	3,476	$	40	$	3,476	$	40
Debt securities issued by states of the United States and political subdivisions of the states		-		-		294		6		294		6
Corporate bonds and notes		2,439		25		6,283		62		8,722		87
Asset-backed securities		-		-		542		27		542		27
Mortgage-backed securities		-		-		904		32		904		32
Total temporarily impaired securities	$	2,439	$	25	$	11,499	$	167	$	13,938	$	192

December 31, 2018
U.S. Government and federal agency obligations	$	975	$	14	$	2,985	$	52	$	3,960	$	66
Debt securities issued by states of the United States and political subdivisions of the states		1,185		12		1,048		17		2,233		29
Corporate bonds and notes		5,882		80		6,224		121		12,106		201
Preferred stock		1,876		124		-		-		1,876		124
Asset-backed securities		932		43		-		-		932		43
Mortgage-backed securities		-		-		924		42		924		42
Marketable equity securities		-		-		492		5		492		5
Total temporarily impaired securities	$	10,850	$	273	$	11,673	$	237	$	22,523	$	510

During the three and nine months ended September 30, 2018 (unaudited) proceeds from the sales of available-for-sale securities were $175,000 and $602,000, respectively, and gross realized gains on these sales amounted to $103,000 and $357,000, respectively. The tax expense on the realized gains during the three and nine months ended September 30, 2018 was $27,000 and $88,000, respectively. There were no realized losses on available for sale securities for the three months ended September 30, 2018. During the nine months ended September 30, 2018, there was one security called prior to full amortization of the premium being taken, and the Company recognized a loss of $15,000 as a result. During the three and nine months ended September 30, 2017 (unaudited) proceeds from the sales of available-for-sale securities were $718,000 and $2.3 million, respectively, and gross realized gains on these sales amounted to $388,000 and $1.2 million, respectively. The tax expense on the realized gains during the three and nine months ended September 30, 2017 was $136,000 and $420,000, respectively. There were no realized losses on available for sale securities for the three and nine months ended September 30, 2017.

The Company had no pledged securities as of September 30, 2018 (unaudited) and December 31, 2017.

The aggregate fair value and unrealized losses of securities that have been in a continuous unrealized loss position for less than twelve months and for twelve months or more, and are not other-than-temporarily impaired, are as follows as of September 30, 2018 (unaudited) and December 31, 2017:

	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
September 30, 2018
U.S. Government and federal agency obligations	$	1,321	$	43	$	3,109	$	71	$	4,430	$	114
Debt securities issued by states of the United States and political subdivisions of the states		1,780		41		782		27		2,562		68
Corporate bonds and notes		10,639		137		2,925		73		13,564		210
Preferred stock		950		50		-		-		950		50
Asset-backed securities		960		53		-		-		960		53
Mortgage-backed securities		-		-		1,210		52		1,210		52
Marketable equity securities		1,699		10		-		-		1,699		10
Total temporarily impaired securities	$	17,349	$	334	$	8,026	$	223	$	25,375	$	557
December 31, 2017
U.S. Government and federal agency obligations	$	2,855	$	20	$	2,470	$	45	$	5,325	$	65
Debt securities issued by states of the United States and political subdivisions of the states		991		6		535		23		1,526		29
Corporate bonds and notes		4,467		24		3,946		53		8,413		77
Mortgage-backed securities		453		6		995		41		1,448		47
Marketable equity securities		485		1		-		-		485		1
Total temporarily impaired securities	$	9,251	$	57	$	7,946	$	162	$	17,197	$	219

The Company conducts periodic reviews of investment securities with unrealized losses to evaluate whether the impairment is other-than-temporary. The Company’s review for impairment generally includes a determination of the cause, severity and duration of the impairment; and an analysis of both positive and negative evidence available. The Company also determines if it has the ability and intent to hold the investment for a period of time sufficient to allow for anticipated recovery to cost basis. In regard to corporate debt, the Company also considers the issuer’s current financial condition and its ability to make future scheduled interest and principal payments on a timely basis in assessing other-than-temporary impairment. A summary of the Company’s reviews of investment securities deemed to be temporarily impaired is as follows:

Unrealized losses on U.S. Government and federal agency obligations amounted to $~~114~~40,000 and consisted of ~~nine~~seven securities. The unrealized losses on ~~six~~five of these debt securities were individually less than 32.50% of amortized cost basis, with ~~three~~two of these U.S. government and federal agency obligations between 3.50% and 76.05% of amortized cost basis. Unrealized losses on municipal bonds amounted to $686,000 and consisted of ~~seven~~one ~~securities~~security. The unrealized ~~losses~~loss on ~~five~~this ~~of these~~ debt ~~securities~~security ~~were~~was ~~individually less than~~ 2.51% of amortized cost basis~~, with two of these municipal bonds between 5~~.0% ~~and 6.2% of amortized cost basis.~~ Unrealized losses on corporate bonds amounted to $~~210~~87,000 and consisted of ~~twenty-four~~sixteen securities. The unrealized losses on ~~twenty-two~~fifteen of these debt securities were individually less than 42.0% of amortized cost basis, with ~~two~~one of these corporate bonds ~~between~~at 43.04% ~~and 5.5%~~ of amortized cost basis. Unrealized ~~losses on preferred stock~~ ~~amounted to $50,000 and consisted of one security, the unrealized loss on this one security was 5.0% of amortized cost basis. Unrealized~~ losses on asset-backed securities amounted to $5327,000 and consisted of ~~four~~two securities. Unrealized losses on one of these asset-backed securities was less than 1% of amortized cost basis, ~~with~~and ~~three~~one of these securities ~~having~~had an unrealized ~~losses~~loss ~~between~~of 56.2% ~~and 6.4%~~ of amortized cost basis. Unrealized losses on mortgage-backed securities amounted to $5232,000 and consisted of ~~five~~four securities. The unrealized losses on these debt securities range from 12.8% to 64.59% of amortized cost basis. These unrealized losses relate principally to the effect of interest rate changes on the fair value of debt securities and not to an increase in credit risk of the issuers. As the Company does not intend to sell the securities and it is more likely than not that the Company will not be required to sell the securities before recovery of their amortized cost basis, which may be at maturity, the Company does not consider these securities to be other-than-temporarily impaired at ~~September~~March 3031, ~~2018~~2019.

13NOTE 5 - LOANS

Unrealized losses on marketable equity securities amounted to $10,000 and consisted of two securities. The unrealized losses on these marketable equity securities were less than 1.0% of amortized cost basis. These unrealized losses relate principally to the effect of fluctuations in market value and not to an increase in credit risk of the issuers.

NOTE 4 - LOANS

Loans consisted of the following at:

	September 30,			December 31,
	March 31,			December 31,
	2018			2017
	2019			2018
	(In Thousands)
	(unaudited)
Real estate loans:
One-to four-family residential	$	183,~~860~~494		$	~~189~~186,~~763~~287
Home equity loans and lines of credit		1213,~~453~~775			1113,~~585~~565
Commercial		5661,~~175~~367			3458,~~686~~780
Construction		109,~~655~~545			1510,~~853~~441
Consumer loans		5236			4438
Total loans		~~263~~268,~~195~~217			~~251~~269,~~931~~111
Allowance for loan losses		(1,~~358~~354	)		(1,~~134~~323	)
Deferred loan (fees)/costs, net		(9	)		35
Deferred loan costs, net		16			3
Unamortized premiums		~~437~~391			~~485~~420
Net loans	$	~~262~~267,~~265~~270		$	~~251~~268,~~317~~211

~~The following tables set forth information on loans and the allowance for loan losses at and for the periods ending September 30, 2018 and 2017 (unaudited) and as of December 31, 2017:~~13

	Real Estate:
	One- to four- family Residential			Home Equity Loans and Lines of Credit		Commercial		Construction			Consumer Loans		Unallocated		Total
	(In Thousands)
Three Months Ended September 30, 2018 (unaudited)
Allowance for loan losses:
Beginning balance	$	476		$	51	$	678	$	71		$	1	$	28	$	1,305
Charge offs		-			-		-		-			-		-		-
Recoveries		-			-		-		-			-		-		-
(Benefit)/provision		(9	)		4		106		(48	)		-		-		53
Ending balance	$	467		$	55	$	784	$	23		$	1	$	28	$	1,358

The following tables set forth information on loans and the allowance for loan losses at and for the quarters ending March 31, 2019 and 2018 (unaudited) and at and for the year ending December 31, 2018:

	Real Estate:
	One- to four- family Residential			Home Equity Loans and Lines of Credit		Commercial		Construction			Consumer Loans		Unallocated			Total
	One-to four-family Residential			Home Equity Loans and Lines of Credit		Commercial		Construction			Consumer Loans		Unallocated			Total
	(In Thousands)
Three Months Ended September 30, 2017 (unaudited)
Three months ended March 31, 2019 (unaudited)
Allowance for loan losses:
Beginning balance	$	~~451~~465		$	5260	$	~~317~~701	$	~~131~~84		$	1	$	2912		$	~~981~~1,323
Charge offs		-			-		-		-					-			-
Recoveries		-			-		-		-			-		-			-
(Benefit)/provision		(6	)		2		29		(9	)		-		15			31
Ending balance	$	459		$	62	$	730	$	75		$	1	$	27		$	1,354
Three months ended March 31, 2019 (unaudited)
Allowance for loan losses:
Ending Balance:
Individually evaluated for impairment	$	-		$	-	$	-	$	-		$	-	$	-		$	-
Ending balance:
Collectively evaluated for impairment		459			62		730		75			1		27			1,354
Total allowance for loan losses ending balance	$	459		$	62	$	730	$	75		$	1	$	27		$	1,354
Loans:
Ending balance:
Individually evaluated for impairment	$	-		$	-	$	-	$	-		$	-	$	-		$	-
Ending balance:
Collectively evaluated for impairment		183,494			13,775		61,367		9,545			36		-			268,217
Total loans ending balance	$	183,494		$	13,775	$	61,367	$	9,545		$	36	$	-		$	268,217
Year Ended December 31, 2018
Allowance for loan losses:
Beginning balance	$	481		$	52	$	472	$	107		$	1	$	21		$	1,134
Charge offs		-			-		-		-			-		-			-
Recoveries		-			-		-		-			-		-			-
(Benefit)/provision		6(16	)		38		32229		(3823	)		-		-(9	)		3189
Ending balance	$	~~457~~465		$	5560	$	~~349~~701	$	9384		$	1	$	2912		$	~~984~~1,323
At December 31, 2018
Allowance for loan losses:
Ending Balance:
Individually evaluated for impairment	$	-		$	-	$	-	$	-		$	-	$	-		$	-
Ending balance:
Collectively evaluated for impairment		465			60		701		84			1		12			1,323
Total allowance for loan losses ending balance	$	465		$	60	$	701	$	84		$	1	$	12		$	1,323
Loans:
Ending balance:
Individually evaluated for impairment	$	-		$	-	$	-	$	-		$	-	$	-		$	-
Ending balance:
Collectively evaluated for impairment		186,287			13,565		58,780		10,441			38		-			269,111
Total loans ending balance	$	186,287		$	13,565	$	58,780	$	10,441		$	38	$	-		$	269,111

	Real Estate:
	One- to four- family Residential			Home Equity Loans and Lines of Credit			Commercial		Construction			Consumer Loans		Unallocated		Total
	One-to four-family Residential			Home Equity Loans and Lines of Credit			Commercial		Construction			Consumer Loans		Unallocated		Total
	(In Thousands)
Nine Months Ended September 30, 2018 (unaudited)
Three months ended March 31, 2018 (unaudited)
Allowance for loan losses:
Beginning balance	$	481		$	52		$	472	$	107		$	1	$	21	$	1,134
Charge offs		-			-			-		-			-		-		-
Recoveries		-			-			-		-			-		-		-
(Benefit)/provision		(147	)		3(1	)		~~312~~38		~~(84~~2	)		-		79		~~224~~41
Ending balance	$	~~467~~474		$	5551		$	~~784~~510	$	23109		$	1	$	2830	$	1,~~358~~175

	Real Estate:
	One- to four- family Residential		Home Equity Loans and Lines of Credit		Commercial		Construction			Consumer Loans		Unallocated		Total
	(In Thousands)
Nine Months Ended September 30, 2017 (unaudited)
Allowance for loan losses:
Beginning balance	$	418	$	49	$	276	$	117		$	1	$	29	$	890
Charge offs		-		-		-		-			-		-		-
Recoveries		-		-		-		-			-		-		-
Provision/(benefit)		39		6		73		(24	)		-		-		94
Ending balance	$	457	$	55	$	349	$	93		$	1	$	29	$	984

The following tables set forth information regarding nonaccrual loans and past-due loans as of March 31, 2019 (unaudited) and December 31, 2018:

	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total Past Due		Total Current		Total		90 Days or More Past Due and Accruing		Non- Accrual
	(In Thousands)
At March 31, 2019 (unaudited)
Real estate loans:
One-to four-family residential	$	301	$	-	$	-	$	301	$	183,193	$	183,494	$	-	$	182
Home equity loans and lines of credit		-		-		-		-		13,775		13,775		-		-
Commercial		-		-		-		-		61,367		61,367		-		-
Construction		-		-		-		-		9,545		9,545		-		-
Consumer loans		1		-		-		1		35		36		-		-
Total	$	302	$	-	$	-	$	302	$	267,915	$	268,217	$	-	$	182

At December 31, 2018
Real estate loans:
One-to four-family residential	$	714	$	-	$	-	$	714	$	185,573	$	186,287	$	-	$	348
Home equity loans and lines of credit		-		-		-		-		13,565		13,565		-		-
Commercial		-		-		-		-		58,780		58,780		-		-
Construction		-		-		-		-		10,441		10,441		-		-
Consumer loans		-		-		-		-		38		38		-		-
Total	$	714	$	-	$	-	$	714	$	268,397	$	269,111	$	-	$	348

	Real Estate:
	One- to four- family Residential		Home Equity Loans and Lines of Credit		Commercial		Construction		Consumer Loans		Unallocated		Total
	(In Thousands)
At September 30, 2018 (unaudited)
Allowance for loan losses:
Ending Balance:
Individually evaluated for impairment	$	8	$	-	$	-	$	-	$	-	$	-	$	8
Ending balance:
Collectively evaluated for impairment		459		55		784		23		1		28		1,350
Total allowance for loan losses ending balance	$	467	$	55	$	784	$	23	$	1	$	28	$	1,358
Loans:
Ending balance:
Individually evaluated for impairment	$	98	$	-	$	-	$	-	$	-	$	-	$	98
Ending balance:
Collectively evaluated for impairment		183,762		12,453		56,175		10,655		52		-		263,097
Total loans ending balance	$	183,860	$	12,453	$	56,175	$	10,655	$	52	$	-	$	263,195
At December 31, 2017
Allowance for loan losses:
Ending Balance:
Individually evaluated for impairment	$	8	$	-	$	-	$	-	$	-	$	-	$	8
Ending balance:
Collectively evaluated for impairment		473		52		472		107		1		21		1,126
Total allowance for loan losses ending balance	$	481	$	52	$	472	$	107	$	1	$	21	$	1,134
Loans:
Ending balance:
Individually evaluated for impairment	$	100	$	-	$	-	$	-	$	-	$	-	$	100
Ending balance:
Collectively evaluated for impairment		189,663		11,585		34,686		15,853		44		-		251,831
Total loans ending balance	$	189,763	$	11,585	$	34,686	$	15,853	$	44	$	-	$	251,931

As of and during the three months ended March 31, 2019 (unaudited) there were no loans meeting the definition of an impaired loan in ASC 310-10-35. As of and during the three months ended March 31, 2018 (unaudited) there was one, one- to four-family residential loan, with an outstanding balance of $99,000, meeting the definition of an impaired loan in ASC 310-10-35.

~~The~~During the ~~following~~three ~~tables~~months ~~set~~ended ~~forth~~March ~~information regarding~~31, ~~nonaccrual~~2019 ~~loans~~(unaudited) ~~and~~there ~~past-due~~were no loans asmodified that met the definition of ~~September~~a 30troubled debt restructured loan in ASC 310-40. During the three months ended March 31, 2018 (unaudited) ~~and~~there ~~December~~was 31one, ~~2017:~~one- to four-family residential real estate loan with a recorded balance of $99,000, modified that met the definition of a troubled debt restructured loan in ASC 310-40. The loan has had no defaults on payment, and no commitments to lend additional funds have been approved subsequent to the modification.

	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total Past Due		Total Current		Total		90 Days or More Past Due and Accruing		Non- Accrual
	(In Thousands)
At September 30, 2018 (unaudited)
Real estate loans:
One-to four-family residential	$	358	$	-	$	171	$	529	$	183,331	$	183,860	$	-	$	353
Home equity loans and lines of credit		-		-		-		-		12,453		12,453		-		-
Commercial		-		-		-		-		56,175		56,175		-		-
Construction		-		-		-		-		10,655		10,655		-		-
Consumer loans		1		-		-		1		51		52		-		-
Total	$	359	$	-	$	171	$	530	$	262,665	$	263,195	$	-	$	353
At December 31, 2017
Real estate loans:
One-to four-family residential	$	295	$	177	$	-	$	472	$	189,291	$	189,763	$	-	$	189
Home equity loans and lines of credit		189		-		-		189		11,396		11,585		-		-
Commercial		-		-		-		-		34,686		34,686		-		-
Construction		-		-		-		-		15,853		15,853		-		-
Consumer loans		-		-		-		-		44		44		-		-
Total	$	484	$	177	$	-	$	661	$	251,270	$	251,931	$	-	$	189

As of March 31, 2019 (unaudited) and December 31, 2018, there were no loans in the process of foreclosure.

During the nine months ended September 30, 2018 (unaudited) there was one, one- to four-family residential loan, with an outstanding balance of $98,000 as of September 30, 2018, meeting the definition of an impaired loan in ASC 310-10-35. During the nine months ended September 30, 2017 there was one, one- to four-family residential loan, with an outstanding balance of $100,000 as of September 30, 2017, meeting the definition of an impaired loan in ASC 310-10-35.

During the three months ended September 30, 2018 (unaudited) there were no one- to four-family residential real estate loans modified that met the definition of a troubled debt restructured loan in ASC 310-40. During the nine months ended September 30, 2018 (unaudited) there was one, one- to four-family residential real estate loan with a recorded balance of $98,000, modified that met the definition of a troubled debt restructured loan in ASC 310-40. The loan has had no defaults on payment, and no commitments to lend additional funds have been approved subsequent to the modification. During the three and nine months ended September 30, 2017 (unaudited), there was one, one- to four-family residential real estate loan with a recorded balance of $100,000, modified that met the definition of a troubled debt restructured loan.

As of September 30, 2018 (unaudited) and December 31, 2017, there were no loans in the process of foreclosure.

Credit Quality Information

The Company has established an 11 point internal loan rating system for commercial real estate, construction and commercial loans. For residential real estate and consumer loans, the Company initially assesses credit quality based upon the borrower’s ability to pay and subsequently monitors these loans based on the borrower’s ability to pay. The risk rating system will assist the Company in better understanding the risk inherent in each loan. The loan ratings are as follows:

Loans rated 1: Secured by cash collateral or highly liquid diversified marketable securities.

Loans rated 2 – 3: Strongest quality loans in the portfolio not secured by cash. Defined by consistent, solid profits, strong cash flow and are well secured. Very little vulnerability to changing economic conditions and compare favorably to their industry.

Loans rated 4 – 5: These loans are pass rated. Borrower will show average to strong cash flow, strong to adequate collateral coverage, and will have a generally sound balance sheet. Inclusive in the 5 rating are all open and closed – end residential and retail loans which are paying as agreed.

Loans rated 6: Loans with above average risk but still considered pass. Generally this rating is reserved for projects currently under construction or borrowers with modest cash flow, although still meeting all loan covenants.

Loans rated 6W: Contain all the risks of a 6 rated credit but have an inherent weakness that requires close monitoring. This rating also generally includes open and closed-end residential and retail loans which are greater than 30 days past due but display no other inherent weakness.

Loans rated 7: Potential weaknesses which warrant management’s close attention. If weaknesses are uncorrected, repayment prospects may be weakened. This is typically a transitional rating.

Loans rated 8: Considered substandard. There is a likelihood of loss if the deficiencies are not corrected. Generally, open and closed – end retail loans, as well as automotive and other consumer loans past 90 cumulative days from the contractual due date should be classified as an 8.

Loans rated 9: Borrower has a pronounced weakness and all current information indicates collection or liquidation of all debts in full is improbable and highly questionable.

Loans rated 10: Uncollectable and a loss will be taken. Open and closed – end loans secured by residential real estate that are beyond 180 days past due will be assessed for value and any outstanding loan balance in excess of said value, less cost to sell, will be classified as a 10.

On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial real estate and construction loans over $350,000.

17As of March 31, 2019 (unaudited), there were two, one- to four- family residential real estate loan with a total balance of $278,000 with a risk rating of “6W – Pass Watch,” and all other loans outstanding had a risk rating of “1 to 6 - pass.”

As of ~~September~~December 3031, 2018 (unaudited), there were no loans that had a risk rating of “8 – substandard.” There were ~~was~~three one~~, one~~- to four- family residential real estate ~~loan~~loans with a total balance of $9848,000 with a risk rating of “~~7 –~~6W,” and one special mention.” ~~There were three,~~ one- to four- family residential real estate ~~loans~~loan with a total balance of $~~455~~99,000. ~~with a~~All ~~risk rating of “6W – Pass Watch,” and all~~ other loans outstanding had a risk rating of “1 to 6 - pass.”

~~As of December 31, 2017, there were no~~NOTE ~~one-~~6 ~~to four~~- ~~family~~PREMISES ~~residential~~AND real estate loans that had a risk rating of “8 – substandard.” There were three, one- to four- family residential real estate loans with a total balance of $472,000 with a risk rating of “6W – Pass Watch,” and one special mention one- to four- family residential real estate loan with a total balance of $99,000. All other outstanding loans had a risk rating of “1 to 6 – pass.”EQUIPMENT

NOTE 5 - PREMISES AND EQUIPMENT

The following is a summary of premises and equipment:

	September 30,			December 31,
	March 31,			December 31,
	2018			2017
	2019			2018
	(Unaudited)
	(In Thousands)
	(unaudited)
Land	$	393		$	393
Building		3,305			2,070
Building and improvements		3,305			3,305
Construction in process		-			641
Furniture and equipment		649			643
Furniture and equipment		642			553
Data processing equipment		482			477
Data processing equipment		468			360
		4,829			4,818
		4,808			4,017
Accumulated depreciation		(2,215	)		(2,173	)
Accumulated depreciation		(2,133	)		(2,024	)
	$	2,614		$	2,645
	$	2,675		$	1,993

NOTE 7 6 - DEPOSITS

The aggregate amount of time deposit amounts in denominations that meet or exceed the Federal Deposit Insurance Corporation (FDIC) insurance limit of $250,000 as of ~~September 30~~March 31, ~~2018~~2019 (unaudited) and December 31, ~~2017~~2018 amounted to $28,~~945~~756,000 and $2728,~~781~~147,000, respectively.

For time deposits as of ~~September~~March 3031, ~~2018~~ 2019 (unaudited) the scheduled maturities for each of the following periods ending ~~September~~March 3031 are as follows:

	(In Thousands)
2019	$	76,412
2020	$	83,615
2020		41,223
2021		43,770
2021		11,088
2022		10,101
2022		2,048
2023		1,544
2023		782
2024		741
	$	~~131~~139,~~553~~771

Deposits from related parties held by the Bank as of ~~September~~March 3031, ~~2018~~2019 (unaudited) and December 31, ~~2017~~2018 amounted to $64,~~155~~045,000 and $34,~~603~~780,000, respectively.

1817

NOTE 8 7 - BORROWED FUNDS

~~The~~Advances consist ~~Bank~~of isfunds aborrowed ~~member~~from of the Federal Home Loan Bank of Boston (FHLB). Borrowings from the FHLB are secured by a blanket lien on qualified collateral, consisting primarily of loans with first mortgages secured by one- to- four- family properties, certain ~~unencumbered~~ investment securities and other qualified assets. The remaining maximum borrowing capacity with the FHLB at ~~September~~March 3031, ~~2018~~2019 ~~(unaudited)~~ was approximately $6982.76 million subject to the purchase of additional FHLB stock. The ~~Bank~~Company had outstanding FHLB borrowings of $3628.0 million at ~~September~~March 3031, ~~2018,~~ 2019 (unaudited) ~~consisting of eight advances all with three year terms and interest rates ranging from 1~~.~~42%~~ ~~to 2.78%.~~ Additionally, at ~~September~~March 3031, ~~2018~~2019, ~~(unaudited)~~ the ~~Bank~~Company had the ability to borrow up to $5.0 million on a Federal Funds line of credit with the Co-~~Operative~~operative Central Bank.

Maturities of advances from the FHLB for the ~~periods~~years ending after ~~September~~March 3031, ~~2018~~2019 (unaudited) are summarized as follows ~~(in thousands)~~:

2019	$	10,000
	(In Thousands)
2020		16,000
2019	$	5,000
2021		10,000
2020		14,000
	$	36,000
2021		9,000
	$	28,000

~~NOTE~~At March 831, 2019 (unaudited) the interest rates on FHLB advances ranged from 1.48% to 2.78%, and the weighted-average ~~FINANCIAL~~interest ~~INSTRUMENTS~~rate on FHLB advances was 2.07%.

NOTE 9 - FINANCIAL INSTRUMENTS

The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to originate loans and unadvanced funds on loans. The instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

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

Commitments to originate loans are agreements to lend to a customer provided there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral held varies, but may include secured interests in mortgages, accounts receivable, inventory, property, plant and equipment and income-producing properties.

Amounts of financial instrument liabilities with off-balance sheet credit risk are as follows as of ~~September~~March 3031, ~~2018~~2019 (unaudited) and December 31, ~~2017~~2018:

	September 30,		December 31,
	March 31,		December 31,
	2018		2017
	2019		2018
	(In Thousands)
Commitments to originate loans	$	94,~~337~~102	$	24,~~401~~753
Unused lines of credit		20,~~510~~780		1720,~~611~~840
Due to borrowers on unadvanced construction loans		25,~~770~~525		24,~~320~~182
	$	3230,~~617~~407	$	2229,~~332~~775

19NOTE 10 - FAIR VALUE MEASUREMENTS

NOTE 9 - FAIR VALUE MEASUREMENTS

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

In accordance with ASC 820-10, the Company groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 - Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

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

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

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

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value for ~~September 30~~March 31, ~~2018~~2019 (unaudited) and December 31, ~~2017~~2018. The Company did not have any significant transfers of assets between levels 1 and 2 of the fair value hierarchy during the ~~nine~~three months ended ~~September 30~~March 31, ~~2018~~2019 (unaudited) and the year ended December 31, ~~2017~~2018.

The Company’s investments in preferred stock and marketable equity securities are generally classified within level 1 of the fair value hierarchy because they are valued using quoted market prices.

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

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

2019

The following summarizes assets measured at fair value on a recurring basis as of ~~September~~March 3031, ~~2018~~2019 (unaudited) and December 31, ~~2017~~2018:

	Fair Value Measurements at Reporting Date Using:
	Total		Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3
	(In Thousands)
September 30, 2018
March 31, 2019: (unaudited)
U.S. Government and federal agency obligations	$	43,~~430~~976	$	-	$	43,~~430~~976	$	-
Debt securities issued by states of the United States and political subdivisions of the states		2,~~562~~945		-		2,~~562~~945		-
Corporate bonds and notes		1413,~~259~~789		-		1413,~~259~~789		-
Preferred stock		1,~~954~~011		1,~~954~~011		-		-
Asset-backed securities		~~960~~912		-		~~960~~912		-
Mortgage-backed securities		1,~~210~~118		-		1,~~210~~118		-
Marketable equity securities		1,967		1,967		-		-
Equity securities		2,731		2,731		-		-
Totals	$	2726,~~342~~482	$	3,~~921~~742	$	2322,~~421~~740	$	-
December 31, 2017:
December 31, 2018:
U.S. Government and federal agency obligations	$	53,~~325~~960	$	-	$	53,~~325~~960	$	-
Debt securities issued by states of the United States and political subdivisions of the states		2,~~881~~597		-		2,~~881~~597		-
Corporate bonds and notes		1113,~~294~~595		-		1113,~~294~~595		-
Preferred stock		31,~~013~~876		31,~~013~~876		-		-
Mortgage-backed securities		1,448		-		1,448		-
Asset-backed securities		932		-		932		-
Marketable equity securities		2,535		2,535		-		-
Mortgage-backed securities		1,159		-		1,159		-
Totals	$	26,496	$	5,548	$	20,948	$	-
Marketable equity securities		1,715		1,715		-		-
Totals	$	25,834	$	3,591	$	22,243	$	-

Under certain circumstances the Company makes adjustments to fair value for its assets and liabilities although they are not measured at fair value on a recurring basis. At ~~September~~March 3031, ~~2018~~2019 (unaudited) and December 31, ~~2017~~2018, there were no assets or liabilities carried on the consolidated balance sheets for which a nonrecurring change in fair value has been recorded.

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

	September 30, 2018 (unaudited)
	March 31, 2019 (unaudited)
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Total
	(In Thousands)
Financial assets:
Cash and cash equivalents	$	18,~~979~~158	$	18,~~979~~158	$	-	$	-	$	18,~~979~~158
Available-for-sale securities		27,342		3,921		23,421		-		27,342
Interest-bearing time deposits with other banks		675		-		683		-		683
Federal Home Loan Bank stock		2,285		2,285		-		-		2,285
Available-for-sale securities		23,751		1,011		22,740		-		23,751
Loans, net		262,265		-		-		264,112		264,112
Equity securities		2,731		2,731		-		-		2,731
Co-operative Central Bank deposit		891		891		-		-		891
Federal Home Loan Bank stock		1,776		1,776		-		-		1,776
Accrued interest receivable		834		834		-		-		834
Loans, net		267,270		-		-		266,248		266,248
Co-operative Central Bank deposit		881		881		-		-		881
Accrued interest receivable		888		888		-		-		888
Financial liabilities:
Deposits		~~240~~254,~~651~~811		-		~~240~~250,~~784~~240		-		~~240~~250,~~784~~240
FHLB advances		3628,000		-		3427,~~931~~822		-		3427,~~931~~822

2120

	December 31, 2017
	December 31, 2018
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Total
	(In Thousands)
Financial assets:
Cash and cash equivalents	$	1715,~~603~~195	$	1715,~~603~~195	$	-	$	-	$	1715,~~603~~195
Available-for-sale securities		26,496		5,548		20,948		-		26,496
Interest-bearing time deposits with other banks		675		-		670		-		670
Federal Home Loan Bank stock		1,800		1,800		-		-		1,800
Available-for-sale securities		25,834		3,591		22,243		-		25,834
Loans, net		251,317		-		-		252,792		252,792
Federal Home Loan Bank stock		2,285		2,285		-		-		2,285
Co-operative Central Bank deposit		886		886		-		-		886
Loans, net		268,211		-		-		266,635		266,635
Accrued interest receivable		702		702		-		-		702
Co-operative Central Bank deposit		881		881		-		-		881
Accrued interest receivable		778		778		-		-		778
Financial liabilities:
Deposits		~~232~~244,~~921~~056		-		~~232~~243,~~899~~911		-		~~232~~243,~~899~~911
FHLB advances		2934,000		-		2833,~~660~~642		-		2833,~~660~~642

The carrying amounts of financial instruments shown in the above tables are included in the consolidated balance sheets under the indicated captions. Accounting policies related to financial instruments are described in Note 2.

NOTE 11 10 - OTHER COMPREHENSIVE INCOME (LOSS)

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

The components of other comprehensive income (loss), included in stockholders’ equity, are as follows:

	Three months ended September 30						Nine months ended September 30
	Three months ended March 31,
	2018			2017			2018			2017
	2019			2018
	(In thousands)
Net unrealized holding gain (loss) on available-for-sale securities	$	354		$	(235	)
	(unaudited)
Reclassification adjustment for net realized gains included in net income (1)		-			(106	)
Net unrealized holding (loss)/gain on available-for-sale securities	$	(70	)	$	48		$	(350	)	$	545
Other comprehensive income (loss) before income tax effect		354			(341	)
Reclassification adjustment for net realized gains included in net income (1)		(103	)		(388	)		(342	)		(1,195	)
Income tax (expense) benefit		(108	)		74
Other comprehensive loss before income tax effect		(173	)		(340	)		(692	)		(650	)
Other comprehensive income (loss), net of tax	$	246		$	(267	)
Income tax benefit		44			133			175			285
Other comprehensive loss, net of tax	$	(129	)	$	(207	)	$	(517	)	$	(365	)

(1) Reclassification adjustments include net realized securities gains. Realized gains have been reclassified out of accumulated other comprehensive loss and affect certain captions in the consolidated statements of income as follows:. ~~pre-tax~~There ~~amount~~were ~~for~~no ~~the~~realized ~~three~~gains ~~and~~(losses) ~~nine months ended September 30, 2018, is reflected as gain~~ on ~~sales~~the ~~and~~sale ~~calls~~ of available-for-sale securities, ~~net~~during ~~of $103,000 and $342,000, respectively. The tax effect, included in income tax expense for~~ the three ~~and nine~~ months ended ~~September~~March 3031, ~~2018, was $27,000 and $88,000, respectively~~2019. Pre-tax amount for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017~~2018, is reflected as a gain on sales and calls of available-for-sale securities, net of $~~388~~106,000 ~~and $1~~.2 ~~million, respectively.~~ The tax effect, included in income tax expense for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017~~2019 was $~~136~~23,000 ~~and $420,000, respectively~~. The after tax amounts are included in net income.

Accumulated other comprehensive (loss~~)/income~~ as of ~~September~~March 3031, ~~2018~~2019 (unaudited) and December 31, ~~2017~~2018 consists of net unrealized holding (losses~~)/gains~~ on available-for-sale securities, net of taxes.

NOTE 12 11 - REGULATORY MATTERS

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

Effective January 1, 2015, (with a phase-in period of two to four years for certain components), the Bank became subject to capital regulations adopted by the Board of Governors of the Federal Reserve System (“FRB”) and the FDIC, which implement the Basel III regulatory capital reforms and the changes required by the Dodd-Frank Act. The regulations require a common equity Tier 1 (“CET1”) capital ratio of 4.5%, a minimum Tier 1 capital to risk-weighted assets ratio of 6.0%, a minimum total capital to risk-weighted assets ratio of 8.0% and a minimum Tier 1 leverage ratio of 4.0%. CET1 generally consists of common stock and retained earnings, subject to applicable adjustments and deductions. Under prompt corrective action regulations, in order to be considered “well capitalized,” the Bank must maintain a CET1 capital ratio of 6.5%, a Tier 1 risk based capital ratio of 8.0%, a total risk based capital ratio of 10.0%, and a Tier 1 leverage ratio of 5.0%. In addition, the regulations establish a capital conservation buffer above the required capital ratios that began phasing in January 1, 2016 at 0.625% of risk-weighted assets and increases each year by 0.625% until it is fully phased in at 2.5% effective January 1, 2019. Failure to maintain the capital conservation buffer will limit the ability of the Bank and the Company to pay dividends, repurchase shares or pay discretionary bonuses. At March 31, 2019 (unaudited), the Bank exceeded the fully phased in regulatory requirement for the capital conservation buffer.

Management believes, as of March 31, 2019 (unaudited), that the Bank meets all capital adequacy requirements to which it is subject.

As of March 31, 2019, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum Common Equity Tier 1 risk-based, total risk-based, Tier 1 risk-based and Tier 1 leverage capital ratios as set forth in the following table. There were no conditions or events since that notification that management believes have changed the Bank’s category.

The Bank’s actual capital amounts and ratios as of March 31, 2019 (unaudited) and December 31, 2018 are presented in the following table.

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars In Thousands)
As of March 31, 2019: (unaudited)
Total Capital (to Risk Weighted Assets)	$	35,593		16.54	%	$	17,215		8.0	%	$	21,519		10.0	%
Tier 1 Capital (to Risk Weighted Assets)		34,238		15.91			12,911		6.0			17,215		8.0
Common Equity Tier 1 Capital (to Risk Weighted Assets)		34,238		15.91			9,684		4.5			13,987		6.5
Tier 1 Capital (to Average Assets)		34,238		10.76			12,732		4.0			15,916		5.0

As of December 31, 2018:
Total Capital (to Risk Weighted Assets)	$	39,152		17.86	%	$	17,538		8.0	%	$	21,923		10.0	%
Tier 1 Capital (to Risk Weighted Assets)		37,828		17.26			13,154		6.0			17,538		8.0
Common Equity Tier 1 Capital (to Risk Weighted Assets)		37,828		17.26			9,865		4.5			14,250		6.5
Tier 1 Capital (to Average Assets)		37,828		12.17			12,431		4.0			15,539		5.0

NOTE 13 - COMMON STOCK REPURCHASES

From time to time, our board of directors authorizes stock repurchase plans. In general, stock repurchase plans allow us to proactively manage our capital position and return excess capital to shareholders. Shares purchased under such plans also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards. On January 11, 2019, the Board of Directors of the Company authorized an increase in the number of shares that may be repurchased pursuant to the Company’s stock repurchase plan that was previously announced on September 14, 2017. Under the expanded repurchase plan, the Company is authorized to repurchase an additional 257,302 shares, representing approximately 10.0% of the Company’s issued and outstanding shares of common stock as of January 10, 2019. At that date, the Company had 105,637 shares remaining to be repurchased under its previously announced share repurchase plans. The actual amount and timing of future repurchases, if any, will depend on market conditions, applicable SEC rules and various other factors.

~~Effective January 1, 2015, (with a phase-in~~During ~~period~~the ofthree ~~two~~months toended ~~four~~March ~~years for certain components)~~31, ~~the~~2019 ~~Bank became subject to capital regulations adopted by the Board of Governors of the Federal Reserve System~~ (~~“FRB”~~unaudited) ~~and the FDIC~~, ~~which implement~~ the ~~Basel~~Company ~~III~~repurchased ~~regulatory capital reforms and the changes required by the Dodd-Frank Act. The regulations require a common equity Tier 1 (“CET1”) capital ratio of 4.5%~~132, a891 ~~minimum~~shares ~~Tier 1 capital to risk-weighted assets ratio~~ of ~~6.0%, a minimum total capital to risk-weighted assets ratio of 8.0% and a minimum Tier 1 leverage ratio of 4.0%. CET1 generally consists of~~ common stock ~~and~~at ~~retained~~an ~~earnings,~~average ~~subject~~cost ~~to applicable adjustments and deductions. Under prompt corrective action regulations, in order to be considered “well capitalized,” the Bank must maintain a CET1 capital ratio~~ of ~~6.5%, a Tier 1 risk based capital ratio of 8.0%, a total risk based capital ratio~~ ~~of 10~~$18.~~0%,~~85 ~~and~~per ~~a Tier 1 leverage ratio of 5~~share.~~0%.~~ InCommon ~~addition,~~stock ~~the~~repurchases ~~regulations~~for ~~establish a capital conservation buffer above~~ the ~~required~~ ~~capital~~three ~~ratios~~months ~~that~~ended ~~began~~March ~~phasing in January 1~~31, ~~2016 at 0.625% of risk-weighted assets and increases each year by 0.625% until it is fully phased in at 2.5% effective January 1,~~ 2019. ~~Failure~~are topresented maintain the capital conservation buffer will limit the ability of the Bank and the Company to pay dividends, repurchase shares or pay discretionary bonuses. At September, 30, 2018 (unaudited), the Bank exceeded the fully phased in ~~regulatory requirement for~~ the ~~capital~~following ~~conservation buffer~~table.

Management believes, as of September 30, 2018 (unaudited), that the Bank meets all capital adequacy requirements to which it is subject.

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2019 to January 31, 2019		-		-		-		362,939
February 1, 2019 through February 28, 2019		132,891		18.85		132,891		230,048
March 1, 2019 through March 31, 2019		-		-		-		230,048

~~As of September 30, 2018, the most recent~~NOTE ~~notification~~14 from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum Common Equity Tier 1 risk-~~based,~~ ~~total~~STOCK ~~risk-based,~~BASED Tier 1 risk-based and Tier 1 leverage capital ratios as set forth in the following table. There were no conditions or events since that notification that management believes have changed the Bank’s category.COMPENSATION

The Bank’s actual capital amounts and ratios as of September 30, 2018 (unaudited) and December 31, 2017 are presented in the following table.

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
			(Dollars In Thousands)
At September 30, 2018 (unaudited):
Total Capital (to Risk Weighted Assets)	$	38,713		17.27	%	$	17,931		8.0	%	$	22,414		10.0	%
Tier 1 Capital (to Risk Weighted Assets)		37,286		16.64			13,448		6.0			17,931		8.0
Common Equity Tier 1 Capital (to Risk Weighted Assets)		37,286		16.64			10,086		4.5			14,569		6.5
Tier 1 Capital (to Average Assets)		37,286		12.07			12,353		4.0			15,441		5.0
As of December 31, 2017:
Total Capital (to Risk Weighted Assets)	$	35,297		19.80	%	$	15,007		8.0	%	$	18,759		10.0	%
Tier 1 Capital (to Risk Weighted Assets)		36,314		19.08			11,255		6.0			15,007		8.0
Common Equity Tier 1 Capital (to Risk Weighted Assets)		36,314		19.08			8,441		4.5			12,193		6.5
Tier 1 Capital (to Average Assets)		36,314		12.59			11,373		4.0			14,216		5.0

NOTE 12 – COMMON STOCK REPURCHASES

From time to time, our board of directors authorizes stock repurchase plans. In general, stock repurchase plans allow us to proactively manage our capital position and return excess capital to shareholders. Shares purchased under such plans also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards. On September 14, 2017, the board of directors of the Company authorized an increase in the number of shares that may be repurchased pursuant to the Company’s stock repurchase plan that was previously announced on November 12, 2015. Under the expanded repurchase plan, the Company is authorized to repurchase an additional 130,037 shares, representing approximately 5.0% of the Company’s issued and outstanding shares of common stock as of September 14, 2017. As of September 14, 2017, the Company had 11,200 shares remaining to be purchased under its previously announced share repurchase plan of 283,000. The actual amount and timing of future share repurchases, if any, will depend on market conditions, applicable SEC rules and various other factors. As of September 30, 2018, the Company had 124,037 shares remaining to be repurchased pursuant to its repurchase plans.

During the nine months ended September 30, 2018 (unaudited), the Company repurchased 17,200 shares of common stock at an average cost of $19.42 per share. Common stock repurchases for the three months ended September 30, 2018 are presented in the following table.

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2018 to July 31, 2018		5,000		19.50		5,000		126,237
August 1, 2018 to August 31, 2018		-		-		-		126,237
September 1, 2018 to September 30, 2018		2,200		19.75		2,200		124,037

During the nine months ended September 30, 2018, 1,219 shares of common stock were repurchased, as a result of net settlements in connection with the second annual installment of stock awards vesting. During the nine months ended September 30, 2017, 1,336 shares of common stock were repurchased, as a result of net settlements in connection with the first annual installment of stock awards vesting. These net settlements were not part of the Company’s repurchase plan; the Company was required to purchase these shares for the payment of incomes taxes withheld on unvested restricted stock awards.

NOTE 13 – STOCK BASED COMPENSATION

Melrose Bancorp, Inc. adopted the Melrose Bancorp, Inc. 2015 Equity Incentive Plan (the “2015 Equity Incentive Plan”) to provide directors, officers, and employees of the Company and the Bank with additional incentives to promote growth and performance of the Company and the Bank. The 2015 Equity Incentive Plan authorizes the issuance or delivery to participants of up to 396,140 shares of Melrose Bancorp, Inc. common stock pursuant to grants of incentive and non-statutory stock options, restricted stock awards, and restricted stock units. Of this number, the maximum number of shares of Melrose Bancorp, Inc. common stock that may be issued under the 2015 Equity Incentive Plan pursuant to the exercise of stock options is 282,957 shares, and the maximum number of shares of Melrose Bancorp, Inc. common stock that may be issued as restricted stock awards or restricted stock units is 113,183 shares. The 2015 Equity Incentive Plan was effective upon approval by stockholders at the November 23, 2015 annual meeting.

On May 12, 2016, the Company issued 44,300 shares of restricted common stock ~~restricted stock~~ awards. The restricted stock award expense is based on the grant date fair value of $15.13 per share, and shares vest over 5 years commencing one year from the grant date. The total expense recognized for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2018~~2019, in connection with the restricted stock awards was $34,000 ~~and $101,000, respectively~~ (unaudited), and the recognized tax benefit was $9,000 ~~and $26,000, respectively~~ (unaudited). There were no forfeitures during the three ~~and nine~~ month period ending ~~September~~March 3031, ~~2018~~ 2019. During the three ~~and nine~~ month period ending ~~September~~March 3031, ~~2017~~2018, the expense was $34,000 ~~and $101,000, respectively~~ (unaudited), and the recognized tax benefit was $128,000 ~~and $35,000, respectively~~ (unaudited). There were no forfeitures during the three ~~and nine~~ month period ending ~~September~~March 3031, ~~2017~~2018.

On May 12, 2016, the Company granted 224,200 stock options. The stock options have an exercise price of $15.13 per share, and vest ratably over 5 years commencing one year from the date of the grant. The stock option expense is equal to the number of options expected to vest each year times the grant date fair value of the shares as determined using the Black-Scholes option pricing model. The Company completed an analysis of seven peer banks to determine the expected volatility of 20.24%. The exercise price used in the pricing model was $15.13, the closing price of the stock on the grant date. The expected life was estimated to be 6.5 years and the 7 year treasury rate of 1.54% was used as the annual risk free interest rate. The expected forfeiture rate is 0%. Using these variables, the estimated fair value is $3.71 per share. The aggregate intrinsic value of outstanding stock options is $~~1.0~~800,000 ~~million~~ as of ~~September~~March 3031, ~~2018~~2019. The total expense recognized for the three ~~and~~March ~~nine months ended September 30~~31, ~~2018~~2019, in connection with the stock options was $4142,000 ~~and $124,000, respectively~~ (unaudited), and the recognized tax benefit was $3,000 ~~and $10,000, respectively~~ (unaudited). There were no forfeitures during the three ~~and nine~~ month period ending ~~September~~March 3031, ~~2018~~2019. There were no stock options exercised during the three months ended ~~September~~March 3031, ~~2018~~2019. During the ~~nine months ended September 30, 2018, there were 9,100 options exercised. During the~~ three ~~and nine~~ month period ending ~~September~~March 3031, ~~2017~~2018 the stock option expense was $42,000 ~~and $124,000, respectively~~ (unaudited), and the recognized tax benefit was $43,000 ~~and $13,000~~ (unaudited). There were no forfeitures or options exercised during the three ~~and~~ ~~nine~~ month period ending ~~September~~March 3031, ~~2017~~2018.

At March ~~September 30~~31, ~~2018~~2019 (unaudited), the unrecognized share based compensation expense related to the 26,580 unvested restricted stock awards amounted to $~~350~~283,000. The unrecognized expense will be recognized over a weighted average period of 2.60 years.

At March ~~September 30~~31, ~~2018~~2019 (unaudited), 80,580 of the 215,100 stock options outstanding are exercisable, and the remaining contractual life is 7.60 years. The unrecognized expense related to the unvested options is $~~435~~351,000 and will be recognized over a weighted average period of 2.60 years.

NOTE 15 ~~14 –~~ - SUBSEQUENT EVENT

In April ~~October~~2019, ofunder ~~2018,~~the aStock ~~total~~Repurchase ofPlan 9the Company repurchased 111,~~000~~362 shares of common stock ~~were repurchased~~ at an average cost of $19.75 97 per share for a total of $2.2 million. The actual amount and timing of future shares repurchases, if any, will depend on market conditions, applicable SEC rules and various other factors.

2423

Item 2.

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

General

Management’s discussion and analysis of the financial condition at ~~September~~March 3031, ~~2018~~2019 and the results of operations for the three ~~and nine~~ months ended ~~September 30~~March 31, ~~2018~~2019 and ~~2017~~2018 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited consolidated financial statements and the notes thereto, appearing on Part I, Item 1 of this quarterly report on Form 10-Q.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and words of similar meaning. These forward-looking statements include, but are not limited to:

●

statements of our goals, intentions and expectations;

●

statements regarding our business plans, prospects, growth and operating strategies;

●

statements regarding the quality of our loan and investment portfolios; and

●

estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

●

general economic conditions, either nationally or in our market area, that are worse than expected;

●

our success in growing our commercial real estate loan portfolio;

●

increased competition among depository and other financial institutions;

●

inflation and changes in the interest rate environment that reduce our margins and yields, reduce the fair value of financial instruments or increase our funding costs;

●

changes in laws or government regulations or policies that adversely affect financial institutions, including changes in regulatory fees and capital requirements;

●

our ability to manage operations in the current economic conditions;

●

our ability to capitalize on growth opportunities;

●

changes in consumer spending, borrowing and savings habits;

●

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;

●

changes in our organization, compensation and benefit plans;

●

changes in the level of government support for housing finance;

●

significant increases in delinquencies and our loan losses; and

●

changes in our financial condition or results of operations that reduce capital.

~~Comparison of Financial Condition at September 30, 2018 (unaudited) and December 31, 2017~~24

~~Total~~Comparison ~~assets~~of ~~increased $14.8~~Financial ~~million,~~Condition ~~or 4.8%, to $322.3 million~~ at March ~~September 30~~31, ~~2018~~2019 ~~from~~(unaudited) ~~$307.5~~and ~~million at~~ December 31, ~~2017. The increase was the result of an increase in cash and cash equivalents, securities available-for-sale, FHLB stock, net loans, and premises and equipment.~~2018

~~Cash~~Total ~~and cash~~assets ~~equivalents~~ increased $12.40 million, or 8.0.6%, to $19326.0 million at ~~September~~March 3031, ~~2018~~2019 from $17324.60 million at December 31, ~~2017~~2018. ~~This~~ The increase was ~~due~~ primarily the toresult ~~an increase~~ of aan ~~$7.7 million in deposits, $7.0 million~~ increase in ~~FHLB~~cash ~~advances,~~ and ~~sales, calls,~~cash equivalents and ~~maturities~~investment ~~of available-for-sale~~ securities ~~of $6.8 million during the nine months ended September 30~~, ~~2018,~~offset partly ~~offset~~ by ~~net~~a ~~loan~~decrease ~~originations~~in ofnet ~~$11~~loans.~~3 million, purchases of available-for-sale securities of $8.2 million, and fixed asset additions of $791,000 during the nine months ended September 30, 2018.~~

~~Securities available-for-sale~~Cash and cash equivalents increased $~~846~~3.0 million,~~000,~~ or 319.25%, to $2718.32 million at ~~September~~March 3031, ~~2018~~2019 from $2615.52 million at December 31, ~~2017~~2018. ~~The~~ This increase inwas due ~~securities~~primarily ~~available-for-sale~~to ~~during~~an ~~the~~increase ~~period~~of ~~was~~$10.8 ~~primarily~~million ain ~~result~~deposits, and calls and maturities of ~~purchases~~available-for-sale securities of $81.21 million~~, offset by~~ ~~changes~~during inthe ~~fair~~three ~~value,~~months asended ~~well~~March as31, ~~sales~~2019, ~~maturities,~~partly ~~and~~offset ~~calls~~by purchases of available-for-sale securities of $1.3 million, and repayment of $6.80 million on FHLB advances during the three months ended March 31, 2019.

~~Federal Home~~Investment ~~Loan Bank (FHLB) stock~~ Securities increased $~~485~~648,000, or 262.95%, to $226.35 million at ~~September~~March 3031, ~~2018~~2019 from $125.8 million at December 31, ~~2017~~2018. The increase ~~in FHLB stock~~ was ~~the~~due ~~result~~primarily to purchases of anavailable-for-sale ~~increase~~debt insecurities ~~FHLB~~of ~~borrowings to~~ $361.03 million, atoffset ~~September~~by ~~30,~~changes ~~2018, from~~in ~~$29.0~~fair ~~million~~value, atas ~~December~~well 31as, ~~2017.~~sales, ~~The~~maturities, and ~~borrowings~~calls ~~are~~of ~~being~~these ~~used~~debt tosecurities ~~fund~~of ~~new~~$1.1 ~~loan originations~~million.

~~Net~~Federal ~~loans~~Home Loan Bank ~~increased~~(FHLB) ~~$11.0~~stock ~~million~~decreased $509,000, or 422.43%, to $~~262~~1.38 million at ~~September~~March 3031, ~~2018~~2019 from $~~251~~2.3 million at December 31, ~~2017~~2018. The ~~increase~~decrease in ~~net~~FHLB ~~loans~~stock was ~~due~~the ~~primarily~~result ~~to an increase~~ of ~~$21.5~~a ~~million,~~decrease ~~or 62.0%,~~ in ~~commercial~~FHLB ~~real~~borrowings ~~estate~~to ~~loans, and an increase of~~ $~~868,000, or 7~~28.~~5%,~~0 ~~in home equity loans and lines of credit, offset by a decrease of $5.9~~ million, orat ~~3.1%~~March 31, ~~in one- to four- family residential loans~~2019, ~~and~~from ~~a decrease of~~ $534.20 million, orat ~~32.8%~~December 31, ~~in construction loans~~2018.

AtNet ~~September~~loans decreased 30$941,000, or 0.4%, to $267.3 million at March 31, 2019 from $268.2 million at December 31, 2018. ~~our~~The ~~premises~~decrease ~~and~~in ~~equipment~~net loans was due primarily to a decrease of $2.78 million, anor ~~increase~~1.5%, in one- to four- family real estate loans, and a decrease of $~~682~~896,000, or 34 8.26%, ~~from~~in construction loans, offset by an increase of $2.06 million, ator ~~December 31~~4.4%, ~~2017. The~~in ~~increase~~commercial ~~was~~real ~~the~~estate ~~result~~loans, ofand ~~the~~an ~~lobby~~increase of ~~renovation~~$210,000, ~~completed~~or 1.5%, in ~~April~~home ~~2018~~equity lines of credit.

AtPremises ~~September~~and equipment ~~30,~~decreased ~~2018 our investment in bank-owned life insurance was~~ $~~6.2 million~~31, ~~an increase of $117,~~000, or 1.917%, ~~from~~to $62.16 million at ~~December~~ March 31, ~~2017.~~2019 Wefrom ~~invest~~$2.6 inmillion ~~bank-owned~~at ~~life~~December ~~insurance~~31, to2018. ~~provide~~The usdecrease ~~with~~was athe ~~funding offset for our benefit plan obligations.~~result ~~Bank-owned~~of ~~life~~normal ~~insurance~~depreciation ~~also~~during ~~generally~~the ~~provides~~three usmonths ~~noninterest~~ended ~~income~~March ~~that~~31, ~~is non-taxable~~2019.

~~Total~~The ~~deposits~~Bank’s investment in bank-owned life insurance increased $~~7.8 million~~40,000, or 30.36%, to $~~240~~6.73 million at ~~September~~March 3031, ~~2018~~2019 from $~~232~~6.93 million at December 31, ~~2017~~2018. ~~The increase~~We invest in ~~deposits~~bank-owned ~~was~~life ~~due~~insurance ~~primarily~~ to anprovide ~~increase~~us ofwith ~~$5.4~~a ~~million,~~funding oroffset ~~4.1%,~~for inour ~~time~~benefit ~~deposit~~plan ~~accounts, an increase of $1~~obligations.5 ~~million,~~Bank-owned orlife ~~8.5%,~~insurance inalso ~~NOW~~generally ~~accounts,~~provides anus ~~increase~~noninterest ofincome ~~$2.1~~that ~~million,~~is ~~or 13~~non-taxable.~~2%, in demand deposit accounts, and an increase of $391,000, or 2.5%, in money market accounts, partially offset by a decrease of $1.5 million, or 5.5%, in savings accounts.~~

Total deposits increased $10.8 million, or 4.4%, to $254.8 million at March 31, 2019 from $244.0 million at December 31, 2018. The increase in deposits was due primarily to an increase of $8.2 million, or 6.2%, in time deposit accounts and an increase of $3.8 million, or 8.8%, in money market accounts, partially offset by a decrease of $1.2 million, or 6.1%, in NOW accounts.

Borrowings, all of which were FHLB advances, decreased $6.0 million, or 17.6%, to $28.0 million at March 31, 2019 from $34.0 million at December 31, 2018. At March 31, 2019, the Bank had the ability to borrow an additional $82.6 million from the Federal Home Loan Bank of Boston, subject to certain collateral requirements. The proceeds from the borrowings are used to fund new loan originations. Additionally at March 31, 2019, we had the ability to borrow up to $5.0 million on a Federal Funds line of credit with the Co-operative Central Bank.

Total stockholders’ equity decreased $2.7 million, or 5.9%, to $42.5 million at March 31, 2019 from $45.2 million at December 31, 2018. The decrease was primarily due to the repurchase of 132,891 shares of common stock at an average price of $18.85, totaling $2.5 million, and a dividend payment of $0.34 per share, totaling $875,000, offset in part by net income of $323,000, and a decrease in accumulated other comprehensive loss of $341,000, or 87.9%, to an accumulated loss of $47,000 at March 31, 2019 from accumulated loss of $388,000 at December 31, 2018.

Comparison of Operating Results for the Three Months Ended March 31, 2019 and 2018 (unaudited)

General. Net income decreased $160,000, or 33.1%, to $323,000 for the three months ended March 31, 2019 from $483,000 for the three months ended March 31, 2018. Net income decreased primarily due to a decrease in gains on sales of available-for-sale securities and an increase in interest and non-interest expense, offset in part by an increase in interest and dividend income and gains on equity securities, and a decrease in income tax expense.

Interest and Dividend Income. Interest and dividend income increased $405,000, or 16.2%, to $2.9 million for the three months ended March 31, 2019 from $2.5 million for the three months ended March 31, 2018 primarily due to an increase in interest and fees on loans of $325,000, or 14.0%, to $2.6 million for the three months ended March 31, 2019 from $2.3 million for the three months ended March 31, 2018. The increase in interest and fees on loans was the result of an increase of $15.1 million, or 6.0%, in the average balance on loans to $266.0 million for the three months ended March 31, 2019, from $250.9 million for the three months ended March 31, 2018. In addition, the yield on these loans increased 28 basis points to 3.97% for the three months ended March 31, 2019 from 3.69% for the three months ended March 31, 2018. The increase in yield on loans for the three months ended March 31, 2019 is primarily due to rising interest rates, as well as the Bank increasing the mix of commercial real estate loans to residential one-to four-family loans, with the commercial loans generally having higher yields.

Interest and dividends on securities increased $33,000, or 27.0%, to $171,000 for the three months ended March 31, 2019 from $138,000 for the three months ended March 31, 2018 resulting primarily from a 49 basis point increase in the yield on these securities. The increase in yield was the result of $1.3 million of available-for-sale securities purchased and $1.1 million of available-for-sale securities maturing during the three months ended March 31, 2019.

Other interest income increased $47,000, or 88.7%, to $100,000 for the three months ended March 31, 2019 from $53,000 for the three months ended March 31, 2018, primarily due to higher average interest rates on balances held at correspondent banks, in addition to an increase of $1.6 million, or 8.5%, in the average balance of other interest-earning assets quarter to quarter.

Interest Expense. Interest expense increased $472,000, or 73.2%, to $1.1 million for the three months ended March 31, 2019 from $645,000 for the three months ended March 31, 2018. The increase was primarily due to an increase of $19.3 million, or 9.1%, in the average balance of interest-bearing deposits, in addition to a 68 basis point increase in yield on these accounts. This increase in yield on deposit accounts is primarily due to the Bank increasing interest rates on deposit accounts to remain competitive in the market. There was an increase in interest expense on FHLB borrowings of $33,000, or 24.6%, to $167,000 for the three months ended March 31, 2019 from $134,000 for the three months ended March 31, 2018. This increase was primarily due to an increase of 49 basis points in the yield on these borrowings, partially offset by a decrease of $1.5 million, or 4.6%, in average balance on FHLB borrowings for the three months ended March 31, 2019.

Net Interest and Dividend Income. Net interest and dividend income decreased $67,000, or 3.6%, to $1.8 million for the three months ended March 31, 2019 from $1.9 million for the three months ended March 31, 2018 primarily due to an increase in average balance on deposits of $19.3 million, in addition to a 68 basis point increase in yield on those deposits. The increase was partly offset by an increase in average balance on loans of $15.1 million, in addition to a 28 basis point increase in yield on average loans, and a decrease in average balance on FHLB borrowings of $1.5 million.

Provision for Loan Losses. We recorded a provision for loan losses of $31,000 for the three months ended March 31, 2019, a decrease of $10,000 from the provision of $41,000 for the three months ended March 31, 2018. The decrease in the provision was primarily the result of a decrease in net loan activity of $1.3 million, quarter to quarter.

There were no charge-offs for the quarters ended March 31, 2019 and 2018. The allowance for loan losses was $1,354,000, or 0.5%, of total loans, at March 31, 2019, an increase of $179,000, or 15.2%, compared to $1,175,000, or 0.47%, of total loans, at March 31, 2018. There was $182,000 in nonperforming loans at March 31, 2019 and $205,000 in nonperforming loans as of March 31, 2018.

Noninterest Income. Noninterest income increased $18,000, or 10.8%, to $184,000 for the three months ended March 31, 2019 from $166,000, for the three months ended March 31, 2018, primarily due to gains on equity securities of $128,000 recognized in net income as a result of FASB ASU 2016-01 adopted January 1, 2019. The increase was partly offset by a decrease of $106,000 in gains on sales and calls of available-for-sale securities when comparing the three months ended March 31, 2019 and 2018.

Noninterest Expense. Noninterest expense increased $188,000, or 14.2%, to $1.5 million for the three months ended March 31, 2019 from $1.3 million for the three months ended March 31, 2018. Noninterest expense increased primarily due to an increase in salaries and employee benefits, equipment expense, data processing expense, advertising expenses, audits and examinations, and professional services, partially offset by a decrease in printing and supplies.

Salaries and employee benefits expense increased $125,000, or 15.1%, to $953,000 for the three months ended March 31, 2019 from $828,000 for the three months ended March 31, 2018, primarily due to new hires, position changes, and normal salary increases. Equipment expenses increased $6,000, or 40.0%, to $21,000 for the three months ended March 31, 2019 from $15,000 for the three months ended March 31, 2018, a result of an increase in depreciation expense on furniture and equipment due to an increase in furniture and equipment of $87,000, quarter to quarter. Data processing expense increased $5,000, or 4.7%, to $111,000 for the three months ended March 31, 2019, from $106,000 for the three months ended March 31, 2018. Audits and examination expense increased $3,000, or 5.3%, to $60,000 for the three months ended March 31, 2019, from $57,000 for the three months March 31, 2018. Other professional services expense increased $10,000, or 12.5%, to $90,000 for the three months ended March 31, 2019, from $80,000 for the three months ended March 31, 2018. Other expense increased $39,000, or 54.2%, to $111,000 for the three months ended March 31, 2019, from $72,000 for the three months ended March 31, 2018. The increase was partly due to an increase of $10,000 in software depreciation, an increase of $6,000 in meeting and conventions expense, an increase of $4,000 in education expense, an increase of $5,000 in losses on deposits accounts, an increase of $2,000 in the off balance-sheet reserve, and an increase of $2,000 in dues and membership expense. These increases were partially offset by a decrease in printing and supplies expense of $5,000, or 31.3%, to $11,000 for the three months ended March 31, 2019, from $16,000 for the three months ended March 31, 2018.

~~Borrowings, all~~Income ofTax ~~which~~Expense. The ~~were~~amount ~~FHLB~~of ~~advances,~~income ~~increased~~tax ~~$7.0~~expense ~~million,~~is orinfluenced ~~24.1%,~~by tothe ~~$36.0~~amount ~~million~~of atpre-tax ~~September 30~~income, ~~2018~~the ~~from~~amount ~~$29.0~~of ~~million~~tax-exempt ~~at December 31~~income, ~~2017.~~and Atthe ~~September~~effect of ~~30,~~changes ~~2018,~~in ~~the~~valuation ~~Bank~~allowances ~~had~~maintained ~~the~~against ~~ability~~deferred totax ~~borrow~~benefits. anIncome ~~additional~~tax ~~$69.7~~expense ~~million~~for ~~from~~ the ~~Federal~~three ~~Home~~months ended March ~~Loan~~31, ~~Bank~~2019 ofwas ~~Boston~~$113,000 ~~subject~~compared to ~~certain~~$180,000 ~~collateral~~for ~~requirements. The proceeds from~~ the ~~borrowings~~three ~~are~~months ~~used~~ended toMarch ~~fund~~31, ~~new loan originations~~2018. ~~Additionally~~ atThe ~~September~~effective ~~30,~~tax ~~2018,~~rate wefor ~~had~~ the ~~ability~~three tomonths ended ~~borrow~~March up31, to2019 ~~$5.0~~and ~~million~~March on31, a2018 ~~Federal~~was ~~Funds~~25.9% ~~line~~and of27.2%, ~~credit with the Co-operative Central Bank~~respectively.

~~Total~~Average ~~stockholders’~~Balances ~~equity~~and ~~increased $15,000, or 0~~Yields.~~04%,~~ The tofollowing ~~$45.0~~tables ~~million~~set atforth ~~September~~average 30balance sheets, ~~2018~~average ~~from~~yields ~~$45.0~~and ~~million at December 31~~costs, ~~2017.~~and ~~The~~certain ~~increase~~other information ~~was~~for ~~primarily~~the ~~due~~three tomonths ~~net~~ended ~~income~~March of31, ~~$1.3~~2019 ~~million~~ and a2018 ~~decrease~~(unaudited). All inaverage ~~unearned~~balances ~~compensation~~are ondaily ~~restricted~~average ~~stock~~balances ~~and~~based ~~the employee stock~~upon ~~ownership~~amortized ~~plan~~cost. Non-accrual ofloans ~~$213,000,~~were ~~for~~included in the ~~nine~~computation ~~months~~of ~~ended~~average ~~September~~balances. The ~~30,~~yields ~~2018,~~set ~~offset~~forth inbelow include ~~part~~the byeffect ~~a dividend payout~~ of ~~$0.34~~deferred ~~per share~~fees, ~~totaling~~ ~~$884~~discounts,~~000,~~ and apremiums ~~decrease~~that inare ~~accumulated~~amortized ~~other~~or ~~comprehensive~~accreted ~~loss/income~~to ofinterest ~~$517,000,~~income or ~~247.4%,~~interest ~~to an accumulated loss~~expense. ofYields/rates ~~$308,000~~for atthe ~~September~~three ~~30,~~months ~~2018~~ended ~~from~~March ~~accumulated income of $209~~31,~~000~~ at2019 ~~December~~and ~~31,~~2018 ~~2017~~are annualized.

Comparison of Operating Results for the Three Months Ended September 30, 2018 and 2017 (unaudited)

	Three Months Ended March 31,								Three Months Ended March 31,
	2019								2018
	Average Outstanding Balance			Interest		Yield/Rate			Average Outstanding Balance			Interest		Yield/Rate
(Dollars in Thousands)
Interest-earning assets:
Loans	$	266,011		$	2,639		3.97	%	$	250,895		$	2,314		3.69	%
Investments
Available-for-sale securities, at fair value		23,996			150		2.50	%		26,541			138		2.08	%
Equity securities, at fair value		2,638			21		3.18	%		-			-		0.00	%
Total Investments		26,634			171		2.57	%		26,541			138		2.08	%
Other interest-earning assets ⁽¹⁾		19,819			100		2.02	%		18,259			53		1.16	%
Total interest-earning assets		312,464			2,910		3.73	%		295,695			2,505		3.39	%

Non-interest earning assets		11,634								9,877
Total assets	$	324,098							$	305,572

Interest-bearing liabilities:
Deposits:
Savings accounts	$	32,307		$	17		0.21	%	$	33,504		$	17		0.20	%
Certificates of deposit		135,733			760		2.24	%		121,184			438		1.45	%
Money market accounts		44,875			148		1.32	%		38,080			35		0.37	%
NOW accounts		17,710			25		0.56	%		18,534			21		0.45	%
Total interest-bearing deposits		230,625			950		1.65	%		211,302			511		0.97	%
Borrowings		31,956			167		2.09	%		33,494			134		1.60	%
Total interest-bearing liabilities		262,581			1,117		1.70	%		244,796			645		1.05	%
Demand deposit accounts		17,155								15,698
Other noninterest-bearing liabilities		99								267
Total liabilities		279,835								260,761
Stockholders’ equity		44,263								44,811
Total liabilities and stockholders’ equity	$	324,098							$	305,572

Net interest income				$	1,793							$	1,860
Net interest rate spread ⁽²⁾							2.03	%							2.33	%
Net interest-earning assets ⁽³⁾	$	49,883							$	50,899
Net interest margin ⁽⁴⁾							2.30	%							2.52	%

Average of interest-earning assets to interest-bearing liabilities		119.00	%							120.79	%

~~General. Net~~(1) ~~income~~No ~~decreased~~tax ~~$189,000,~~equivalent oradjustment ~~30.0%,~~was applied to ~~$442,000~~tax ~~for~~exempt ~~the~~income ~~three months ended September 30, 2018 from $631,000~~ for the three months ended ~~September~~March 3031, ~~2017.~~2019 ~~Net income decreased primarily due to a decrease in gains on sales of available-for-sale securities~~ and an2018 ~~increase~~as inthe ~~interest~~amount ~~and~~is ~~non-interest~~not ~~expense, offset in part by an increase in interest and dividend income and a decrease in income tax expense~~significant.

Interest and Dividend Income. Interest and dividend income increased $464,000, or 19.8%, to $2.8 million for the three months ended September 30, 2018 from $2.3 million for the three months ended September 30, 2017 primarily due to an increase in interest and fees on loans of $420,000, or 19.6%, to $2.6 million for the three months ended September 30, 2018 from $2.1 million for the three months ended September 30, 2017. The increase in interest and fees on loans was the result of an increase of $26.0 million, or 11.2%, in the average balance on loans to $258.7 million for the three months ended September 30, 2018, from $232.7 million for the three months ended September 30, 2017. In addition, the yield on these loans increased 28 basis points to 3.96% for the three months ended September 30, 2018 from 3.68% for the three months ended September 30, 2017. The increase in yield on loans for the nine months ended September 30, 2017 is primarily due to rising loan rates, as well as, the Bank increasing the mix of commercial real estate loans to residential one- to four-family loans, these commercial loans generally have higher yields.

Interest and dividends on securities increased $6,000, or 4.1%, to $153,000 for the three months ended September 30, 2018 from $147,000 for the three months ended September 30, 2017 resulting primarily from a 35 basis point increase in the yield on available-for-sale securities, offset in part by a decrease in average balance of available-for-sale securities of $3.8 million, or 12.1%, to $27.1 million for the three months ended September 30, 2018 from $30.9 million for the three months ended September 30, 2017.

Other interest income increased $38,000, or 61.3%, to $100,000 for the three months ended September 30, 2018 from $62,000 for the three months ended September 30, 2017, primarily due to higher average interest rates on balances held at correspondent banks, partly offset by a decrease of $1.1 million, or 4.8%, in the average balance of other interest-earning assets quarter to quarter.

Interest Expense. Interest expense increased $363,000, or 61.4%, to $954,000 for the three months ended September 30, 2018 from $591,000 for the three months ended September 30, 2017. The increase was primarily due to an increase of $8.6 million, or 4.1%, in the average balance of interest-bearing deposits, in addition to a 46 basis point increase in yield on these accounts. There was an increase in interest expense on FHLB borrowings of $89,000, or 79.5%, to $201,000 for the three months ended September 30, 2018 from $112,000 for the three months ended September 30, 2017. This increase was primarily due to an increase of $11.9 million, or 45.6%, in average balance on FHLB borrowings and a 40 basis point rate increase on these borrowings. The increase in yield on deposit accounts is primarily due to the Bank increasing interest rate on deposit accounts to remain competitive in the market.

Net Interest and Dividend Income. Net interest and dividend income increased $101,000, or 5.7%, to $1.9 million for the three months ended September 30, 2018 from $1.8 million for the three months ended September 30, 2017 primarily due to an increase in average balance on loans of $26.0 million, in addition to a 28 basis point increase in yield on those loans. The increase was partly offset by an increase in average balance on interest bearing deposits of $8.6 million, an increase in average balance on FHLB borrowings of $11.9 million, in addition to a 46 basis point increase on average interest bearing deposits and a 40 basis point increase on average FHLB advances.

Provision for Loan Losses. We recorded a provision for loan losses of $53,000 for the three months ended September 30, 2018, an increase of $50,000 from the provision of $3,000 for the three months ended September 30, 2017. The increased provision was a result of an increase in net loan originations, quarter to quarter, of $11.0 million. In addition, the Bank is increasing the mix of commercial real estate loans to residential one- to four-family loans, which we believe requires a higher reserve rate.

There were no charge-offs for the quarters ended September 30, 2018 and September 30, 2017. The allowance for loan losses was $1,358,000, or 0.52%, of total loans, at September 30, 2018, an increase of $374,000, or 38.0%, compared to $984,000, or 0.42%, of total loans, at September 30, 2017. There was $353,000 in nonperforming loans at September 30, 2018 and $191,000 in nonperforming loans as of September 30, 2017.

Noninterest Income. Noninterest income decreased $345,000, or 69.8%, to $149,000 for the three months ended September 30, 2018 from $494,000, for the three months ended September 30, 2017, primarily due to a decrease in the gain on sales and calls of available-for-sale securities of $285,000, or 73.5%, to $103,000 for the three months ended September 30, 2018, from $388,000, for the three months ended September 30, 2017, and a decrease in income on bank-owned life insurance of $60,000, or 71.4%, to $24,000 for the three months ended September 30, 2018 from $84,000 for the three months ended September 30, 2017.

Noninterest Expense. Noninterest expense increased $38,000, or 2.9%, to $1.4 million for the three months ended September 30, 2018 from $1.3 million for the three months ended September 30, 2017. Noninterest expense increased primarily due to an increase in salaries and employee benefits, equipment expense, data processing expense, advertising expenses, audits and examinations, and professional services, partially offset by a decrease in occupancy expense.

Salaries and employee benefits expense increased $20,000, or 2.5%, to $827,000 for the three months ended September 30, 2018 from $807,000 for the three months ended September 30, 2017, primarily due to new hires and normal salary increases. Equipment expenses increased $9,000, or 81.8%, to $20,000 for the three months ended September 30, 2018 from $11,000 for the three months ended September 30, 2017, as a result of increased depreciation expense. FDIC Assessment increased $7,000, or 46.7%, to $22,000 for the three months ended September 30, 2018, from $15,000 for the three months ended September 30, 2017. Audits and examination expense increased $7,000, or 14.0%, to $57,000 for the three months ended September 30, 2018, from $50,000 for the three months September 30, 2017. Data processing expense increased $13,000, or 13.0%, to $113,000 for the three months ended September 30, 2018, from $100,000 for the three months ended September 30, 2017. Advertising expense increased $7,000, or 15.6%, to $52,000 for the three months ended September 30, 2018, from $45,000 for the three months ended September 30, 2017. Other professional services expense increased $3,000, or 3.8%, to $83,000 for the three months ended September 30, 2018, from $80,000 for the three months ended September 30, 2017. Other expense increased $40,000, or 88.9%, to $85,000 for the three months ended September 30, 2018, from $45,000 for the three months ended September 30, 2017. The increase was due to an increase in software amortization and a change to some of the Bank’s deposit products in which the Bank is rebating certain fees and service charges based on specific account parameters and activity. These increases were partially offset by a decrease in occupancy expense of $70,000, or 45.2%, to $85,000 for the three months ended September 30, 2018, from $155,000 for the three months ended September 30, 2017. As a result of the lobby renovation, we accelerated depreciation on a few assets during the three months ended September 30, 2017, which resulted in the decreased expense quarter to quarter.

Income Tax Expense. The amount of income tax expense is influenced by the amount of pre-tax income, the amount of tax-exempt income, and the effect of changes in valuation allowances maintained against deferred tax benefits. Income tax expense for the three months ended September 30, 2018 was $157,000 compared to $300,000 for the three months ended September 30, 2017. The effective tax rate for the three months ended September 30, 2018 and September 30, 2017 was 26.21% and 32.22%, respectively. The decrease in income tax expense and the effective tax rate during the 2018 period is a result of The Tax Act which was passed in December 2017, which reduced the Company’s federal tax rate from 34% to 21%.

Average Balances and Yields. The following tables set forth average balance sheets, average yields and costs, and certain other information for the three months ended September 30, 2018 and 2017 (unaudited). All average balances are daily average balances based upon amortized cost. Non-accrual loans were included in the computation of average balances. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Yields/rates for the three months ended September 30, 2018 and 2017 are annualized.

	Three Months Ended September 30,								Three Months Ended September 30,
	2018								2017
	Average Outstanding Balance			Interest		Yield/Rate			Average Outstanding Balance			Interest		Yield/Rate
(Dollars in Thousands) Interest-earning assets:
Loans	$	258,668		$	2,559		3.96	%	$	232,674		$	2,139		3.68	%
Securities (1)		27,138			153		2.26	%		30,856			147		1.91	%
Other interest-earning assets		23,362			100		1.71	%		24,536			62		1.01	%
Total interest-earning assets		309,168			2,812		3.64	%		288,066			2,348		3.26	%
Non-interest earning assets		11,086								9,278
Total assets	$	320,254							$	297,344
Interest-bearing liabilities:
Deposits:
Savings accounts	$	32,629		$	16		0.20	%	$	33,666		$	19		0.23	%
Certificates of deposit		129,574			627		1.94	%		122,644			416		1.36	%
Money market accounts		36,016			82		0.91	%		37,904			35		0.37	%
NOW accounts		19,352			28		0.58	%		14,716			9		0.24	%
Total interest-bearing deposits		217,571			753		1.38	%		208,930			479		0.92	%
Borrowings		37,859			201		2.12	%		26,000			112		1.72	%
Total interest-bearing liabilities		255,430			954		1.49	%		234,930			591		1.01	%
Demand deposit accounts		19,620								17,247
Other noninterest-bearing liabilities		139								399
Total liabilities		275,189								252,576
Stockholders’ equity		45,065								44,768
Total liabilities and stockholders’ equity	$	320,254							$	297,344
Net interest income				$	1,858							$	1,757
Net interest rate spread (2)							2.15	%							2.25	%
Net interest-earning assets (3)	$	53,738							$	53,136
Net interest margin (4)							2.40	%							2.44	%
Average of interest-earning assets to interest-bearing liabilities		121.04	%							122.62	%

(1) No tax equivalent adjustment was applied to tax exempt income for the three months ended September 30, 2018 and 2017 as the amount is not significant.

(2)

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

(3)

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

(4)

Net interest margin represents net interest income as a percentage of average interest-earning assets.

2927

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

	Three months ending September 30, 2018 compared to three months ending September 30, 2017
	Three months ended March 31, 2019 compared to the three months ended March 31, 2018
	Increase (Decrease) Due to						Total ~~Increase~~
	Volume			Rate			~~(Decrease)~~Increase
Interest-earning assets:
Loans (1)	$	~~250~~144		$	~~170~~181		$	~~420~~325
Securities (2)		(11	)		17			6
Investment securities (2)		6			27			33
Other interest-earning assets (3)		(35	)		4142			3847
Total interest-earning assets		~~236~~155			~~228~~250			~~464~~405
Interest-bearing liabilities
Deposits:
Savings accounts		(1-	)		(2-	)		(3-	)
Certificates of deposit		2558			~~186~~264			~~211~~322
Money market accounts		(27	)		49106			47113
NOW accounts		4(1	)		155			194
Total interest-bearing deposits		2664			~~248~~375			~~274~~439
Borrowings		59(6	)		3039			8933
Total interest-bearing liabilities		8558			~~278~~414			~~363~~472
Change in net interest income	$	~~151~~97		$	(50164	)	$	~~101~~(67	)

(1)

Includes non-accrual loans and interest received on such loans.

(2)

Includes short-term investments.

(3)

Includes Federal Home Loan Bank of Boston stock and deposits with Cooperative Central Bank.

Comparison of Operating Results for the Nine Months Ended September 30, 2018 and 2017 (unaudited)

General. Net income decreased $278,000, or 17.6%, to $1.3 million for the nine months ended September 30, 2018 from $1.6 million for the nine months ended September 30, 2017. Net income decreased primarily due to a decrease in gains on sales and calls of available-for-sale securities, and an increase in interest and non-interest expenses, partially offset by an increase in interest and dividend income.

Interest and Dividend Income. Interest and dividend income increased $1.4 million, or 21.4%, to $8.0 million for the nine months ended September 30, 2018 from $6.6 million for the nine months ended September 30, 2017 primarily due to an increase in interest and fees on loans of $1.3 million, or 21.6%, to $7.3 million for the nine months ended September 30, 2018 from $6.0 million for the nine months ended September 30, 2017. This increase was primarily due to an increase of $30.9 million in the average balance on loans period to period and a 25 basis point increase in yield on these loans. The increase in yield on loans for the nine months ended September 30, 2017 is primarily due to rising loan rates, as well as, the Bank increasing the mix of commercial real estate loans to residential one- to four-family loans, these commercial loans generally have higher yields.

Interest and dividends on securities decreased $5,000, or 1.1%, to $444,000 for the nine months ended September 30, 2018 from $449,000 for the nine months ended September 30, 2017 resulting primarily from a decrease in the average balance of available-for-sale securities of $4.2 million, or 13.6%, to $26.9 million for the nine months ended September 30, 2018 from $31.2 million for the nine months ended September 30, 2017, partially offset by a yield increase of 28 basis points to 2.20% for the nine months ended September 30, 2018, from 1.92% for the nine months ended September 30, 2017.

Other interest income increased $111,000, or 99.1%, to $223,000 for the nine months ended September 30, 2018 from $112,000 for the nine months ended September 30, 2017, primarily due to higher average interest rates on balances held at correspondent banks. In addition, there was an increase of $858,000, or 4.4%, in the average balance held at correspondent banks for the nine months ended September 30, 2018, compared to the nine months ended September 30, 2017.

Interest Expense. Interest expense increased $843,000, or 54.2%, to $2.4 million for the nine months ended September 30, 2018 from $1.6 million for the nine months ended September 30, 2017. The increase was primarily due to an increase of $11.4 million, or 5.6%, in the average balance of interest-bearing deposits, in addition to a 28 basis point increase in yield on these accounts. There was an increase in interest expense on FHLB borrowings of $319,000, or 147.0%, to $536,000 for the nine months ended September 30, 2018 from $217,000 for the nine months ended September 30, 2017. This increase was primarily due to an increase of $17.6 million, or 91.1%, in average balance on FHLB borrowings and a 44 basis point increase in yield on these borrowings. The increase in yield on deposit accounts is primarily due to the Bank increasing interest rate on deposit accounts to remain competitive in the market.

Net Interest and Dividend Income. Net interest and dividend income increased $565,000, or 11.2%, to $5.6 million for the nine months ended September 30, 2018 from $5.0 million for the nine months ended September 30, 2017 primarily due to an increase in average balance on loans of $30.9 million, or 13.8%, to $255.3 million, for the nine months ended September 30, 2018 from $224.4 million for the nine months ended September 30, 2017, in addition to a 25 basis point increase in yield on those loans. This increase was partly offset by an increase in average balance on interest bearing deposits of $11.4 million, or 5.6%, to $214.2 million for the nine months ended September 30, 2018, from $202.7 million for the nine months ended September 30, 2017, and an increase in average balance on FHLB borrowings of $17.6 million, or 91.1%, to $36.8 million for the nine months ended September 30, 2018, from $19.3 million for the nine months ended September 30, 2017, in addition to a 28 basis point increase on average interest bearing deposits and a 44 basis point increase on average FHLB borrowings.

Provision for Loan Losses. We recorded a provision for loan losses of $224,000 for the nine months ended September 30, 2018, an increase of $130,000 from the provision of $94,000 for the nine months ended September 30, 2017. The provision increase is a result of an increase in the percentage of commercial loans to total loans in the portfolio, as the Bank continues its focus on commercial loan originations.

Noninterest Income. Noninterest income decreased $898,000, or 64.4%, to $496,000 for the nine months ended September 30, 2018 from $1.4 million, for the nine months ended September 30, 2017, primarily due to a decrease in the gain on sales and calls of available-for-sale securities of $853,000, or 71.4%, to $342,000 for the nine months ended September 30, 2018, from $1.2 million, for the nine months ended September 30, 2017.

Noninterest Expense. Noninterest expense increased $272,000, or 7.1%, to $4.1 million for the nine months ended September 30, 2018 from $3.8 million for the nine months ended September 30, 2017. Noninterest expense increased primarily due to an increase in salaries and employee benefits, equipment expense, FDIC assessment, audits and examinations, professional services, and other expenses.

Salaries and employee benefits expense increased $115,000, or 4.7%, to $2.5 million for the nine months ended September 30, 2018 from $2.4 million for the nine months ended September 30, 2017, primarily due to new hires, normal salary increases and increases in payroll taxes. Equipment expenses increased $22,000, or 68.8%, to $54,000 for the nine months ended September 30, 2018 from $32,000 for the nine months ended September 30, 2017, due to an increase in depreciation expense in connection with fixed asset additions for the nine months ended September 30, 2018. FDIC Assessment increased $11,000, or 20.0%, to $66,000 for the nine months ended September 30, 2018, from $55,000 for the nine months ended September 30, 2017. Audits and examination expense increased $21,000, or 14.0%, to $171,000 for the nine months ended September 30, 2018, from $150,000 for the nine months ended September 30, 2017. Other professional services expense increased $13,000, or 5.7%, to $243,000 for the nine months ended September 30, 2018, from $230,000 for the nine months ended September 30, 2017. Other expense increased $120,000, or 79.5%, to $271,000 for the nine months ended September 30, 2018, from $151,000 for the nine months ended September 30, 2017. The increase was due to an increase in software amortization and a change to some of the Bank’s deposit products in which the Bank is rebating certain fees and service charges based on specific account parameters and activity.

Income Tax Expense. The amount of income tax expense is influenced by the amount of pre-tax income, the amount of tax-exempt income, and the effect of changes in valuation allowances maintained against deferred tax benefits. Income tax expense for the nine months ended September 30, 2018 was $460,000 compared to $917,000 for the nine months ended September 30, 2017. The effective tax rate for the nine months ended September 30, 2018 and September 30, 2017 was 26.1% and 36.7%, respectively. The decrease in income tax expense and the effective tax rate during the 2018 period is a result of The Tax Act which was passed in December 2017, which reduced the Company’s federal tax rate from 34% to 21%.

Average Balances and Yields. The following tables set forth average balance sheets, average yields and costs, and certain other information for the nine months ended September 30, 2018 and 2017 (unaudited). All average balances are daily average balances based upon amortized cost. Non-accrual loans were included in the computation of average balances. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Yields/rates for the nine months ended September 30, 2018 and 2017 are annualized.

	Nine Months Ended September 30,								Nine Months Ended September 30,
	2018								2017
	Average Outstanding Balance			Interest		Yield/Rate			Average Outstanding Balance			Interest		Yield/Rate
(Dollars in Thousands)
Interest-earning assets:
Loans	$	255,344		$	7,327		3.83	%	$	224,413		$	6,025		3.58	%
Securities (1)		26,929			444		2.20	%		31,157			449		1.92	%
Other interest-earning assets		20,454			223		1.45	%		19,596			112		0.76	%
Total interest-earning assets		302,727			7,994		3.52	%		275,166			6,586		3.19	%
Non-interest earning assets		10,807								9,166
Total assets	$	313,534							$	284,332
Interest-bearing liabilities:
Deposits:
Savings accounts	$	33,029		$	52		0.21	%	$	33,209		$	54		0.22	%
Certificates of deposit		125,620			1,587		1.68	%		118,485			1,166		1.31	%
Money market accounts		36,436			149		0.55	%		37,407			103		0.37	%
NOW accounts		19,078			75		0.52	%		13,670			16		0.16	%
Total interest-bearing deposits		214,163			1,863		1.16	%		202,771			1,339		0.88	%
Borrowings		36,821			536		1.94	%		19,267			217		1.50	%
Total interest-bearing liabilities		250,984			2,399		1.27	%		222,038			1,556		0.93	%
Demand deposit accounts		17,541								17,533
Other noninterest-bearing liabilities		129								470
Total liabilities		268,654								240,041
Stockholders’ equity		44,880								44,291
Total liabilities and stockholders’ equity	$	313,534							$	284,332
Net interest income				$	5,595							$	5,030
Net interest rate spread (2)							2.25	%							2.26	%
Net interest-earning assets (3)	$	51,863							$	53,128
Net interest margin (4)							2.46	%							2.44	%
Average of interest-earning assets to interest-bearing liabilities		120.62	%							123.93	%

(1) No tax equivalent adjustment was applied to tax exempt income for the nine months ended September 30, 2018 and 2017 as the amount is not significant.

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

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

(4) Net interest margin represents net interest income as a percentage of average interest-earning assets.

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

	Nine months ending September 30, 2018 compared to nine months ending September 30, 2017
	Increase (Decrease) Due to						Total Increase
	Volume			Rate			(Decrease)
Interest-earning assets:
Loans (1)	$	869		$	433		$	1,302
Securities (2)		(86	)		81			(5	)
Other interest-earning assets (3)		5			106			111
Total interest-earning assets		788			620			1,408
Interest-bearing liabilities
Deposits:
Savings accounts		-			(2	)		(2	)
Certificates of deposit		74			347			421
Money market accounts		(3	)		49			46
NOW accounts		8			51			59
Total interest-bearing deposits		79			445			524
Borrowings		241			78			319
Total interest-bearing liabilities		320			523			843
Change in net interest income	$	468		$	97		$	565

(1) Includes non-accrual loans and interest received on such loans.

(2) Includes short-term investments.

(3) Includes Federal Home Loan Bank of Boston stock and deposits with Cooperative Central Bank.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Not applicable, as the Registrant is a smaller reporting 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 Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of ~~September 30,~~March ~~2018~~31, 2019. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Registrant’s disclosure controls and procedures were effective.

During the quarter ended ~~September~~March 3031, ~~2018~~2019, there have been no changes in the Company’s internal control over financial reporting that have ~~materially~~ materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

3328

Part II – Other Information

Item 1.

Legal Proceedings

We are 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 Bank’s or the Company’s financial condition or results of operations.

Item 1A.

Risk Factors

The presentation of Risk Factors is not required for smaller reporting companies such as Melrose Bancorp, Inc.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

(a)

Sales of Unregistered Securities. Not applicable.

(b)

Use of Proceeds. Not applicable

(c) During the three months ended ~~September~~March 3031, ~~2018~~2019, the Company repurchased 7132,~~200~~891 shares of common stock at an average cost of $1918.5885 per share. ~~An additional 9,000 shares of common stock were subsequently purchased in October 2018 at an average cost of $19.75 per share.~~

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2018 to July 31, 2018		5,000		19.50		5,000		126,237
January 1, 2019 to January 31, 2019		-		-		-		362,939
August 1, 2018 to August 31, 2018		-		-		-		126,237
February 1, 2019 through February 28, 2019		132,891		18.85		132,891		230,048
September 1, 2018 to September 30, 2018		2,200		19.75		2,200		124,037
March 1, 2019 through March 31, 2019		-		-		-		230,048

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

None.

Item 6.

Exhibits

31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

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

	MELROSE BANCORP, INC.
Date: November 9, 2018	/s/ Jeffrey D. Jones
Date: May 10, 2019	/s/ Jeffrey D. Jones
	Jeffrey D. Jones
	President and Chief Executive Officer
Date: November 9, 2018	/s/ Diane Indorato
Date: May 10, 2019	/s/ Diane Indorato
	Diane Indorato
	Senior Vice President and Chief Financial Officer

3530

Filing Compare · Melrose Bancorp, Inc.