10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

or

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

FOR THE TRANSITION PERIOD FROM            TO                 .

For the quarterly period ended June 30, 2017

Commission File Number: 001-36263

Coastway Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Maryland	46-4149994
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

One Coastway Blvd, Warwick, Rhode Island	02886
(Address of principal executive offices)	(Zip code)

(401) 330-1600

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   x Yes      o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)  x Yes  o  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	o	Accelerated filer	o
Non-accelerated filer	o	(Do not check if a smaller reporting company)
		Smaller reporting company		x
		Emerging growth company		x

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.  o

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

As of July 31, 2017 there were 4,392,441 shares of the issuer’s common stock outstanding- par value $0.01 per share

COASTWAY BANCORP, INC. and SUBSIDIARY

Index

		Page Number
	PART I - FINANCIAL INFORMATION
Item 1	Financial Statements	1
	Consolidated Balance Sheets — June 30, 2017 and December 31, 2016 (unaudited)	1
	Consolidated Statements of Net Income and Comprehensive Income -Three and six months ended June 30, 2017 and 2016 (unaudited)	2
	Consolidated Statement of Changes in Stockholders’ Equity - Six months ended June 30, 2017 (unaudited)	3
	Consolidated Statements of Cash Flows - Six months ended June 30, 2017 and 2016 (unaudited)	4
	Notes to the Unaudited Consolidated Financial Statements	5
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4	Controls and Procedures	45
	PART II - OTHER INFORMATION
Item 1	Legal Proceedings	45
Item 1A	Risk Factors	45
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3	Defaults Upon Senior Securities	46
Item 4	Mine Safety Disclosures	46
Item 5	Other Information	46
Item 6	Exhibits	46
	Signature page	47

PART I-FINANCIAL INFORMATION

Item 1 -Financial Statements

COASTWAY BANCORP, INC. and SUBSIDIARY

Consolidated Balance Sheets

(Unaudited)

(Dollars in thousands except per share amounts)	June 30, 2017			December 31, 2016
Assets
Cash and cash equivalents:
Cash and due from banks	$	2,275		$	2,946
Interest-earning deposits	44,225			41,712
Total cash and cash equivalents	46,500			44,658
Federal Home Loan Bank stock, at cost	6,172			6,184
Loans, net of allowance for loan losses of $2,720 and $2,493, respectively	562,906			525,215
Loans held for sale	13,228			23,157
Premises and equipment, net	31,684			31,426
Accrued interest receivable	1,716			1,598
Foreclosed real estate	422			422
Bank-owned life insurance	4,522			4,452
Net deferred tax asset	1,059			925
Other assets	7,512			6,154
Total assets	$	675,721		$	644,191
Liabilities and Stockholders’ Equity
Deposits:
Interest-bearing	$	358,445		$	340,352
Non-interest-bearing	112,922			106,962
Total deposits	471,367			447,314
Borrowed funds	127,941			121,250
Accrued expenses and other liabilities	6,601			7,055
Total liabilities	605,909			575,619
Commitments and contingencies (Note 6)
Stockholders’ equity:
Preferred stock, $0.01 par value; 20,000,000 shares authorized, none issued or outstanding at June 30, 2017 and December 31, 2016	—			—
Common stock, $0.01 par value; 50,000,000 shares authorized; 4,392,441 and 4,403,096 issued and outstanding at June 30, 2017 and December 31, 2016, respectively	44			44
Additional paid-in capital	39,888			40,107
Retained earnings	33,565			32,186
Unearned compensation - Employee Stock Ownership Plan (ESOP)	(3,405		)	(3,485		)
Accumulated other comprehensive loss	(280		)	(280		)
Total stockholders’ equity	69,812			68,572
	$	675,721		$	644,191

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

1

COASTWAY BANCORP, INC. and SUBSIDIARY

Consolidated Statements of Net Income and Comprehensive Income

(Unaudited)

	Three months ended June 30,				Six months ended June 30,
(in thousands except share amounts)	2017		2016		2017		2016
Interest income:
Interest and fees on loans	$	5,706	$	5,107	$	11,169	$	10,057
Other interest income	153		73		303		145
Total interest income	5,859		5,180		11,472		10,202
Interest expense:
Interest on deposits	733		499		1,439		985
Interest on borrowed funds	290		150		516		293
Total interest expense	1,023		649		1,955		1,278
Net interest income	4,836		4,531		9,517		8,924
Provision for loan losses	153		145		213		254
Net interest income after provision for loan losses	4,683		4,386		9,304		8,670
Non-interest income:
Customer service fees	868		804		1,700		1,575
Net gain on sales of loans and other mortgage banking income	1,025		1,267		1,843		2,151
Bank-owned life insurance income	32		32		70		64
Other income	48		32		108		66
Total non-interest income	1,973		2,135		3,721		3,856
Non-interest expenses:
Salary and employee benefits	2,991		2,716		5,950		5,428
Occupancy and equipment	795		696		1,665		1,512
Data processing	481		447		955		847
Deposit servicing	235		236		476		444
Professional fees	178		185		400		384
FDIC insurance assessment	73		89		152		185
Advertising	92		114		193		161
Foreclosed real estate	7		25		14		42
Other general and administrative	431		442		923		887
Total non-interest expenses	5,283		4,950		10,728		9,890
Income before income taxes	1,373		1,571		2,297		2,636
Income tax expense	556		625		918		1,051
Net income and comprehensive income	$	817	$	946	$	1,379	$	1,585
Weighted average common shares outstanding-basic	4,002,657		4,321,996		4,008,281		4,380,932
Weighted average common shares outstanding-diluted	4,028,360		4,324,061		4,030,141		4,382,178
Per share information:
Diluted earnings per common share	$	0.20	$	0.22	$	0.34	$	0.36
Basic earnings per common share	$	0.20	$	0.22	$	0.34	$	0.36

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

2

COASTWAY BANCORP, INC. and SUBSIDIARY

Consolidated Statement of Changes in Stockholders’ Equity

Six months ended June 30, 2017

(Unaudited)

													Accumulated
					Additional					Unearned			Other			Total
	Common Stock				Paid-in			Retained		Compensation-			Comprehensive			Stockholders’
	Shares		Amount		Capital			Earnings		ESOP			Loss			Equity
	(Dollars in thousands)
Balance at December 31, 2016	4,403,096		$	44	$	40,107		$	32,186	$	(3,485	)	$	(280	)	$	68,572
Net income	—		—		—			1,379		—			—			1,379
Common stock repurchased	(19,200	)	—		(333		)	—					—			(333		)
Stock-based compensation, net of awards surrendered	8,545		—		49			—		—			—			49
ESOP shares committed to be allocated (7,919 shares)			—		65			—		80			—			145
Balance at June 30, 2017	4,392,441		$	44	$	39,888		$	33,565	$	(3,405	)	$	(280	)	$	69,812

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

3

COASTWAY BANCORP, INC. and SUBSIDIARY

Consolidated Statements of Cash Flows

(Unaudited)

	Six months ended June 30,
(Dollars in thousands)	2017			2016
Cash flows from operating activities:
Net income	$	1,379		$	1,585
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	213			254
Loans originated for sale	(95,253		)	(94,286		)
Loans sold	107,172			91,512
Gain on sale of mortgage loans, net	(1,990		)	(1,773		)
Amortization of deferred loan costs	493			515
Loss on foreclosed real estate	—			14
Loss on sale of real estate held for sale	—			11
Depreciation and amortization expense	719			650
Income from Bank-owned life insurance	(70		)	(64		)
Deferred income tax expense (benefit)	(134		)	333
ESOP expense	145			99
Stock-based compensation, net of awards surrendered	49			54
Net change in:
Accrued interest receivable	(118		)	(116		)
Other, net	(1,812		)	(323		)
Net cash provided (used) by operating activities	10,793			(1,535		)
Cash flows from investing activities:
Purchase of and increases in certificates of deposit	—			(15		)
Maturities of certificates of deposit	—			3,043
Purchase of FHLB stock	(826		)	(1,317		)
Redemption of FHLB stock	838			100
Loan originations, net of principal payments	(25,124		)	(29,200		)
Purchase of loans from third party originators	(13,273		)	(9,068		)
Proceeds from the sale of real estate held for sale	—			3,294
Purchases of premises and equipment	(977		)	(511		)
Net cash used by investing activities	(39,362		)	(33,674		)
Cash flows from financing activities:
Net increase in deposits	24,053			13,337
Net change in short-term borrowed funds	6,691			23,350
Repurchase of common stock	(333		)	(4,616		)
Net cash provided (used) by financing activities	30,411			32,071
Net change in cash and cash equivalents	1,842			(3,138		)
Cash and cash equivalents at beginning of period	44,658			18,322
Cash and cash equivalents at end of period	$	46,500		$	15,184
Supplemental cash flow information:
Interest paid on deposits	$	1,438		$	984
Interest paid on borrowed funds	515			278
Income taxes paid	1,741			1,465
Supplemental cash flow information:
Loans transferred to foreclosed real state	—			211

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

4

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements

(1)Basis of Presentation and Consolidation

General information

Coastway Bancorp, Inc., a Maryland chartered stock corporation (“Company” or “Corporation”), was formed to serve as the holding company for Coastway Community Bank.  Coastway Community Bank (the “Bank”) is a Rhode Island-chartered savings bank.  The Bank provides a variety of financial services to individuals and small businesses throughout Rhode Island.  Its primary deposit products are savings, demand, money market and term certificate accounts and its primary lending products are one-to four-family residential mortgage loans, home equity loans and lines of credit, commercial real estate and SBA loans.

Basis of Presentation

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

The unaudited consolidated financial statements of the Corporation presented herein have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and pursuant to the rules of the SEC for quarterly reports on Form 10-Q and Article 8 of Regulation S-X and do not include all of the information and note disclosures required by GAAP for a complete set of financial statements.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures necessary for the fair presentation of the accompanying consolidated financial statements have been included. The results of operations for interim periods are not necessarily indicative of results for the full year or any other interim period. The accompanying unaudited financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2016, included in the Corporation’s annual report on Form 10-K.

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the 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, the valuation of deferred tax assets, the valuation of loans held for sale, mortgage-banking derivatives and commitments to sell fixed-rate residential mortgages.

Stock-Based Compensation

Compensation cost is recognized for stock options and restricted stock awards issued to employees based on the fair value of these awards at the grant date.  A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Corporation’s stock at the grant date is utilized for restricted stock awards.

Compensation cost is recognized over the required service period, generally defined as the vesting period.  For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

Recent Accounting Pronouncements

As an “emerging growth company” as defined in Title 1 of the Jumpstart Our Business Startups (JOBS) Act, the Corporation has elected to use the extended transition period to delay the adoption of new or reissued accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies.  As of June 30, 2017, there is no significant difference in the comparability of the financial statements as a result of this extended transition period.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.”  The objective of this amendment is to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS.  This update 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 in the scope of other standards.  In August 2015, the FASB issued ASU 2015-14 to defer for one year the effective date of the new revenue standard.  The requirements are effective for annual periods and interim periods within fiscal years beginning after December 15, 2018.  During 2016, the FASB issued further implementation guidance regarding revenue recognition.  This additional guidance included clarification on certain principal versus agent considerations within the implementation of the guidance as well as clarification related to identifying performance obligations and licensing, assessing collectability, presenting sales taxes, measuring noncash consideration, and certain transition matters.  The Corporation does not expect the adoption of this guidance will have a significant impact on the Corporation’s consolidated financial statements, but is expected to require additional disclosures.

5

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10), which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments.  The ASU requires equity instruments (except those accounted for under the equity method of accounting or that result in consolidations of the investee) to be measured at fair value with changes in fair value recognized in net income.  However, an entity may choose to measure an equity investment that does not have a readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions.  For public business entities, the standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  For all other entities, including emerging growth companies, the standard is effective for fiscal years beginning after December 15, 2018 and interim periods within fiscal periods after December 15, 2019.  We do not expect a significant impact upon adoption on January 1, 2019.

In February 2016, the FASB issued ASU 2016-02, Leases, which will require organizations that lease assets — referred to as “lessees” — to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases.  Under the new guidance, a lessee will be required to recognize right to use assets and lease liabilities for leases with lease terms of more than 12 months.  However, unlike current Generally Accepted Accounting Principles (GAAP) — which requires only capital leases to be recognized on the balance sheet — the new ASU will require both types of leases to be recognized on the balance sheet.

The accounting by organizations that own the assets leased by the lessee — also known as lessor accounting — will remain largely unchanged from current GAAP.  However, the ASU contains some targeted improvements that are intended to align, where necessary, lessor accounting with the lessee accounting model.  The ASU on leases will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  For all other organizations, including emerging growth companies, the ASU on leases will take effect for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020.  We are currently evaluating the impact of adoption of this standard, including identifying contracts that are, or contain, leases, as the lease identification guidance in the new standard is different than the current standard.

On March 30, 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-09, which is intended to improve the accounting for employee share-based payments.  The ASU affects all organizations that issue share-based payment awards to their employees.  The ASU, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, simplifies several aspects of the accounting for share-based payment award transactions, including:

·The income tax consequences

·Classification of awards as either equity or liabilities, and

·Classification on the statement of cash flows.

For public companies, the amendments in this ASU are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods.  For private companies and emerging growth companies, the amendments are effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018.  Early adoption is permitted for any organization in any interim or annual period.  This standard will be effective for the Corporation for the year ended December 31, 2018.  The Corporation early adopted the standard as of January 1, 2017, and the impact of adoption was not material.  The standard adds volatility in the effective tax rate.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses, that will significantly change how banks measure and recognize credit impairment for many financial assets from an incurred loss methodology to a current expected credit loss model.  The current expected credit loss model will require companies to immediately recognize an estimate of credit losses expected to occur over the remaining life of the financial assets that are in the scope of the standard.  The FASB also made targeted amendments to the current impairment model for available-for-sale debt securities.  The ASU is effective for public business entities that are SEC filers, for annual and interim periods in fiscal years beginning after December 15, 2019, and for other companies, including emerging growth companies, for interim and annual periods in fiscal years beginning after December 15, 2020.  All entities may early adopt the standard for annual and interim periods in fiscal years after December 15, 2018.  The standard will be effective for the Corporation on January 1, 2020.  We are currently evaluating the impact of adoption of this standard, including different methodologies that may be employed to estimate credit losses, such as loss rate methods, component loss methods, and qualitative factors, as well as additional data gathering that will be needed to adopt the standard.  The standard will add new disclosures related to factors that influenced management’s estimate, including current expected credit losses, the changes in those factors, and reasons for the changes as well as the method applied to revert to historical credit loss experience.

6

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

(2)Loans

Major classifications of loans at the dates indicated, are as follows:

(Dollars in thousands)	June 30, 2017			December 31, 2016
Residential real estate mortgage loans:
1-4 family	$	272,972		$	243,385
Home equity loans and lines of credit	73,553			76,175
Total residential real estate mortgage loans	346,525			319,560
Commercial:
Commercial real estate	146,252			138,946
Commercial business	14,511			13,308
Commercial construction	13,441			10,946
SBA	39,502			39,948
Consumer	1,246			1,165
Total loans	561,477			523,873
Allowance for loan losses	(2,720		)	(2,493		)
Net deferred loan costs	4,149			3,835
Loans, net	$	562,906		$	525,215

Residential one- to four-family loans of $273.0 million at June 30, 2017 and $243.4 million at December 31, 2016 include purchased loans which were individually underwritten based on the Bank’s credit standards, totaling $71.5 million and $67.5 million at June 30, 2017 and December 31, 2016, respectively.  During the six months ended June 30, 2017 and 2016, the Bank purchased $13.1 million and $9.0 million of loans at a cost of $13.3 million and $9.1 million, respectively.  The loans purchased from third parties are located in New England, primarily Massachusetts.

Loan Segments

One-to four-family residential real estate and home equity — Loans in these segments are collateralized by owner-occupied residential real estate and repayment is dependent on the credit quality of the individual borrower.  The Bank generally has first liens on one-to four-family residential real estate loans and first or second liens on property securing home equity loans and equity lines-of-credit.  Jumbo one- to four-family loans generally have maximum loan-to-value ratios of 95%.  Loan-to-value ratios of one- to four-family loans without private mortgage insurance may be made with loan-to-value ratios up to 95%.  Home equity loans and lines of credit may be underwritten with a loan-to-value ratio up to 80%.  The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in these segments.

Commercial — Commercial loan segments include commercial real estate, commercial and industrial loans for businesses and construction financing for business/properties located principally in Rhode Island.  For commercial real estate loans, the underlying cash flows generated by the properties are adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, will have an effect on the credit quality in this segment.  Non-real estate commercial loans are made to businesses and are generally secured by assets of the business.  Repayment is expected from the cash flows of the business.  Commercial construction generally represent loans to finance construction of retail and office space.  Commercial loans also include loans made under the SBA 504 program which is an economic development program that finances the expansion of small businesses.  The Bank generally provides 50% of the projected costs, and the loan is secured by a first lien on the commercial property.  The SBA does not provide a guarantee on loans made under the SBA 504 program.  A weakened economy, and resultant decreased consumer spending, will have an effect on the credit quality in this segment.  Management monitors the cash flows of these loans.

7

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

SBA — Loans in this segment include commercial loans underwritten using SBA guidelines for the SBA’s 7(a) program and include both guaranteed and unguaranteed portions of the same loans.  Currently, under the SBA 7(a) program, loans may qualify for guarantees up to 85% of principal and accrued interest up to a maximum SBA guarantee of $3.75 million per borrower and related entities.  The Bank does not treat the SBA guarantee as a substitute for a borrower meeting reasonable credit standards.  SBA guarantees are generally sought on loans to borrowers that exhibit minimum capital levels, a short time in business, lower collateral coverage or maximum loan terms beyond the Bank’s normal underwriting criteria.  For a number of SBA loans, the Bank has sold portions of certain loans and retains the unguaranteed portion while continuing to service the entire loan.  The guaranteed portion of SBA loans in the Bank’s portfolio is not allocated a general reserve because the Bank has not experienced losses on such loans and management expects the guarantees will be effective, if necessary.  Guaranteed portions of SBA loans totaled $25.4 million and $25.9 million at June 30, 2017 and December 31, 2016, respectively.

Consumer — This segment includes unsecured and vehicle loans and repayment is dependent on the credit quality of the individual borrower.  Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans.

Allowance for Loan Losses

Allowance for Loan Loss Methodology

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 uncollectibility of a loan balance is confirmed.  For impaired loans that are deemed collateral dependent, the recorded balance of the loan is reduced by a charge-off to fair value of the collateral net of estimated selling costs.

The allowance for loan losses is evaluated on a regular basis by management.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.  The allowance consists of general and specific components as described below.

The general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by loan segments.  Management uses a ten year historical loss period to capture relevant loss data for each loan segment.  This historical loss factor is adjusted for the following qualitative factors: levels/trends in delinquencies; charge-off trends over the past three and five year periods; weighted average risk ratings; loan concentrations; management’s assessment of internal factors; and management’s assessment of external factors such as interest rates, real estate markets and local and national economic factors.  There were no changes in the Bank’s policies or methodology pertaining to the general component of the allowance for loan losses during the three and six months ended June 30, 2017 and the year ended December 31, 2016.

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

Credit Quality Indicators

Commercial and SBA loans are risk rated based on key factors such as management ability, financial condition, debt repayment ability, collateral, industry conditions and loan structure.

Risk Rating 6 — Special Mention:  these loans have potential weaknesses and require management’s close attention.  If these weaknesses are not addressed, they may weaken the prospects for repayment at a future date.  Special mention assets do not expose the institution to sufficient risk to warrant a classified rating.

Risk Rating 7 — Substandard:  loans in this category are inadequately protected by the current financial condition and repayment ability of the borrower or pledged collateral, if any.  These assets have a well-defined weakness(es) that jeopardizes the repayment of the debt in full, and are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

8

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

Risk Rating 8 — Doubtful:  loans have all the weaknesses of those classified substandard.  In addition, it is highly unlikely that a doubtful asset can be collected or liquidated in full.  The possibility of loss is extremely high.  However, because of certain important and reasonably specific pending factors, which may work to strengthen the asset, its classification as a loss is deferred until the asset’s status can be better determined.

Risk Rating 9 — Loss:  loans classified as loss are considered uncollectible and of such little value that they are no longer considered bankable.  This classification does not mean that the asset has no recovery or salvage value.  However, it is not practical or desirable to defer writing off the asset even though partial recovery may occur in the future.

Loans not meeting the criteria above that are analyzed individually as part of the above process are considered to be pass-rated loans.

On an annual basis, or more often if needed, the Bank formally reviews the ratings on commercial and SBA loans over $250,000.  On an annual basis, the Bank engages an independent third-party to review a significant portion of loans within these segments.  Management uses the results of these reviews as part of its annual review of its control process related to loan ratings.  Credit quality for residential real estate mortgage and consumer loans is determined by monitoring loan payment history and on-going communications with borrowers, and are not risk graded.  Non-performing homogenous loans are individually evaluated for impairment.

The following table presents the credit risk profile by internally assigned risk rating category at the dates indicated:

	June 30, 2017
	Commercial		Commercial		Commercial
(Dollars in thousands)	Real Estate		Business		Construction		SBA		Total
Pass	137,853		14,511		$	13,441	$	37,360	$	203,165
Loans rated 6	—		—		—		796		796
Loans rated 7	8,399		—		—		1,346		9,745
Loans rated 8	—		—		—		—		—
	$	146,252	$	14,511	$	13,441	$	39,502	$	213,706

	December 31, 2016
	Commercial		Commercial		Commercial
(Dollars in thousands)	Real Estate		Business		Construction		SBA		Total
Pass	$	133,660	$	13,308	$	10,946	$	37,430	$	195,344
Loans rated 6	667		—		—		1,337		2,004
Loans rated 7	4,619		—		—		1,181		5,800
Loans rated 8	—		—		—		—		—
	$	138,946	$	13,308	$	10,946	$	39,948	$	203,148

9

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

Past Due and Non-Accrual Loans

The accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the loan is both well secured and in the process of collection.  Past due status is based on the contractual terms of the loan.  In all cases, loans are placed on non-accrual at an earlier date if collection of principal or interest is considered doubtful.  All interest accrued, but not collected for loans that are placed on non-accrual, is reversed against interest income.  The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, the loan has performed in accordance with the contractual terms for a reasonable period of time, typically a minimum of six months and future payments are reasonably assured.

The following table presents past due loans as of the dates indicated.

	June 30, 2017
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Past Due > 90 Days and Still Accruing		Loans on Non-accrual
Residential real estate:
1-4 family	$	—	$	948	$	—	$	948	$	—	$	2,270
Home equity loans and lines of credit	484		132		151		767		—		719
Commercial real estate	3,999		—		108		4,107		—		108
Commercial business	—		—		—		—		—		—
Commercial construction	—		—		—		—		—		—
SBA	—		300		—		300		—		389
Consumer	—		—		—		—		—		—
Total gross loans	$	4,483	$	1,380	$	259	$	6,122	$	—	$	3,486

	December 31, 2016
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Past Due > 90 Days and Still Accruing		Loans on Non-accrual
Residential real estate:
1-4 family	$	625	$	587	$	738	$	1,950	$	—	$	3,662
Home equity loans and lines of credit	109		547		491		1,147		—		735
Commercial real estate	—		—		130		130		—		238
Commercial business	—		—		—		—		—		—
Commercial construction	—		—		—		—		—		—
SBA	—		148		18		166		—		18
Consumer	2		—		—		2		—		—
Total gross loans	$	736	$	1,282	$	1,377	$	3,395	$	—	$	4,653

The balance of loans on non-accrual at June 30, 2017 and December 31, 2016 exceeds loans past due, due to a combination of loans that are current, but that have been modified in a troubled debt restructuring and/or loans for which future payments are not reasonably assured.

10

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

Impaired Loans

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

The Bank periodically may agree to modify the contractual terms of loans, such as a reduction in interest rate of the loan for some period of time, an extension of the maturity date or an extension of time to make payments with the delinquent payments added to the end of the loan term.  When a loan is modified and a concession is made to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring (“TDR”).  All TDRs are classified as impaired.  Loans on non-accrual status at the date of modification are initially classified as non-accruing troubled debt restructurings.  TDRs may be returned to accrual status after a period of satisfactory payment performance according to the terms of the restructuring, generally six months of current payments.

The following tables set forth the recorded investment in impaired loans and the related specific allowance allocated as of the dates indicated.

	June 30, 2017
(Dollars in thousands)	Unpaid contractual principal balance		Total recorded investment in impaired loans		Recorded investment with no allowance		Recorded investment with allowance		Related allowance
Residential real estate:
1-4 family	$	4,710	$	4,421	$	4,421	$	—	$	—
Home equity loans & lines of credit	1,980		1,960		1,743		217		30
Commercial real estate	4,601		4,601		4,601		—		—
SBA	1,817		1,815		1,815		—		—
Consumer	56		56		43		13		3
Total	$	13,164	$	12,853	$	12,623	$	230	$	33

	December 31, 2016
(Dollars in thousands)	Unpaid contractual principal balance		Total recorded investment in impaired loans		Recorded investment with no allowance		Recorded investment with allowance		Related allowance
Residential real estate:
1-4 family	$	5,978	$	5,628	$	5,493	$	135	$	19
Home equity loans & lines of credit	1,369		1,349		1,131		218		31
Commercial real estate	4,487		4,487		4,487		—		—
SBA	1,511		1,493		1,493		—		—
Consumer	13		13		—		13		3
Total	$	13,358	$	12,970	$	12,604	$	366	$	53

Of the $1.8 million and $1.5 million of impaired SBA loans at June 30, 2017 and at December 31, 2016, respectively, guaranteed portions of such loans amounted to $1.3 million and $1.2 million at  June 30, 2017 and December 31, 2016, respectively.

11

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

The following table presents the average recorded investment in impaired loans and the related interest recognized during the periods indicated.

	Three Months Ended June 30, 2017				Three Months Ended June 30, 2016
(Dollars in thousands)	Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
Residential 1-4 family	$	4,742	$	69	$	5,112	$	55
Home equity loans & lines of credit	1,854		25		1,381		17
Commercial real estate	4,411		52		392		4
SBA	1,606		22		2,168		41
Consumer	24		—		14		—
Total	$	12,637	$	168	$	9,067	$	117

	Six Months Ended June 30, 2017				Six Months Ended June 30, 2016
(Dollars in thousands)	Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
Residential 1-4 family	$	5,115	$	122	$	4,722	$	90
Home equity loans & lines of credit	1,759		50		1,299		31
Commercial real estate	4,405		100		394		6
SBA	1,550		46		2,099		81
Consumer	19		—		14		—
Total	$	12,848	$	318	$	8,528	$	208

Troubled Debt Restructurings

Loans are designated as a TDR when, as part of an agreement to modify the original contractual terms of the loan, the Bank grants a concession on the terms, that would not otherwise be considered, as a result of financial difficulties of the borrower.  Typically, such concessions may consist of a reduction in interest rate to a below market rate, taking into account the credit quality of the note, or a deferment or reduction of payments, principal or interest, which materially alters the Bank’s position or significantly extends the note’s maturity date, such that the present value of cash flows to be received is materially less than those contractually established at the loan’s origination.  All loans that are modified are reviewed by the Bank to identify if a TDR has occurred.  TDRs are included in the impaired loan category and as such, these loans are individually evaluated for impairment and a specific reserve is assigned for the amount of the estimated credit loss. Total TDR loans, included in impaired loans as of June 30, 2017 and December 31, 2016 were $11.1 million and $10.9 million, respectively.  No additional funds are committed to be advanced in connection with TDR loans.  TDR loans on accrual status amounted to $9.4 million and $8.3 million at June 30, 2017 and December 31, 2016, respectively.

Troubled debt restructuring agreements entered into during the period indicated are as follows:

	Three Months Ended June 30, 2017					Six Months Ended June 30, 2017
(Dollars in thousands)	Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Residential 1-4 family	—	$	—	$	—	—	$	—	$	—
Home equity	2	255		255		6	654		654
Commercial real estate	1	259		259		1	259		259
SBA	1	250		250		1	250		250
Consumer	1	44		44		1	44		44
Total	5	$	808	$	808	9	$	1,207	$	1,207

The troubled debt restructurings described above had no impact to the allowance for loan losses and resulted in no charge-offs during the three and six months ended June 30, 2017.

12

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

Troubled debt restructurings that subsequently defaulted within 12 months of restructuring are as follows during the period indicated:

	Three Months Ended June 30, 2017			Six Months Ended June 30, 2017
(Dollars in thousands)	Number of TDRs that defaulted	Post-modification outstanding recorded investment		Number of TDRs that defaulted	Post-modification outstanding recorded investment
Residential 1-4 family	1	$	71	1	$	71
Home equity	—	—		1	74
Commercial real estate	—	—		2	4,108
SBA	—	—		—	—
Total	1	$	71	4	$	4,253

The troubled debt restructurings described above resulted in no charge-offs and no specific reserves for the three and six months ended June 30, 2017.

Troubled debt restructuring agreements entered into during the periods indicated are as follows:

	Three Months Ended June 30, 2016					Six Months Ended June 30, 2016
(Dollars in thousands)	Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Residential 1-4 family	1	$	175	$	175	1	$	175	$	175
Home equity	2	286		286		3	296		296
Commercial real estate	—	—		—		—	—		—
SBA	1	50		50		1	50		50
Total	4	$	511	$	511	5	$	521	$	521

The troubled debt restructurings described above had no impact to the allowance for loan losses and resulted in no charge-offs during the three and six months ended June 30, 2016, respectively.

Troubled debt restructurings that subsequently defaulted within 12 months of restructuring are as follows during the periods indicated:

	Three Months Ended June 30, 2016			Six Months Ended June 30, 2016
(Dollars in thousands)	Number of TDRs that defaulted	Post-modification outstanding recorded investment		Number of TDRs that defaulted	Post-modification outstanding recorded investment
Residential 1-4 family	—	$	—	3	$	647
Total	—	$	—	3	$	647

The troubled debt restructurings described above resulted in no charge-offs and no specific reserves for the three months ended June 30, 2016 and resulted in a $20,000 charge-off and a $12,000 specific reserve during the six months ended June 30, 2016.

13

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

Allowance for loan loss activity

Changes in the allowance for loan losses by segment are presented below:

Three Months Ended June 30, 2017

(Dollars in thousands)	Residential 1-4 family			Home Equity			Commercial Real Estate		Commercial Business		Commercial Construction		SBA		Consumer			Total
Allowance at March 31, 2017	$	1,033		$	533		$	629	$	64	$	61	$	231	$	8		$	2,559
Provision (credit)	54			(11		)	63		5		8		42		(8		)	153
Loans charged-off	(6		)	—			—		—		—		—		—			(6		)
Recoveries	6			1			—		—		—		—		7			14
Allowance at June 30, 2017	$	1,087		$	523		$	692	$	69	$	69	$	273	$	7		$	2,720

Three Months Ended June 30, 2016

(Dollars in thousands)	Residential 1-4 family		Home Equity			Commercial Real Estate		Commercial Business		Commercial Construction		SBA			Consumer			Total
Allowance at March 31, 2016	$	906	$	522		$	527	$	51	$	31	$	238		$	8		$	2,283
Provision (credit)	40		62			14		14		6		15			(6		)	145
Loans charged-off	—		(62		)	—		—		—		(12		)	—			(74		)
Recoveries	—		7			—		—		—		7			6			20
Allowance at June 30, 2016	$	946	$	529		$	541	$	65	$	37	$	248		$	8		$	2,374

Six Months Ended June 30, 2017

(Dollars in thousands)	Residential 1-4 family			Home Equity			Commercial Real Estate		Commercial Business		Commercial Construction		SBA		Consumer			Total
Allowance at December 31, 2016	$	1,009		$	541		$	596	$	60	$	51	$	228	$	8		$	2,493
Provision (credit)	78			(20		)	96		9		18		42		(10		)	213
Loans charged-off	(6		)	—			—		—		—		—		—			(6		)
Recoveries	6			2			—		—		—		3		9			20
Allowance at June 30, 2017	$	1,087		$	523		$	692	$	69	$	69	$	273	$	7		$	2,720

Six Months Ended June 30, 2016

(Dollars in thousands)	Residential 1-4 family			Home Equity			Commercial Real Estate		Commercial Business		Commercial Construction		SBA			Consumer			Total
Allowance at December 31, 2015	$	863		$	525		$	503	$	39	$	21	$	234		$	9		$	2,194
Provision (credit)	103			63			38		26		16		18			(10		)	254
Loans charged-off	(20		)	(67		)	—		—		—		(12		)	—			(99		)
Recoveries	—			8			—		—		—		8			9			25
Allowance at June 30, 2016	$	946		$	529		$	541	$	65	$	37	$	248		$	8		$	2,374

14

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

The allowance for loan losses and loan balances by impaired and non-impaired components are as follows at the dates indicated:

June 30, 2017

(Dollars in thousands)	Residential 1-4 family		Home Equity		Commercial Real Estate		Commercial Business		Commercial Construction		SBA		Consumer		Total
Allowance for impaired loans	$	—	$	30	$	—	$	—	$	—	$	—	$	3	$	33
Allowance for non-impaired loans	1,087		493		692		69		69		273		4		2,687
Total	$	1,087	$	523	$	692	$	69	$	69	$	273	$	7	$	2,720
Impaired loans	$	4,421	$	1,960	$	4,601	$	—	$	—	$	1,815	$	56	$	12,853
Non-impaired loans	268,551		71,593		141,651		14,511		13,441		37,687		1,190		548,624
Total loans	$	272,972	$	73,553	$	146,252	$	14,511	$	13,441	$	39,502	$	1,246	$	561,477

December 31, 2016

(Dollars in thousands)	Residential 1-4 family		Home Equity		Commercial Real Estate		Commercial Business		Commercial Construction		SBA		Consumer		Total
Allowance for impaired loans	$	19	$	31	$	—	$	—	$	—	$	—	$	3	$	53
Allowance for non-impaired loans	990		510		596		60		51		228		5		2,440
Total	$	1,009	$	541	$	596	$	60	$	51	$	228	$	8	$	2,493
Impaired loans	$	5,628	$	1,349	$	4,487	$	—	$	—	$	1,493	$	13	$	12,970
Non-impaired loans	237,757		74,826		134,459		13,308		10,946		38,455		1,152		510,903
Total loans	$	243,385	$	76,175	$	138,946	$	13,308	$	10,946	$	39,948	$	1,165	$	523,873

(3)Employee Benefits

Deferred Compensation Supplemental Executive Plan

The Bank maintains a non-qualified deferred compensation supplemental executive retirement plan (“DCSERP”) with a senior executive.  The DCSERP allows the executive to invest all or a portion of the deferred compensation in Corporation Stock, provided that such stock will only be settled in Corporation Stock.  The assets invested in bonds, which are held in a Rabbi Trust, related to this Plan totaled $1.3 million at June 30, 2017 and $1.1 million at December 31, 2016, and are included in other assets at fair value in the consolidated balance sheet.  The liability for the benefit obligation reported in accrued expenses and other liabilities totaled $1.3 million at June 30, 2017 and $1.1 million at December 31, 2016. Additionally, the Rabbi Trust holds 8,900 shares of Corporation stock at June 30, 2017 and December 31, 2016 which is accounted for at its cost basis of $100,000, which is offset in stockholders’ equity by the benefit obligation of $100,000.  Rabbi trust shares are considered outstanding shares for both basic and diluted EPS.

Supplemental Retirement Agreements

The Bank has entered into supplemental retirement agreements (“SERP”) with seven executive officers, which provide for payments upon attaining the retirement age specified in the agreements, generally ages 65-67.  The present value of these future payments is accrued over the remaining service or vesting term.  Supplemental retirement benefits generally accrue as they are vested; however a termination of employment subsequent to a change in control will result in the vesting of all benefits that would have accrued to the officer’s normal retirement date.  During the three months ended June 30, 2017 and 2016, SERP expense totaled $241,000 and $192,000, respectively, and for the six months ended June 30, 2017 and 2016, SERP expense totaled $482,000 and $384,000, respectively.

Defined Benefit Pension Plan

Pension expense totaled $8,000 and $5,000 for the three months ended June 30, 2017 and 2016, respectively, and $16,000 and $11,000 for the six months ended June 30, 2017 and 2016, respectively. The Bank expects to contribute $8,000 during the plan year ending December 31, 2017.

15

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

Employee Benefits (continued)

Employee Stock Ownership Plan

The Corporation maintains an Employee Stock Ownership Plan (“ESOP”) to provide eligible employees the opportunity to own Corporation stock.  This plan is a tax-qualified retirement plan for the benefit of all Corporation employees.  Contributions are allocated to eligible participants on the basis of compensation, subject to federal tax limits.

The Corporation granted a loan to the ESOP for the purchase of shares of the Corporation’s common stock at the Conversion date.  As of June 30, 2017, the ESOP holds 395,219 shares, or 9% of the common stock outstanding on that date.  The loan obtained by the ESOP from the Corporation to purchase common stock is payable annually over 25 years at the prime rate, as published in The Wall Street Journal at the beginning of its calendar year, which was 3.50% at January 1, 2017.  The loan is secured by the shares purchased, which are held in a suspense account for allocation among participants as the loan is repaid.  Any cash dividends paid on allocated shares will, at the direction of the Corporation, be credited to the participant accounts and invested in the Investment Fund; be distributed to the participants in proportion with the participants’ stock fund account balance; be distributed to the participants within 90 days of the calendar year in which paid in proportion with the participants’ stock fund account balance; or be used to make payments on the outstanding debt of the ESOP.  Cash dividends paid on unallocated shares will be used to repay the outstanding debt of the ESOP then due.  If the amount of dividends exceeds the outstanding debt of the ESOP, then, in the sole discretion of the Corporation, cash dividends may be allocated to active participants on a non-discriminatory basis, or be deemed to be general earnings of the ESOP.  Shares used as collateral to secure the loan are released and available for allocation to eligible employees as the principal and interest on the loan is paid.

Shares held by the ESOP include the following:

	June 30, 2017
Allocated	47,512
Distributions	(715	)
Committed to be allocated	7,919
Unallocated	340,503
	395,219

The fair value of unallocated shares was approximately $7.0 million at June 30, 2017.

Total expense recognized in connection with the ESOP for the three month period ended June 30, 2017 and 2016 was $78,000 and $49,000, respectively, and total expense for the six month period ended June 30, 2017 and 2016 was $145,000 and $99,000, respectively.

(4)Other Stock-Based Compensation

On May 21, 2015, the Coastway Bancorp, Inc. stockholders approved the 2015 Equity Incentive Plan (“EIP”).  Types of awards permitted by the EIP include stock options, restricted stock awards, restricted stock units, and performance awards.  The number of shares available for issuance under the EIP was 692,885 at December 31, 2015.  Stock options under the EIP will generally expire ten years after the date of grant.  Unless otherwise determined by the Compensation Committee, awards under the EIP (other than Performance Awards) shall be granted with a vesting rate not exceeding twenty percent per year, with the first installment vesting no earlier than one year after the date of grant.  Upon an involuntary termination following a change in control, all stock options, restricted stock awards and units will become fully vested and performance awards will be deemed earned.

In February 2016, the Compensation Committee of the Board of Directors authorized the grant of 91,225 options at a strike price of $12.41 and 39,045 shares of restricted stock to directors and certain key senior executives.  The options and the restricted stock both vest over a five year period.  The $12.41 fair value of the restricted stock is based on the closing price of the Company’s common stock on the date of the grant.  The holders of restricted stock participate fully in rewards of stock ownership of the Company, including voting, and dividend rights when vested.  The grant-date fair value of stock options of $2.59 was estimated using the Black-Scholes Option-Pricing Model.

In February 2017, the Compensation Committee of the Board of Directors authorized the grant of 26,155 options at a strike price of $16.40 and 11,228 shares of restricted stock to directors and certain key senior executives.  The options and the restricted stock both vest over a five year period.  The $16.40 fair value of the restricted stock is based on the closing price of the Company’s common stock on the date of the grant.  The holders of restricted stock participate fully in rewards of stock

16

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

Other Stock-Based Compensation (continued)

ownership of the Company, including voting, and dividend rights when vested.  The grant-date fair value of stock options of $4.11 was estimated using the Black-Scholes Option-Pricing Model.

Restricted stock expense for the three month period ended June 30, 2017 and 2016 was $33,000 and $24,000, respectively and restricted stock expense for the six month period ended June 30, 2017 and 2016 was $62,000 and $36,000, respectively.  At June 30, 2017 and 2016, there was $522,000 and $448,000, respectively, of unrecognized salary and employee benefits cost related to restricted stock.  Executive officers forfeited 2,683 shares of restricted stock in February 2017 for tax withholding purposes with a fair value of $44,000.

Stock option expense for the three months ended June 30, 2017 and 2016 was $17,000 and $12,000, respectively, and stock option expense for the six month period ended June 30, 2017 and 2016 was $31,000 and $18,000, respectively.  At June 30, 2017 and 2016, there was $271,000 and $219,000, respectively, of unrecognized salary and employee benefits cost related to stock options.

The following presents the assumptions that were used in determining the grant-date fair value of stock options:

	2017 Grant		2016 Grant
Volatility	15.04	%	13.52	%
Forfeiture rate	00.00		00.00
Dividend yield	00.00		00.00
Expected term	8 years		8 years
Risk free interest rate	2.25	%	1.56	%

(5)Earnings per Common Share

Basic earnings per share represents income available to common stockholders divided by the weighted average number of common shares outstanding during the period.  Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance.  Unallocated ESOP shares are not deemed outstanding for earnings per share calculations.

Earnings per common share have been computed as follows for the three months ended June 30, 2017 and 2016 and the six months ended June 30, 2017 and 2016:

	Three months ended						Six months ended
	June 30,						June 30,
(Dollars in thousands)	2017			2016			2017			2016
Net income applicable to common stock	$	817		$	946		$	1,379		$	1,585
Weighted average common shares outstanding	4,345,146			4,680,322			4,352,733			4,741,221
Less: Average unallocated ESOP shares	(342,489		)	(358,326		)	(344,452		)	(360,289		)
Weighted average number of common shares outstanding — basic	4,002,657			4,321,996			4,008,281			4,380,932
Dilutive impact of stock options	15,993			—			12,680			—
Dilutive impact of restricted stock	9,710			2,065			9,180			1,246
Weighted average number of common shares outstanding — diluted	4,028,360			4,324,061			4,030,141			4,382,178
Earnings per share — basic	$	0.20		$	0.22		$	0.34		$	0.36
Earnings per share — diluted	$	0.20		$	0.22		$	0.34		$	0.36

Stock options to purchase 26,155 shares at $16.40 per share for the three months ended June 30, 2017 and 91,225 shares of common stock at $12.41 per share for the three months ended June 30, 2016 were not considered in computing diluted earnings per share for the three months ended June 30, 2017 and 2016, respectively, because the option exercise price was greater than the average market price of the common stock.  Stock options to purchase 26,155 shares at $16.40 per share for the six months

17

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

Earnings per Common Share (continued)

ended June 30, 2017 and 91,225 shares of common stock at $12.41 per share for the six months ended June 30, 2016, respectively, were not considered in computing diluted earnings per share for the six months ended June 30, 2017 and 2016, respectively because the option exercise price was greater than the average market price of the common stock.

In November 2016, the Corporation authorized a program to repurchase, from time to time and as business conditions warrant, up to 223,331 shares of the Corporation’s common stock.  During the three months and six months ended June 30, 2017, the Corporation repurchased 4,500 and 19,200 shares under this third stock repurchase program, with 101,548 shares remaining to be repurchased under this program at June 30, 2017.

(6)Off-Balance Sheet Activities and Mortgage Banking

In the normal course of business, there are outstanding commitments and contingencies which are not reflected in the accompanying consolidated financial statements.

Loan Commitments

The Bank is a party to conditional commitments to lend funds in the normal course of business to meet the financing needs of its customers.  These financial instruments include commitments to extend credit which include commercial lines of credit and home equity lines that involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet.  The Bank’s exposure to credit loss is represented by the contractual amount of those instruments.  The Bank uses the same credit policies in making commitments as it does for on-balance-sheet instruments.

The following financial instruments were outstanding whose contract amounts represent credit risk:

	June 30,		December 31,
	2017		2016
	(In thousands)
Commitments to originate loans for portfolio	$	20,849	$	18,461
Commitments to originate loans to be sold	32,411		24,307
Commitments to purchase loans from third parties	4,817		4,236
Unfunded commitments under home equity lines of credit	57,494		53,342
Unfunded commitments under commercial lines of credit	17,819		14,730
Unfunded commitments under SBA lines of credit	5,162		4,106
Unfunded commitments under overdraft lines of credit	176		180
Unadvanced funds on construction loans	7,746		5,735

The commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  The commitments for lines-of-credit may expire without being drawn upon.  Therefore, the total commitment amounts do not necessarily represent future cash requirements.  The Bank evaluates each customer’s creditworthiness on a case-by-case basis.  The amount of collateral obtained if deemed necessary by the Bank upon extension of credit is based upon management’s credit evaluation of the counterparty.  Collateral held generally consists of real estate.

18

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

Off-Balance Sheet Activities and Mortgage Banking (continued)

Mortgage Banking

At June 30, 2017, the Bank had $32.4 million of interest rate lock commitments to borrowers and loans held for sale of $13.2 million with $40.5 million of forward commitments for the future delivery of residential mortgage loans.  Included in the forward commitments total are open To Be Announced securities (“TBAs”) with a notional amount of $20.0 million, mandatory delivery contracts with a notional amount of $4.7 million, and best efforts contracts with a notional amount of $15.8 million.  The Bank has $4.0 million of closed hedge instruments that are not settled at June 30, 2017.

At December 31, 2016, the Bank had $24.3 million of interest rate lock commitments to borrowers and loans held for sale of $23.2 million with $41.9 million of forward commitments for the future delivery of residential mortgage loans.  Included in the forward commitments total are open TBAs with a notional amount of $15.2 million, mandatory delivery contracts with a notional amount of $7.4 million, and best efforts contracts with a notional amount of $19.3 million.  The Bank had $8.5 million of closed hedge instruments that are not settled at December 31, 2016.

Leases

In May 2017, the Bank entered into two agreements to lease out 8,650 square feet of the corporate headquarters for 63 months, with two additional renewal options of two years each.  The schedule of minimum rental payments to be received under such leases as of December 31 are as follows (in thousands):

2017	$	—
2018	182
2019	182
2020	182
2021	182
Thereafter	197
	$	925

19

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

Off-Balance Sheet Activities and Derivatives (continued)

The following table presents the fair values of derivative instruments and forward loan sale commitments in the consolidated balance sheets:

	Assets			Liabilities
	Balance			Balance
	Sheet	Fair		Sheet	Fair
	Location	Value		Location	Value
	(In thousands)
June 30, 2017
Derivative loan commitments
Commitments hedged with best efforts	Other assets	$	164	N/A	$	—
Commitments hedged with TBA	Other assets	311		N/A	—
Total derivative commitments		475		N/A	—
Forward loan sale commitments
Best efforts contracts hedging:
Commitments	Other assets	12		N/A	—
Loans held for sale	Other assets	3		N/A	—
Total best efforts contracts		15			—
Mandatory delivery contracts	Other assets	12		N/A	—
TBA securities	Other assets	22		N/A	—
Total forward loans sale commitments		49			—
Total derivative loan and forward loan sale commitments		$	524		$	—
December 31, 2016
Derivative loan commitments:
Commitments hedged with best efforts	Other assets	$	255	N/A	$	—
Commitments hedged with TBA	Other assets	311		N/A	—
Total derivative commitments		566		N/A	—
Forward loan sale commitments
Best efforts contracts hedging:
Commitments	N/A	—		Other liabilities	125
Loans held for sale	Other assets	77		N/A	—
Total best efforts contracts		77			125
Mandatory delivery contracts	N/A	—		Other liabilities	37
TBA securities	N/A	—		Other liabilities	57
Total forward loan sale commitments		77			219
Total derivative loan and forward loan sale commitments		$	643		$	219

20

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

Off-Balance Sheet Activities and Derivatives (continued)

The following table presents information pertaining to the gains and losses on Bank’s derivative loan commitments not designated as hedging instruments and forward loan sale commitments:

			Three Months Ended June 30,						Six Months Ended June 30,
	Location of Gain/(Loss)		2017			2016			2017			2016
		(In thousands)							(In thousands)
Derivative loan commitments	Net gain on sales of loans and other mortgage banking income		$	(133	)	$	235		$	(91	)	$	785
Best efforts contracts	Net gain on sales of loans and other mortgage banking income		(12		)	(141		)	63			(379		)
Mandatory delivery contracts	Net gain on sales of loans and other mortgage banking income		12			(8		)	49			(16		)
TBA securities	Net gain on sales of loans and other mortgage banking income		143			(160		)	79			(221		)
			$	10		$	(74	)	$	100		$	169

(7)Fair Value Measurements

The Bank uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.  The fair value of an asset or liability is the price which a seller would receive in an orderly transaction between market participants (an exit price).  Assets and liabilities are placed in a fair value hierarchy based on fair value measurements using three levels of inputs: (Level 1) quoted market prices in active markets for identical assets or liabilities; (Level 2) significant other observable inputs, including quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs such as interest rates and yield curves, volatilities, prepayment speeds, credit risks and default rates which provide a reasonable basis for fair value determination or inputs derived principally from observed market data; (Level 3) significant unobservable inputs for situations in which there is little, if any, market activity for the asset or liability.  Unobservable inputs must reflect reasonable assumptions that market participants would use in pricing the asset or liability, which are developed on the basis of the best information available under the circumstances.

The Bank has elected the fair value option pursuant to Accounting Standards Codification (“ASC”) 825, “Financial Instruments” for certain closed mortgage loans intended for sale.  ASC 825 allows for the irrevocable option to elect fair value accounting for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis that may otherwise not be required to be measured at fair value under other accounting standards.  The Bank elected the fair value option for certain residential real estate mortgage loans held for sale pursuant to forward sale commitments in order to better match changes in fair values for the loans with changes in the fair value of the forward loan sale contracts used to economically hedge them.  The aggregate fair value of loans held for sale, the contractual balance of loans held for sale and the gain on loans held for sale totaled $13.2 million, $12.8 million and $404,000 at June 30, 2017.  The aggregate fair value of loans held for sale, the contractual balance of loans held for sale and the gain on loans held for sale totaled $23.2 million, $22.7 million and $443,000 at December 31, 2016.  The change in fair value of loans held for sale reported as a component of net gains on sale of loans and other mortgage banking income was $240,000 and $561,000 for the three months ended June 30, 2017 and 2016, respectively, and $65,000 and $ 404,000 for the six months ended June 30, 2017 and 2016, respectively.

21

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

Fair Value Measurements (continued)

The following tables summarize significant assets and liabilities carried at fair value and placement in the fair value hierarchy at the dates specified:

	June 30, 2017
(Dollars in thousands)	(Level 1)		(Level 2)		(Level 3)
Assets measured on a recurring basis:
Loans held for sale	$	—	$	13,228	$	—
Derivative loan commitments hedged with best efforts	—		—		164
Derivative loan commitments hedged with TBAs	—		—		311
Forward loan sale commitments:
Best efforts contracts hedging loans held for sale	—		—		3
Best efforts contracts hedging loan commitments	—		—		12
Mandatory delivery contracts	—		12		—
TBA securities	—		22		—

	December 31, 2016
(Dollars in thousands)	(Level 1)		(Level 2)		(Level 3)
Assets measured on a recurring basis:
Loans held for sale	$	—	$	23,157	$	—
Derivative loan commitments hedged with best efforts	—		—		255
Derivative loan commitments hedged with TBAs	—		—		311
Best efforts contracts hedging loans held for sale	—		—		77
Liabilities measured on a recurring basis:
Forward loan sale commitments:
Best efforts contracts — hedging commitments	—		—		125
TBA securities	—		57		—
Mandatory delivery contracts	—		37		—
Assets measured on a non-recurring basis:
Impaired loans (collateral dependent)	—		—		558
Foreclosed real estate	—		—		422

The Bank did not have cause to transfer any assets between the fair value measurement levels during the three and six months ended June 30, 2017 or the year ended December 31, 2016.

Impaired loan balances in the table above represent those collateral dependent impaired  loans where management has estimated the credit loss by comparing the loan’s carrying value against the expected realizable fair value of the collateral (appraised value or internal analysis less estimated cost to sell, adjusted as necessary for changes in relevant valuation factors subsequent to the measurement date).  Certain inputs used in these assessments, and possible subsequent adjustments, are not always observable, and therefore, collateral dependent impaired loans are categorized as Level 3 within the fair value hierarchy.  A specific allowance or partial charge-off is recorded to the collateral dependent impaired loan for the amount of management’s estimated credit loss.  There were no impaired loans recorded at fair value at June 30, 2017.  There were no losses related to collateral dependent impaired loans at fair value during the three and six months ended June 30, 2017.  The provision to the allowance for loan losses related to collateral dependent impaired loans recorded at fair value for the three and six months ended June 30, 2016 was $22,000 and $23,000, respectively.  The carrying value of impaired loans recorded at fair value was $558,000 net of no charge-offs and $23,000 in specific reserves at December 31, 2016.

22

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

Fair Value Measurements (continued)

Real estate acquired by the Bank through foreclosure proceedings or the acceptance of a deed in lieu of foreclosure is classified as foreclosed real estate.  When property is acquired, it is generally recorded at the estimated fair value of the property acquired, less estimated costs to sell.  The estimated fair value is based on market appraisals and the Bank’s internal analysis.  Certain inputs used in appraisals or the Bank’s internal analysis, are not always observable, and therefore, foreclosed real estate may be categorized as Level 3 within the fair value hierarchy.   There was no foreclosed real estate carried at fair value at June 30, 2017.  There were no losses on foreclosed real estate held at period end for the three and six months ended June 30, 2017 and 2016.

Derivatives fair value methodology

Fair value changes in mortgage banking derivatives (interest rate lock commitments and commitments to sell fixed-rate residential mortgages) subsequent to inception are estimated using anticipated market prices based on pricing indications provided from syndicate banks and consideration of pull-through and fallout rates.  The fair value of the mortgage banking derivatives are considered to be Level 3 assets.

The table below presents for the three and six months ended June 30, 2017 and 2016, the change in Level 3 assets and liabilities that are measured on a recurring basis:

	Derivative Loan Commitments and Forward Loan Sale Commitments
	Three months ended June 30,
(Dollars in thousands)	2017			2016
Balance at beginning of period	$	635		$	354
Gains on new commitments during the period	501			466
Gain (losses) arising during the period	(17		)	(18		)
Reclassifications of realized gains (losses) on settled commitments	(629		)	(354		)
Balance at end of period	$	490		$	448

	Derivative Loan Commitments and Forward Loan Sale Commitments
	Six months ended June 30,
(Dollars in thousands)	2017			2016
Balance at beginning of period	$	518		$	42
Gains on new commitments during the period	490			841
Gain (losses) arising during the period	(12		)	(18		)
Reclassifications of realized gains (losses) on settled commitments	(506		)	(417		)
Balance at end of period	$	490		$	448

23

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

Fair Value Measurements (continued)

The following tables present additional quantitative information about assets and liabilities measured at fair value on a recurring and non-recurring basis for which the Bank utilized Level 3 inputs (significant unobservable inputs for situations in which there is little, if any, market activity for the asset or liability) to determine fair value:

June 30, 2017

(Dollars in thousands)	Fair Value		Valuation Technique	Unobservable Input	Unobservable Input Value or Range
Assets measured on a recurring basis:
Derivative loan commitments	$	475	Investor pricing	Pull-through rate	75.0% – 100%
Best efforts contracts — hedging loans held for sale	3		Investor pricing	Pull-through rate	82.5% – 100%
Best efforts contracts — hedging commitments:	12		Investor pricing	Pull-through rate	82.5% – 100%

December 31, 2016

(Dollars in thousands)	Fair Value		Valuation Technique	Unobservable Input	Unobservable Input Value or Range
Assets measured on a recurring basis:
Derivative commitments	$	566	Investor pricing	Pull-through rate	75.1% – 100%
Best efforts contracts — hedging loans held for sale	77		Investor pricing	Pull-through rate	82.5% – 100%
Liabilities measured on a recurring basis:
Forward loan sale commitments:	125		Investor pricing	Pull-through rate	82.5% – 100%
Best efforts contracts — hedging commitments
Assets measured on a non-recurring basis:
Impaired loans (collateral dependent)	558		Discounted appraisals	Collateral discounts	5 – 30	%
Foreclosed real estate	422		Discounted appraisals	Collateral discounts	5 – 30	%

Estimated Fair Values of Assets and Liabilities

In addition to disclosures regarding the measurement of assets and liabilities carried at fair value on the balance sheet, the Corporation is also required to disclose fair value information about financial instruments for which it is practicable to estimate that value, whether or not recognized on the balance sheet.  In cases where quoted fair values are not available, fair values are based upon estimates using various valuation techniques.  Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.  Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.  The following methods and assumptions were used by the Corporation in estimating fair values of its financial instruments.

The following methods and assumptions were used by the Corporation in estimating fair value disclosures:

Cash and cash equivalents — The carrying amounts of cash and cash equivalents approximate fair values based on the short-term nature of the assets.

Federal Home Loan Bank stock — It is not practical to determine the fair value of Federal Home Loan Bank stock due to restrictions placed on its transferability.

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

24

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

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

Loans held for sale — Fair values of loans held for sale are based on prevailing market rates for loans with similar characteristics.

Accrued interest receivable — The carrying amounts of accrued interest receivable approximates fair value.

Deposits — The fair values of deposits with no stated maturity, such as demand deposits, savings, club and money market accounts, are equal to the amount payable on demand at the reporting date.  Fair values for term certificates are estimated using a discounted cash flow calculation that applies market interest rates currently being offered for deposits of similar remaining maturities.

Borrowed funds — The fair values of the Bank’s FHLB advances are estimated using discounted cash flow analyses based on the current incremental borrowing rates in the market for similar types of borrowing arrangements.

Accrued interest payable — The carrying amounts of accrued interest payable approximate fair value.

The estimates of fair value of financial instruments were based on information available at June 30, 2017 and December 31, 2016 and are not indicative of the fair market value of those instruments as of the date of this report.  These estimates do not reflect any premium or discount that could result from offering for sale at one time the Corporation’s entire holdings of a particular financial instrument.  The fair value of the Corporation’s time deposit liabilities do not take into consideration the value of the Corporation’s long-term relationships with depositors, which may have significant value.

Because no active market exists for a portion of the Corporation’s financial instruments, fair value estimates were based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors.  These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.  Changes in assumptions could significantly affect the estimates.

Fair value estimates were based on existing financial instruments without an attempt to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments, including premises and equipment and foreclosed real estate.

The carrying values, estimated fair values and placement in the fair value hierarchy of the Corporation’s financial instruments for which fair value is only disclosed but not recognized on the balance sheet at the dates indicated are summarized as follows:

	June 30, 2017 (unaudited)				Fair value measurement
(Dollars in thousands)	Carrying Amount		Fair Value		Level 1 inputs		Level 2 Inputs		Level 3 Inputs
Financial assets:
Cash and cash equivalents	$	46,500	$	46,500	$	46,500	$	—	$	—
Loans, net	562,906		567,120		—		—		567,120
Loans held for sale	13,228		13,228		—		13,228		—
FHLB stock	6,172		N/A		N/A		N/A		N/A
Accrued interest receivable	1,716		1,716		—		—		1,716
Financial liabilities:
Non-certificate accounts	304,562		304,562		304,562		—		—
Certificate accounts	166,805		167,386		—		167,386		—
Borrowed funds	127,941		127,774		—		127,774		—
Accounts interest payable	42		42		—		42		—

25

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

Fair Value Measurements (continued)

	December 31, 2016				Fair value measurement
(Dollars in thousands)	Carrying Amount		Fair Value		Level 1 inputs		Level 2 Inputs		Level 3 Inputs
Financial assets:
Cash and cash equivalents	$	44,658	$	44,658	$	44,658	$	—	$	—
Loans, net	525,215		525,822		—		—		525,822
Loans held for sale	23,157		23,157		—		23,157		—
FHLB stock	6,184		N/A		N/A		N/A		N/A
Accrued interest receivable	1,598		1,598		—		—		1,598
Financial liabilities:
Non-certificate accounts	284,430		284,430		284,430		—		—
Certificate accounts	162,884		163,145		—		163,145		—
Borrowed funds	121,250		121,053		—		121,053		—
Accrued interest payable	40		40		—		40		—

26

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

Management’s discussion and analysis should be read in conjunction with the Corporation’s (also referred to herein as, “Company’s” “us,” “we” or “our”) consolidated financial statements and notes thereto contained in this report and the Corporation’s 2016 audited consolidated financial statements.

Special Note Regarding Forward-Looking Statements

This report contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements concerning plans, objectives, future events or performance and assumptions and other statements that are other than statements of historical fact.  Forward-looking statements may be identified by reference to a future period or periods or by use of forward-looking terminology such as “anticipates,” “believes,” “expects,” “intends,” “may,” “plans,” “pursue,” “views” and similar terms or expressions.  Various statements contained in Item 2 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations” including, but not limited to, statements related to management’s views on the banking environment and the economy, competition and market expansion opportunities, the interest rate environment, credit risk and the level of future non-performing assets and charge-offs, potential asset and deposit growth, future non-interest expenditures and non-interest income growth, and borrowing capacity are forward-looking statements.  The Corporation wishes to caution readers that such forward-looking statements reflect numerous assumptions and involve a number of risks and uncertainties that may adversely affect the Corporation’s future results.  The following important factors, among others, could cause the Corporation’s results for subsequent periods to differ materially from those expressed in any forward-looking statement made herein: (i) changes in interest rates could negatively impact net interest income;  (ii) changes in the business cycle and downturns in the local, regional or national economies, including deterioration in the local real estate market, could negatively impact credit and/or asset quality and result in credit losses and increases in the Corporation’s allowance for loan losses and/or valuations of foreclosed properties; (iii) changes in consumer spending could negatively impact the Corporation’s credit quality and financial results; (iv) increasing competition from larger regional and out-of-state banking organizations as well as non-bank providers of various financial services could adversely affect the Corporation’s competitive position within its market area and reduce demand for the Corporation’s products and services; (v) deterioration of securities markets could adversely affect the value or credit quality of the Corporation’s assets and the availability of funding sources necessary to meet the Corporation’s liquidity needs; (vi) changes in technology could adversely impact the Corporation’s operations and increase technology-related expenditures; (vii) increases in employee compensation and benefit expenses and other non-interest expenses could adversely affect the Corporation’s financial results; (viii) changes in laws and regulations that apply to the Corporation’s business and operations, including without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the Jumpstart Our Business Startups Act (the “JOBS Act”) and the additional regulations that will be forthcoming as a result thereof, could adversely affect the Corporation’s business environment, operations and financial results; (ix) changes in accounting standards, policies and practices, as may be adopted or established by the regulatory agencies, the Financial Accounting Standards Board (the “FASB”) or the Public Company Accounting Oversight Board (“PCAOB”) could negatively impact the Corporation’s financial results; (x) our ability to enter new markets successfully and capitalize on growth opportunities; (xi) future regulatory compliance costs, including any increase caused by new regulations imposed by the Consumer Finance Protection Bureau; and (xii) some or all of the risks and uncertainties described in “Risk Factors” of the Corporation’s annual report on Form 10-K could be realized, which could have a material adverse effect on the Corporation’s business, financial condition and results of operation.  Therefore, the Corporation cautions readers not to place undue reliance on any such forward-looking information and statements.

Accounting Policies/Critical Accounting Estimates

As discussed in the 2016 audited consolidated financial statements included in the Corporation’s annual report on Form 10-K, the most significant areas in which management applies critical assumptions and estimates that are particularly susceptible to change relate to the determination of the allowance for loan losses, the valuation of deferred tax assets, and the valuation of loans held for sale, mortgage banking derivatives and commitments to sell fixed—rate residential mortgages.  The Corporation has not changed its significant accounting and reporting policies from those disclosed in its 2016 audited consolidated financial statements.

27

Overview

Coastway Bancorp, Inc. is a Maryland corporation and owns 100% of the common stock of Coastway Community Bank.  On January 14, 2014, we completed our initial public offering (“IPO”) of common stock in connection with the mutual-to-stock conversion of Coastway Bancorp, MHC, selling 4,827,125 shares of common stock at $10.00 per share (contributing $300,000 in cash and 122,054 shares of common stock to Coastway Cares Charitable Foundation II) and raising $48.3 million of gross proceeds.

The Corporation’s earnings are largely dependent on net interest income which is the difference between interest earned on loans, investments and cash and cash equivalents, and the cost of funding (primarily deposits and borrowed funds).  The re-pricing frequency of the Corporation’s assets and liabilities are not identical, and therefore subject the Corporation to the risk of adverse changes in interest rates.  Historically, our interest-earning assets had re-priced more quickly than our interest-bearing liabilities, which make us vulnerable to decreases in interest rates.  Due to the growth in the fixed-rate one- to four-family residential loan portfolio, coupled with the increase in short-term borrowed funds, our interest-bearing liabilities may re-price more quickly than our interest-earning assets in the first one to two years in an increasing interest rate environment, and then revert back to interest-earning assets re-pricing more quickly than our interest-bearing liabilities thereafter.  The Corporation’s earnings are also dependent on the net gains on sales of loans, and other mortgage banking income, which is volatile.  When interest rates rise, the demand for mortgage loans tends to fall and may reduce the number of loans we can originate for sale.  Weak or deteriorating economic conditions also tend to reduce loan demand.  The Corporation’s operating expenses are high as a percentage of net interest income and non-interest income, due to prior branch growth and increase in personnel as we positioned the Bank for future growth.

Net income was $817,000 for the three months ended June 30, 2017 as compared to net income of $946,000 for the three months ended June 30, 2016.  The decrease in earnings for the three months ended June 30, 2017 as compared to the same period in 2016 was impacted by an increase of $333,000 in non-interest expense and a decrease of $162,000 in non-interest income. The $333,000 increase in non-interest expense was primarily due to an increase of $275,000 in salary and employee benefits, a $99,000 increase in occupancy and equipment costs, and a $34,000 increase in data processing costs.  The $275,000 increase in salary and employee benefits expense for the three months ended June 30, 2017 as compared to the three months ended June 30, 2016 was primarily due to an increase of 10 full-time equivalents (“FTEs”), a $49,000 increase in SERP expense, general merit increases, and a $43,000 increase in stock-based compensation related to awards made under our 2015 Equity Incentive Plan and our ESOP.  Occupancy and equipment expense increased $99,000 primarily due to increased landscaping costs and increases in depreciation and real estate taxes. Data processing costs increased $34,000 due to increased software expenses as well as cost of service increases.  Total non-interest income decreased $162,000, during the three months ended June 30, 2017 as compared to the three months ended June 30, 2016.  The $162,000 decrease was due to a decline of $242,000 in net gains on sales of loans, and other mortgage banking income, partially offset by an increase of $64,000 in customer service fees for the three months ended June 30, 2017, as compared to the same period in 2016.  The increase in non-interest expense and decrease in non-interest income was partially offset by a $305,000 increase in net interest income, primarily due to growth in loan interest income of $599,000, partially offset by an increase in deposit interest expense of $234,000 due to growth in longer-duration certificates of deposit.  Income tax expense decreased $69,000 for the three months ended June 30, 2017 as compared to the same period in 2016, primarily due to decreased pre-tax income.

Net income decreased $206,000 to $1.4 million for the six months ended June 30, 2017 as compared to net income of $1.6 million for the six months ended June 30, 2016, primarily due to an increase in non-interest expense and a decrease in non-interest income.  Non-interest expense increased $838,000, or 8.5%, to $10.7 million for the six months ended June 30, 2017 from $9.9 million for the six months ended June 30, 2016.  The increase in non-interest expense was primarily due to increased salary and employee benefits expense, which increased $522,000 for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016 due to an increase in FTEs which totaled 151 at June 30, 2017 and 142 FTEs at June 30, 2016, general merit increases, an increase of SERP expense of $99,000 as compared to the same period in 2016, and $84,000 in stock-based compensation expense related to awards made under our 2015 Equity Incentive Plan and our ESOP Plan.  Occupancy expense increased $153,000 to $1.7 million in the six months ended June 30, 2017 from $1.5 million for the six months ended June 30, 2016, due to increased snow removal and landscaping costs.  Data processing costs increased $108,000 due to increased software expenses as well as cost of service increases.  Net income also decreased due to a decrease of $308,000 in net gains on sales of loans and other mortgage banking income primarily due to a decrease in the fair value of mortgage derivatives, commitments to sell and loans held for sale.  Offsetting the decrease to net income, net interest income increased $593,000 to $9.5 million for the six months ended June 30, 2017 as compared to the same period in 2016, due to an increase in loan interest income of $1.3 million primarily due to growth in loan interest income of $1.1 million, partially offset by an increase in interest expense of $677,000, primarily due to a $454,000 increase in deposit interest expense due to growth in longer-duration certificates of deposit.  The earnings result for the six months ended June 30, 2017 was also impacted by a decrease to the provision for loan losses of $41,000.  The decrease in income tax expense was primarily due to a decrease in pre-tax income for the six months ended June 30, 2017 as compared to the same period in 2016.

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Comparison of Financial Condition at June 30, 2017 and December 31, 2016

Assets.  Our total assets increased $31.5 million, or 4.9%, to $675.7 million at June 30, 2017 from $644.2 million at December 31, 2016 primarily due to an increase in loans held for investment.  Total loans increased $37.6 million, or 7.2%, to $561.5 million at June 30, 2017 from $523.9 million at December 31, 2016.  The increase in total loans was primarily due to an increase in residential one- to four-family loans of $29.6 million, or 12.2%, to $273.0 million at June 30, 2017 from $243.4 million at December 31, 2016. Residential one-to four-family loans increased due to purchases of $13.1 million of loans at a purchase price of $13.3 million from third parties as well as organic loan growth. Commercial real estate loans increased $7.3 million, or 5.2% to $146.3 million at June 30, 2017 as compared to $138.9 million at December 31, 2016.  Commercial construction loans increased $2.5 million, or 22.8% to $13.4 million at June 30, 2017. Cash and cash equivalents increased $1.8 million during the six months ended June 30, 2017 due to an increase in interest-earning deposits. Loans held for sale declined $9.9 million during the six months ended June 30, 2017 as loan sales outpaced loan originations.

Loans.  A summary of the balances of loans are as follows:

	June 30, 2017					December 31, 2016
(Dollars in thousands)	Amount			Percent		Amount			Percent
Residential real estate:
1-4 family	$	272,972		48.62	%	$	243,385		46.46	%
Home equity loans and lines of credit	73,553			13.10		76,175			14.54
Commercial real estate	146,252			26.05		138,946			26.52
Commercial business	14,511			2.58		13,308			2.54
Commercial construction	13,441			2.39		10,946			2.09
SBA loans	39,502			7.04		39,948			7.63
Consumer	1,246			0.22		1,165			0.22
Total loans	561,477			100.00	%	523,873			100.00	%
Net deferred loan costs	4,149					3,835
Allowance for loan losses	(2,720		)			(2,493		)
Total loans, net	$	562,906				$	525,215

Deposits.  Our primary source of funds is retail deposits held by individuals and businesses within our market area.  Deposits increased $24.1 million, or 5.4%, to $471.4 million at June 30, 2017 from $447.3 million at December 31, 2016.  The increase in deposits was a result of an increase of $8.8 million or 8.3%, in savings and interest bearing deposit accounts, an increase of $5.2 million, or 7.3% in money market accounts, and an increase of $3.9 million, or 2.4% in certificates of deposit accounts.  The increase in certificates of deposit was primarily in the five-year maturity category.  Non-interest bearing demand deposits increased $6.0 million, or 5.6% from $107.0 million at December 31, 2016 to $112.9 million at June 30, 2017.

The following table sets forth the deposit balances by certain categories at the dates indicated and the percentage of each category to total deposits.

	June 30, 2017				December 31, 2016
(Dollars in thousands)	Amount		Percent		Amount		Percent
Non-interest bearing demand deposits	$	112,922	23.96	%	$	106,962	23.91	%
Money market accounts	75,612		16.04		70,462		15.75
Savings and interest bearing demand deposit accounts	114,469		24.28		105,675		23.63
Club accounts	1,559		0.33		1,331		0.30
Total transaction accounts	304,562		64.61		284,430		63.59
Certificates of deposit	166,805		35.39		162,884		36.41
Total deposits	$	471,367	100.00	%	$	447,314	100.00	%

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Borrowed Funds. We utilize borrowings from the Federal Home Loan Bank of Boston (“FHLBB”) as an alternate funding source. Borrowed funds at June 30, 2017 totaled $127.9 million as compared to $121.3 million at December 31, 2016, an increase of $6.7 million, or 5.5%.  Borrowed funds at June 30, 2017 were comprised of $126.2 million of short-term advances at a weighted average rate of 1.21% as compared to short-term advances of $119.5 million at December 31, 2016 at a weighted average rate of 0.74%.  The increase in overnight advances during the six months ended June 30, 2017 was to fund the increase in loans.  Long-term FHLBB advances totaled $1.8 million at June 30, 2017 and December 31, 2016, were borrowed at no cost under the FHLBB’s Jobs for New England Program, and mature in 2021.

Total Stockholders’ Equity.  Total stockholders’ equity increased to $69.8 million at June 30, 2017 from $68.6 million at December 31, 2016.  The increase in stockholders’ equity was due to net income of $1.4 million, stock-based compensation of $49,000, and $145,000 of ESOP shares committed to be allocated, partially offset by stock repurchases of $333,000 during the six months ended June 30, 2017.

Nonperforming Assets

Loans on which the accrual of interest has been discontinued are designated as non-performing loans.  Accrual of interest on loans is generally discontinued when contractual payments of principal or interest have become 90 days  past due or management has serious doubts about further collectability of principal or interest, even though the loan is performing.  When a loan is placed on non-accrual status, unpaid interest credited to income is reversed.  Interest received on nonaccrual loans is applied against principal or interest or is recognized in income on a cash basis, until qualifying for return to accrual.  Generally, loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, the loan has performed in accordance with the contractual terms for a reasonable period of time, typically a minimum of six months, and future payments are reasonably assured.

Loans are classified as troubled debt restructured loans when certain modifications are made to the loan terms and concessions are granted to the borrowers due to financial difficulty experienced by those borrowers. The modifications of the terms of such loans were one of the following:  a reduction of the stated interest rate of the loan for some period of time, an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk, or an extension of time to make payments with the delinquent payment added to the principal of the loan.  Loans on nonaccrual status at the date of modification are initially classified as non-accruing troubled debt restructurings.  Troubled debt restructured loans may be returned to accrual status after a period of satisfactory and reasonable future payment performance under the terms of the restructuring.  Satisfactory payment performance is generally six months of current payments.

Non-performing loans decreased to $3.5 million, or 0.62% of total loans at June 30, 2017, from $4.7 million, or 0.89% of total loans, at December 31, 2016 primarily due to a $1.4 million decrease in non-performing one- to four-family residential loans.  A restructured residential one- to four-family loan with a balance of $213,000 was moved to performing status in 2017 due to satisfactory payment performance and three non-performing residential loans totaling $1.1 million were paid off during the six months ended June 30, 2017.  Commercial real estate non-performing loans decreased $130,000 due to a payoff during the six months ended June 30, 2017.  Foreclosed real estate consists of property acquired through formal foreclosure or the acceptance of a deed in lieu of foreclosure, and is recorded at fair value less costs to sell.  Foreclosed real estate was $422,000 at both June 30, 2017 and December 31, 2016.

Non-performing assets are comprised of non-performing loans, and foreclosed real estate.  The designation of a loan or other asset as non-performing does not necessarily indicate that loan principal and interest will ultimately be uncollectible.  However, management recognizes the greater risk characteristics of these assets and therefore considers the potential risk of loss on assets included in this category in evaluating the adequacy of the allowance for loan losses.  Despite prudent loan underwriting, adverse changes within the Bank’s market area, or deterioration in local, regional or national economic conditions, could negatively impact the Bank’s level of non-performing loans and assets in the future.

Non-performing assets decreased $1.2 million during the six months ended June 30, 2017 from $5.1 million at December 31, 2016 to $3.9 million at June 30, 2017 due to the decrease in non-performing loans discussed above.

Accruing Troubled Debt Restructured Loans

Accruing troubled debt restructurings totaled $9.4 million at June 30, 2017, an increase of $1.1 million from $8.3 million at December 31, 2016.  The increase in accruing troubled debt restructurings was primarily due to four home equity loans and lines of credit which totaled $507,000 and one commercial real estate loan which totaled $259,000 entered into during the six month ended June 30, 2017.  Of the $9.4 million in accruing troubled debt restructured loans at June 30, 2017, one commercial real estate loan totaled $4.0 million or 42.7% of total accruing troubled debt restructured loans.  The loan is well-secured based on the most recent appraisal of the real estate collateral securing the loan.  The borrower is currently marketing the property via a brokered action which is expected to occur in August, 2017.

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The table below sets forth the amounts and categories of our nonperforming assets at the dates indicated.  For the dates presented, there were no loans delinquent 90 days or more and still accruing.

(Dollars in thousands)	June 30, 2017			December 31, 2016
Nonaccrual loans:
Residential real estate mortgage loans:
1-4 family	$	1,049		$	1,629
Home equity loans and lines of credit	314			316
Commercial real estate loans	—			130
Commercial business loans	—			—
SBA loans	389			18
Commercial construction loans	—			—
Consumer loans	—			—
Total nonaccrual loans	1,752			2,093
Non-accruing troubled debt restructured loans:
Residential real estate mortgage loans:
1-4 family	1,221			2,033
Home equity loans and lines of credit	405			419
Commercial real estate loans	108			108
Commercial business loans	—			—
SBA loans	—			—
Commercial construction loans	—			—
Consumer loans	—			—
Total non-accruing troubled debt restructured loans	1,734			2,560
Total nonperforming loans	3,486			4,653
Foreclosed real estate:
Residential real estate mortgage loans:
1-4 family	—			—
Home equity loans and lines of credit	—			—
Commercial loans	—			—
Commercial business loans	—			—
SBA loans	422			422
Commercial construction loans	—			—
Consumer loans	—			—
Total foreclosed real estate	422			422
Total nonperforming assets	$	3,908		$	5,075
Total accruing troubled debt restructured loans	$	9,366		$	8,316
Delinquent loans 60 — 89 days past due	$	1,380		$	1,282
Ratios:
Loans 60-89 days past due to total loans	0.25		%	0.24		%
Non-performing loans to total loans	0.62		%	0.89		%
Non-performing assets to total assets	0.58		%	0.79		%

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For the three months ended June 30, 2017 and 2016, gross interest income which would have been recorded had the non-performing loans been current in accordance with their original terms amounted to $36,000 and $57,000, respectively.  The amount that was included in interest income on such loans totaled $43,000 and $43,000 for the three months ended June 30, 2017 and 2016, respectively.  For the six months ended June 30, 2017 and 2016, gross interest income that would have been recorded had the non-performing loans been current in accordance with their original terms was $88,000 and $132,000, respectively.  The amount that was included in interest income on such loans totaled $92,000 and $89,000 for the six months ended June 30, 2017 and 2016, respectively.

Asset Quality

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

In accordance with our loan policy, we regularly review the problem loans in our portfolio to determine whether any loans require classification in accordance with applicable regulations.  Loans are listed on the “watch list” initially because of emerging financial weaknesses even though the loan is currently performing as agreed, or if the loan possesses weaknesses although currently performing.  If a loan deteriorates in asset quality the classification is changed to “special mention”, “substandard” “doubtful” or “loss” depending on the circumstances and the evaluation.  Based on this review, we had classified or held as special mention the following loans as of the date indicated:

(Dollars in thousands)	June 30, 2017		December 31, 2016
Special mention	$	796	$	2,004
Substandard	9,745		5,800
Doubtful	—		—
Loss	—		—
Total classified and special mention loans	$	10,541	$	7,804

The level of classified and special mention loans increased by $2.7 million to $10.5 million at June 30, 2017 from $7.8 million at December 31, 2016.  Special mention loans decreased $1.2 million from December 31, 2016.  Five loans totaling $829,000 were upgraded to pass rated loans that were previously classified as “special mention”, two loans totaling $115,000 were paid off, partially offset by three SBA loans to one borrower of $796,000 which were downgraded to “special mention”.  “Substandard” loans increased $3.9 million from December 31, 2016 primarily due to the downgrade of three loans to one borrower totaling $3.1 million primarily due to operating losses, although the three loans remain current.  Two additional loans totaling $801,000 were downgraded from “special mention” to “substandard”.  “Substandard” loans included one commercial real estate loan totaling $4.0 million which was downgraded during the year ended December 31, 2016 based upon tax liens and a modification of the loan’s maturity date.  The loan is well-secured based on the most recent appraisal of the real estate collateral securing the loan.  The loan has matured and the borrower is currently marketing the property via a brokered auction which is expected to occur in August, 2017.

Allowance for Loan Losses

The allowance for loan losses is the amount necessary to reflect probable incurred losses in the portfolio.  The Corporation evaluates the adequacy of the allowance for loan losses on loans on a quarterly basis.  When additional allowances are necessary, a provision for loan losses is charged to earnings.

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

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

Among other factors, the Corporation considers current general economic conditions, including current housing price depreciation, in determining the appropriateness of the allowance for loan losses for the Corporation’s residential real estate portfolio.  The Corporation uses evidence obtained from its own loan portfolio, including loss history, as well as published housing data in its local markets from third party sources believed to be reliable as a basis for assumptions about the impact of housing depreciation.

Substantially all of the Corporation’s loans are secured by collateral.  Loans 90 days past due or on non-accrual as well as TDRs are evaluated for impairment and specific allowances are established.  Typically for a non-performing impaired real estate loan, the value of the underlying collateral is estimated using an independent appraisal, adjusted for property specific conditions and other factors, and related specific reserves are adjusted on a quarterly basis. If a non-performing impaired real estate loan is in the process of foreclosure, and/or there are serious doubts about further collectability of principal or interest, and there is uncertainty about the value of the underlying collateral, a new appraisal may be ordered.  Any shortfall would result in immediately charging off the portion of the loan that was impaired.

The Corporation evaluates the need for a specific allowance when loans are determined to be impaired.  Loss is measured by determining the present value of expected future cash flows or, for collateral dependent loans, the fair value of the collateral less estimated selling expenses.

The general component of the allowance for loan losses is established for loans that are not classified as impaired to recognize the inherent losses associated with lending activities, but which, unlike specific allowances, has not been allocated to particular problem assets.  This general valuation allowance is determined by segregating the loans by loan category (segments) and assigning allowance percentages based on a ten year historical loss period to capture relevant loss data for each loan segment.  This historical loss factor is adjusted for the following qualitative factors:  levels/trends in delinquencies; charge-off trends over the past three year period; weighted average risk ratings; loan concentrations; management’s assessment of internal factors; and management’s assessment of external factors such as interest rates, real estate markets and local and national economic factors.  Although the allowance for loan losses is allocated to various portfolio categories, it is general in nature and available for the loan portfolio in its entirety.  The allowance may be adjusted for significant factors that in management’s judgment, affect the collectability of the portfolio as of the evaluation date.  The applied loss factors are reevaluated quarterly to ensure their relevance in the current and overall economic environment and in relation to trends in the loan portfolio.

Despite prudent loan underwriting, adverse changes within the Corporation’s market area, or further deterioration in the local, regional or national economic conditions including a decline in real estate market values in Rhode Island, an increase in interest rates, as well as bank regulatory examination and/or independent loan review results could negatively impact the Corporation’s level of allowance for loan losses and non-performing assets in the future.

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The following table summarizes the activity in the allowance for loan losses for the periods indicated:

	Three months ended June 30,						Six months ended June 30,
(Dollars in thousands)	2017			2016			2017			2016
Balance at beginning of period	$	2,559		$	2,283		$	2,493		$	2,194
Provision for loan losses	153			145			213			254
Charge-offs:
Residential 1-4 family	(6		)	—			(6		)	(20		)
Home equity loans and lines of credit	—			(62		)	—			(67		)
Commercial real estate loans	—			—			—			—
Commercial business loans	—			—			—			—
SBA	—			(12		)	—			(12		)
Commercial construction	—			—			—			—
Consumer				—			—			—
Total charge-offs	(6		)	(74		)	(6		)	(99		)
Recoveries on charged-off loans
Residential 1-4 family	6			—			6			—
Home equity loans and lines of credit	1			7			2			8
Commercial real estate loans	—			—			—			—
Commercial business loans	—			—			—			—
SBA	—			7			3			8
Commercial construction	—			—			—			—
Consumer	7			6			9			9
Total recoveries	14			20			20			25
Net (charge-offs) recoveries	8			(54		)	14			(74		)
Balance at end of period	$	2,720		$	2,374		$	2,720		$	2,374
Annualized net loans (charge-offs) recoveries to average loans outstanding	0.01		%	(0.04		)%	0.02		%	(0.03		)%
Allowance for loan losses to non-performing loans at end of period	78.03		%	43.18		%	78.03		%	43.18		%
Allowance for loan losses to total loans at end of period	0.48		%	0.47		%	0.48		%	0.47		%

The allowance reflects management’s estimate of loan loss reserves necessary to support the level of credit risk inherent in the portfolio during the periods.  Refer to the Corporation’s annual report on Form 10-K for additional information regarding the Corporation’s credit risk management process and allowance for loan losses.

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Comparison of Operating Results for the Three Months Ended June 30, 2017 and June 30, 2016.

General.  Net income was $817,000 for the three months ended June 30, 2017 as compared to net income of $946,000 for the three months ended June 30, 2016.  The decrease in earnings for the three months ended June 30, 2017 as compared to the same period in 2016 was impacted by an increase of $333,000 in non-interest expense and a decrease of $162,000 in non-interest income. The $333,000 increase in non-interest expense was primarily due to an increase of $275,000 in salary and employee benefits, a $99,000 increase in occupancy and equipment costs, and a $34,000 increase in data processing costs.  The $275,000 increase in salary and employee benefits expense for the three months ended June 30, 2017 as compared to the three months ended June 30, 2016 was primarily due to an increase of 10 full-time equivalents (“FTEs”), a $49,000 increase in SERP expense, general merit increases, and a $43,000 increase in stock-based compensation related to awards made under our 2015 Equity Incentive Plan and our ESOP.  Occupancy and equipment expense increased $99,000 primarily due to increased landscaping costs and increases in depreciation and real estate taxes. Data processing costs increased $34,000 due to increased software expenses as well as cost of service increases.  Total non-interest income decreased $162,000, during the three months ended June 30, 2017 as compared to the three months ended June 30, 2016.  The $162,000 decrease was due to a decline of $242,000 in net gains on sales of loans, and other mortgage banking income, partially offset by an increase of $64,000 in customer service fees for the three months ended June 30, 2017, as compared to the same period in 2016.  The increase in non-interest expense and decrease in non-interest income was partially offset by a $305,000 increase in net interest income, primarily due to growth in loan interest income of $599,000, partially offset by an increase in deposit interest expense of $234,000 due to growth in longer-duration certificates of deposit.  Income tax expense decreased $69,000 for the three months ended June 30, 2017 as compared to the same period in 2016, primarily due to decreased pre-tax income.

Interest Income.  Interest income increased $679,000, or 13.1%, to $5.9 million for the three months ended June 30, 2017 from $5.2 million for the three months ended June 30, 2016.  The increase reflected an increase in the average balance of interest-earning assets of $59.2 million to $602.8 million for the three months ended June 30, 2017 as compared to $543.6 million for the three months ended June 30, 2016, and an increase in the average yield on interest-earning assets to 3.90% for the three months ended June 30, 2017 as compared to 3.83% for the three months ended June 30, 2016.  The majority of our interest income was derived from interest and fees on loans.  The average yield on interest-earning assets increased by seven basis points to 3.90% due to the 15 basis points increase in the average loan yield and the $38.5 million increase in average loans and loans held for sale during the three months ended June 30, 2017 as compared to the same prior year period.

Interest and fees on loans increased $599,000, or 11.7%, to $5.7 million for the three months ended June 30, 2017 from $5.1 million for the three months ended June 30, 2016.  Interest and fees on loans increased due to an increase in the average balance of loans and loans held for sale of $38.5 million to $557.2 million for the three months ended June 30, 2017 as compared to $518.7 million for the three months ended June 30, 2016.  The increase in our average balance of loans was principally due to the growth in our residential one-to four- family real estate loan portfolio.  Our average yield on loans increased to 4.11% for the three months ended June 30, 2017 from 3.96% for the three months ended June 30, 2016 primarily due to an increase in market interest rates.

Interest income on cash and cash equivalents increased $69,000 to $91,000 for the three months ended June 30, 2017 from $22,000 for the three months ended June 30, 2016 due primarily to the $24.2 million increase in average cash and cash equivalents as we increased our on-balance sheet liquidity.

Interest Expense. Interest expense increased $374,000, or 57.6%, to $1.0 million for the three months ended June 30, 2017 from $649,000 for the three months ended June 30, 2016 primarily due to a $227,000 increase in interest expense on certificates of deposit. Interest expense on certificates of deposit increased $227,000 due primarily to an increase of $54.0 million in the average balance of certificates of deposit during the three months ended June 30, 2017 as compared to the same prior year period.  During the fourth quarter of 2016, we obtained $44.4 million of certificates of deposit through a nationwide on-line service (“national market”), with the remainder of the increase due to organic growth.  The average rate paid to certificate of deposit holders increased eight basis points to 1.52% for the three months ended June 30, 2017 from 1.44% for the three months ended June 30, 2016 due to an increase in the average balance of longer duration certificates of deposit.

Interest expense on borrowed funds increased $140,000 to $290,000 for the three months ended June 30, 2017 from $150,000 for the three months ended June 30, 2016 due to a 56 basis points increase in the average cost of funds as short-term interest rates increased in December 2016, March 2017 and June 2017.  The average balance of borrowed funds decreased $14.3 million to $112.7 million for the three months ended June 30, 2017 from $127.1 million for the three months ended June 30, 2016, as we decreased average short-term borrowings as a result of the average loan sale volume outpacing new loans originated for sale.

Net Interest Income.  Net interest income increased $305,000, or 6.7%, to $4.8 million for the three months ended June 30, 2017 from $4.5 million for the three months ended June 30, 2016. This increase was due to a $9.1 million increase in net interest-earning assets to $140.8 million for the three months ended June 30, 2017, partially offset by a decrease in our

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interest rate spread of 19 basis points to 3.01% for the three months ended June 30, 2017 as compared to 3.20% for the prior year period.  The net interest margin decreased 13 basis points to 3.22% for the three months ended June 30, 2017 from 3.35% for the three months ended June 30, 2016.

Rate / Volume Analysis

The following table presents the dollar amount of changes in interest income and interest expense for the major categories of our interest-earning assets and interest-bearing liabilities for the periods indicated.  Information is provided for each category of interest-earning assets and interest-bearing liabilities with respect to (i) changes attributable to changes in volume (i.e., changes in average balances multiplied by the prior-period average rate) and (ii) changes attributable to rate (i.e., changes in average rate multiplied by prior-period average balances).  For purposes of this table, changes attributable to both rate and volume which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.

Three months ended June 30,

2017 vs. 2016

	Increase (decrease) due to
(Dollars in thousands)	Net Change			Volume			Rate
Interest-earning assets:
Loans and loans held for sale	$	599		$	411		$	188
Cash and cash equivalents	69			70			(1		)
Federal Home Loan Bank of Boston stock and other investments	11			(25		)	36
Total interest-earning assets	679			456			223
Interest-bearing liabilities:
Money Market accounts	5			3			2
Savings accounts	3			2			1
Club accounts	(1		)	—			(1		)
Certificates of deposit	227			206			21
Borrowed funds	140			(19		)	159
Total interest-bearing liabilities	374			192			182
Net interest income	$	305		$	264		$	41

The following table sets forth average balance sheets, average yields and costs, and certain other information for the three months ended June 30, 2017 and 2016.  No tax-equivalent yield adjustments were made, as we had no non-taxable interest-earning assets during the periods presented.  All average balances are daily average balances.  Nonaccrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield.  The yields set forth below include the effect of deferred loan fees, discounts and premiums that are amortized or accreted to interest income or interest expense.

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AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS

	Three months ended June 30, 2017						Three months ended June 30, 2016
(Dollars in thousands)	Average Balance		Interest		Average Yield(4)		Average Balance		Interest		Average Yield(4)
Assets:
Loans and loans held for sale	$	557,211	$	5,706	4.11	%	$	518,688	$	5,107	3.96	%
Cash and cash equivalents	39,897		91		0.91	%	15,661		22		0.56	%
Federal Home Loan Bank of Boston stock and other investments	5,671		62		4.39	%	9,239		51		2.22	%
Total interest-earning assets	602,779		5,859		3.90	%	543,588		5,180		3.83	%
Non-interest-earning assets	40,965						40,361
Total assets	$	643,744					$	583,949
Liabilities and Equity:
Money market accounts	$	72,740	77		0.42	%	$	69,629	72		0.42	%
Savings accounts	108,794		27		0.10	%	101,498		24		0.10	%
Club accounts	1,494		—		—	%	1,507		1		0.27	%
Certificates of deposit	166,244		629		1.52	%	112,242		402		1.44	%
Total interest-bearing deposits	349,272		733		0.84	%	284,876		499		0.70	%
Borrowed funds	112,745		290		1.03	%	127,079		150		0.47	%
Total interest bearing liabilities	462,017		1,023		0.89	%	411,955		649		0.63	%
Non-interest bearing deposits	105,742						95,129
Other liabilities	7,093						6,890
Total liabilities	574,852						513,974
Stockholders’ equity	68,892						69,975
Total liabilities and stockholders’ equity	$	643,744					$	583,949
Net interest income			$	4,836					$	4,531
Net interest rate spread(1)					3.01	%					3.20	%
Net interest-earning assets(2)	$	140,762					$	131,633
Net interest margin(3)					3.22	%					3.35	%
Average interest-earning assets to interest-bearing liabilities					130.47	%					131.95	%

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

(2)Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

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

(4)Annualized.

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Provision for loan losses.  A provision for loan losses of $153,000 was recorded to the allowance for loan losses during the three months ended June 30, 2017, an increase of $8,000 as compared to a provision of $145,000 for the three months ended June 30, 2016. During the three months ended June 30, 2017, a provision of $54,000 was recorded relating to the residential one-to four- family loan portfolio primarily due to loan growth and a provision of $63,000 was recorded relating to the commercial real estate loan portfolio primarily due to loan growth coupled with additional credit risk associated with increased interest rates.  We recorded a provision of $42,000 for the three months ended June 30, 2017 relating to the SBA portfolio primarily due to increased general reserves on loans risk rated “special mention” and “substandard”. We recorded net recoveries of $8,000 for the three months ended June 30, 2017.  Our provisions are based on our assessment of loss history, current asset quality and economic trends.

During the three months ended June 30, 2016, a provision of $40,000 was recorded relating to the residential one-to-four-family loan portfolio, a provision of $14,000 was recorded relating to the commercial real estate portfolio, and a provision of $14,000 was recorded relating to the commercial business portfolio, primarily due to loan growth.  During the three months ended June 30, 2016, a provision of $62,000 was recorded relating to the home equity portfolio primarily due to one loan that was charged-off based on delinquency status.  We recorded net charge-offs of $54,000 during the three months ended June 30, 2016.

Non-Interest income.  Non-interest income decreased $162,000, or 7.6%, to $2.0 million for the three months ended June 30, 2017 as compared to the three months ended June 30, 2016.  The $162,000 decrease was primarily due to a decrease of $242,000 in net gains on sales of loans and other mortgage banking income for the three months ended June 30, 2017 as compared to the same period in 2016, partially offset by an increase of $64,000 in customer service fees.  A gain in the fair value of mortgage derivatives and change in the fair value of loans held for sale of $273,000 were recorded during the three months ended June 30, 2016 as compared to a loss of $111,000 during the three months ended June 30, 2017.  Gains on sales of mortgage loans increased to $1.1 million for the three months ended June 30, 2017 from $975,000 for the three months ended June 30, 2016, based on an increase in the net margin.  Mortgage loans sold during the three months ended June 30, 2017 totaled $50.0 million as compared to $50.5 million during the three months ended June 30, 2016.

Non-Interest expense.  Non-interest expense increased $333,000, or 6.7%, to $5.3 million for the three months ended June 30, 2017 from $5.0 million for the three months ended June 30, 2016.  The $333,000 increase in non-interest expense was primarily due to an increase of $275,000 in salary and employee benefits, a $99,000 increase in occupancy and equipment costs, and a $34,000 increase in data processing costs.  The $275,000 increase in salary and employee benefits expense for the three months ended June 30, 2017 as compared to the three months ended June 30, 2016 was primarily due to an increase of 10 FTEs, a $49,000 increase in SERP expense, general merit increases, and a $43,000 increase in stock-based compensation related to awards made under our 2015 Equity Incentive Plan and our ESOP.  The increase in FTEs was primarily due to additional employees needed due to increased loan volume.  Occupancy and equipment expense increased $99,000 due to landscaping costs and increases in depreciation and real estate taxes.  Data processing costs increased $34,000 due to increased software expenses as well as cost of service increases.

Income tax expense.  Income tax expense of $556,000 was recorded for the three months ended June 30, 2017, a decrease of $69,000, or 11.0%, as compared to $625,000 of income tax expense for the three months ended June 30, 2016.  The decrease in income tax expense was primarily due to a decrease in pre-tax income of $198,000 during the three months ended June 30, 2017 as compared to the three months ended June 30, 2016.  The effective tax rates for the three months ended June 30, 2017 and 2016 were 40.5% and 39.8%, respectively.  The increase in the effective tax rate was due to the income tax impact of the increase in compensation expense of ESOP shares committed to be allocated due to the increase in market value of our stock  during the three months ended June 30, 2017 as compared to the three months ended June 30, 2016.

Comparison of Operating Results for the Six Months Ended June 30, 2017 and June 30, 2016

General.  Net income decreased $206,000 to $1.4 million for the six months ended June 30, 2017 as compared to net income of $1.6 million for the six months ended June 30, 2016, primarily due to an increase in non-interest expense and a decrease in non-interest income.  Non-interest expense increased $838,000, or 8.5%, to $10.7 million for the six months ended June 30, 2017 from $9.9 million for the six months ended June 30, 2016.  The increase in non-interest expense was primarily due to increased salary and employee benefits expense, which increased $522,000 for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016 due to an increase in FTEs which totaled 151 at June 30, 2017 and 142 FTEs at June 30, 2016, general merit increases, an increase of SERP expense of $99,000 as compared to the same period in 2016, and $84,000 in stock-based compensation expense related to awards made under our 2015 Equity Incentive Plan and our ESOP Plan.  Occupancy expense increased $153,000 to $1.7 million in the six months ended June 30, 2017 from $1.5 million for the six months ended June 30, 2016, due to increased snow removal and landscaping costs.  Data processing costs increased $108,000 due to increased software expenses as well as cost of service increases.  Net income also decreased due to a decrease of $308,000 in net gains on sales of loans and other mortgage banking income primarily due to a decrease in the fair value of mortgage derivatives, commitments to sell and loans held for sale.  Offsetting the decrease to net income, net interest income

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increased $593,000 to $9.5 million for the six months ended June 30, 2017 as compared to the same period in 2016, due to an increase in loan interest income of $1.3 million primarily due to growth in loan interest income of $1.1 million, partially offset by an increase in interest expense of $677,000, primarily due to a $454,000 increase in deposit interest expense due to growth in longer-duration certificates of deposit.  The earnings result for the six months ended June 30, 2017 was also impacted by a decrease to the provision for loan losses of $41,000.  The decrease in income tax expense was primarily due to a decrease in pre-tax income for the six months ended June 30, 2017 as compared to the same period in 2016.

Interest Income.  Interest income increased $1.3 million, or 12.4%, to $11.5 million for the six months ended June 30, 2017 from $10.2 million for the six months ended June 30, 2016.  The increase reflected an increase in the average balance of interest-earning assets of $65.8 million to $597.8 million for the six months ended June 30, 2017 as compared to $531.9 million for the six months ended June 30, 2016.  The average yield on interest-earning assets increased slightly to 3.87% for the six months ended June 30, 2017 as compared to 3.86% for the six months ended June 30, 2016.  The majority of our interest income was derived from interest and fees on loans.

Interest and fees on loans increased $1.1 million, or11.1%, to $11.2 million for the six months ended June 30, 2017 from $10.1 million for the six months ended June 30, 2016.  Interest and fees on loans increased due to an increase in the average balance of loans and loans held for sale of $44.3 million to $551.0 million for the six months ended June 30, 2017 as compared to $506.7 million for the six months ended June 30, 2016.  The increase in our average balance of loans was principally due to the growth in our residential one-to four- family loan portfolio during the six months ended June 30, 2017.  Our average yield on loans increased to 4.09% for the six months ended June 30, 2017 as compared to 3.99% for the six months ended June 30, 2016 primarily due to an increase in market interest rates.

Interest income on cash and cash equivalents increased $112,000 to $164,000 for the six months ended June 30, 2017 from $52,000 for the six months ended June 30, 2016 primarily due to the $26.2 million increase in average cash and cash equivalents as we increased our on-balance sheet liquidity.

Interest Expense. Interest expense increased $677,000, or 53.0%, to $2.0 million for the six months ended June 30, 2017 from $1.3 million for the six months ended June 30, 2016 primarily due to an increase of $442,000 in interest expense on certificates of deposit.

Interest expense increased on certificates of deposit primarily due to an increase of $53.8 million in the average balance of certificates of deposit.  During the three months ended December 31, 2016, $44.4 million of certificates of deposit were obtained through the national market, with the remainder of the increase due to organic growth.  The average rate paid to certificate of deposit holders increased eight basis points to 1.51% for the six months ended June 30, 2017 from 1.43% for the six months ended June 30, 2016 due to an increase in the average balance of longer duration certificates of deposit.

Interest expense on borrowed funds increased $223,000 to $516,000 for the six months ended June 30, 2017 from $293,000 for the six months ended June 30, 2016 primarily due to an increase in the average cost of borrowed funds.  The average cost of borrowed funds increased to 91 basis points for the six months ended June 30, 2017 from 48 basis points for the six months ended June 30, 2016, due to the increase in short-term interest rates.  The average balance of borrowed funds decreased $8.7 million to $113.8 million for the six months ended June 30, 2017 from the six months ended June 30, 2016, as we decreased short-term average borrowings as average loan sale volume outpaced average loan originations.

Net Interest Income.  Net interest income increased $593,000, or 6.6%, to $9.5 million for the six months ended June 30, 2017 from $8.9 million for the six months ended June 30, 2016. This increase was due to a $10.9 million increase in net interest-earning assets to $139.0 million for the six months ended June 30, 2017 as compared to the prior year period. This increase was partially offset by a decrease in our interest rate spread of 21 basis points to 3.01% for the six months ended June 30, 2017 as compared to 3.22% for the prior year period.  The net interest margin decreased to 3.21% for the six months ended June 30, 2017 from 3.37% for the six months ended June 30, 2016.

Rate / Volume Analysis

The following table presents the dollar amount of changes in interest income and interest expense for the major categories of our interest-earning assets and interest-bearing liabilities for the periods indicated.  Information is provided for each category of interest-earning assets and interest-bearing liabilities with respect to (i) changes attributable to changes in volume (i.e., changes in average balances multiplied by the prior-period average rate) and (ii) changes attributable to rate (i.e., changes in average rate multiplied by prior-period average balances).  For purposes of this table, changes attributable to both rate and volume which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.

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	Six months ended June 30,2017 vs. 2016Increase (decrease) due to
(Dollars in thousands)	Net Change		Volume			Rate
Interest-earning assets:
Loans and loans held for sale	$	1,112	$	903		$	209
Cash and cash equivalents	112		106			6
Federal Home Loan Bank of Boston stock and other investments	46		(55		)	101
Total interest-earning assets	1,270		954			316
Interest-bearing liabilities:
Money Market accounts	7		6			1
Savings accounts	5		4			1
Club accounts	—		—			—
Certificates of deposit	442		404			38
Borrowed funds	223		(22		)	245
Total interest-bearing liabilities	677		392			285
Net interest income	$	593	$	562		$	31

The following table sets forth average balance sheets, average yields and costs, and certain other information for the six months ended June 30, 2017 and 2016.  No tax-equivalent yield adjustments were made, as we had no non-taxable interest-earning assets during the periods presented.  All average balances are daily average balances.  Nonaccrual loans were included in the computation of average balances, but have been reflected in the tables as loans carrying a zero yield.  The yields set forth below include the effect of deferred loan fees, discounts and premiums that are amortized or accreted to interest income or interest expense.

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AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS

	Six months ended June 30, 2017						Six months ended June 30, 2016
(Dollars in thousands)	Average Balance		Interest		Average Yield(4)		Average Balance		Interest		Average Yield(4)
Assets:
Loans and loans held for sale	$	551,004	$	11,169	4.09	%	$	506,733	$	10,057	3.99	%
Cash and cash equivalents	40,929		164		0.81	%	14,706		52		0.71	%
Federal Home Loan Bank of Boston stock and other investments	5,822		139		4.81	%	10,413		93		1.80	%
Total interest-earning assets	597,755		11,472		3.87	%	531,906		10,202		3.86	%
Non-interest-earning assets	40,936						41,133
Total assets	$	638,691					$	573,039
Liabilities and Equity:
Money market accounts	$	72,315	152		0.42	%	$	69,605	145		0.42	%
Savings accounts	106,014		52		0.10	%	98,858		47		0.10	%
Club accounts	1,424		1		0.14	%	1,432		1		0.14	%
Certificates of deposit	165,208		1,234		1.51	%	111,399		792		1.43	%
Total interest-bearing deposits	344,961		1,439		0.84	%	281,294		985		0.70	%
Borrowed funds	113,811		516		0.91	%	122,512		293		0.48	%
Total interest bearing liabilities	458,772		1,955		0.86	%	403,806		1,278		0.64	%
Non-interest bearing deposits	104,245						92,331
Other liabilities	6,954						6,537
Total liabilities	569,971						502,674
Stockholders’ equity	68,720						70,365
Total liabilities and stockholders’ equity	$	638,691					$	573,039
Net interest income			$	9,517					$	8,924
Net interest rate spread(1)					3.01	%					3.22	%
Net interest-earning assets(2)	$	138,983					$	128,100
Net interest margin(3)					3.21	%					3.37	%
Average interest-earning assets to interest-bearing liabilities					130.29	%					131.72	%

(1)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.

(2)Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

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

(4)Annualized.

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Provision for loan losses.  A provision of $213,000 was recorded during the six months ended June 30, 2017.  We recorded $78,000 of the provision for the six months ended June 30, 2017 related to the residential one- to four-family loan portfolio primarily due to loan growth and $96,000 of the provision related to the commercial real estate loan portfolio based on loan growth as well as the additional credit risk associated with increased interest rates. We recorded a provision of $42,000 for the six months ended June 30, 2017 related to the SBA portfolio primarily due to increased general reserves on loans risk rated “special mention” and “substandard”. We recorded a credit provision of $20,000 for the six months ended June 30, 2017 related to the home equity portfolio primarily due to a decrease in the book value of the portfolio.  We recorded net recoveries of $14,000 for the six months ended June 30, 2017.

A provision for loan losses of $254,000 was recorded to the allowance for loan losses during the six months ended June 30, 2016, principally due to loan growth in the residential and commercial loan categories.. Our provisions are based on our assessment of loss history, current asset quality and economic trends.  During the six months ended June 30, 2016, a provision of $103,000 was recorded relating to the residential one-to four- family loan portfolio, a provision of $38,000 was recorded related to the commercial real estate portfolio, and a provision of $26,000 was recorded relating to the commercial business portfolio primarily due to loan growth.  We recorded a provision of $63,000 on the home equity portfolio during the six months ended June 30, 2016.  Net charge-offs of $59,000 on the home equity loan portfolio were recorded during the six months ended June 30, 2016.

Non-Interest income.  Non-interest income decreased $135,000, or 3.5%, to $3.7 million for the six months ended June 30, 2017 from $3.9 million for the six months ended June 30, 2016.  The decrease in non-interest income was primarily due to a decrease of $308,000 in net gains on sales of loans and other mortgage banking income.  A loss resulting from the decrease in the fair value of mortgage derivatives, commitments to sell and loans held for sale of $190,000 was recorded during the six months ended June 30, 2017 as compared to a gain of $342,000 for the six months ended June 30, 2016, resulting in a decrease of $533,000 between periods.  Gains on sales of mortgage loans increased $216,000 from $1.8 million for the six months ended June 30, 2016 to $2.0 million for the six months ended June 30, 2017. Mortgage loans sold during the six months ended June 30, 2017 amounted to $107.2 million as compared to $91.5 million during the six months ended June 30, 2016.  The increase in the net gain on sales of mortgage loans was due to an increase in the net margin on the sales of mortgage loans during the first six months of 2017 coupled with the higher volume of loans sold.  Customer service fees increased $125,000 to $1.7 million for the six months ended June 30, 2017 from $1.6 million for the six months ended June 30, 2016 primarily due to higher VISA fees.

Non-Interest expenses.  Non-interest expenses increased $838,000, or 8.5%, to $10.7 million for the six months ended June 30, 2017 from $9.9 million for the six months ended June 30, 2016.  The increase in non-interest expenses was primarily due to increased salary and employee benefits expense, which increased $522,000 for the six months ended June 30, 2017 as compared to the six months ended June 30, 2016 due to an increase in FTEs which totaled 151 at June 30, 2017, 144 FTEs at December 31, 2016, and 142 FTEs at June 30, 2016, general merit increases, an increase in SERP expense of $99,000, and $84,000 in stock-based compensation expense related to awards made under our 2015 Equity Incentive Plan and our ESOP Plan.

Occupancy expense increased $153,000 to $1.7 million for the six months ended June 30, 2017 from $1.5 million for the six months ended June 30, 2106 due to snow removal costs and landscaping costs, and $68,000 of increased depreciation expense.  Data processing expense increased $108,000 to $955,000 for the six months ended June 30, 2017 from $847,000 for the same period in 2016, due to an increase in software expense of $42,000 as well as cost of service increases.  Deposit servicing expense increased $32,000 to $476,000 for the six months ended June 30, 2017 from $444,000 for the same period in 2016 primarily due to increased debit card expenses.  Other general and administrative expenses increased $36,000 to $923,000 for the six months ended June 30, 2017 as compared to $887,000 for the comparable 2016 period primarily due to a $33,000 increase in loan servicing expenses.

Income tax expense.  Income tax expense of $918,000 was recorded for the six months ended June 30, 2017, a decrease of $133,000, as compared to $1.1 million of income tax expense for the six months ended June 30, 2016.  The decrease in income tax expense was primarily due to a decrease of $339,000 in pre-tax income during the six months ended June 30, 2017 as compared to the six months ended June 30, 2016.  The effective tax rate for the six months ended June 30, 2017 was 40.0% as compared to 39.9% for the six months ended June 30, 2016.

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Liquidity

Liquidity is the ability to meet current and future financial obligations.  Our primary sources of funds consist of deposit inflows, loans repayments, advances from the Federal Home Loan Bank of Boston, principal repayments and loans sales.  While maturities and scheduled amortization of loans are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.  Our Asset/Liability Committee, under the direction of the Chief Financial Officer, is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies.  We believe that we have enough sources of liquidity to satisfy our short- and long-term liquidity needs as of June 30, 2017.

The Corporation regularly monitors and adjusts its investments in liquid assets based upon an assessment of:

(i)Expected loan demand including commitments to purchase loans;

(ii)Expected deposit flows and borrowing maturities;

(iii)Yields available on interest-earning deposits; and

(iv)The objectives of our asset/liability management program.

Excess liquid assets are invested generally in interest-earning deposits and are also used to pay off short-term borrowings.

The Corporation’s most liquid assets are cash and cash equivalents.  The level of these assets is dependent on operating, financing, lending and investing activities during any given period.  At June 30, 2017, cash and cash equivalents totaled $46.5 million.

The Corporation’s cash flows are derived from operating activities, investing activities and financing activities as reported in the Consolidated Statements of Cash Flows included in the Consolidated Financial Statements.

At June 30, 2017, the Bank had $53.3 million in commitments to originate loans, $32.4 million of which will be sold.  In addition to commitments to originate loans, the Bank had $80.7 million in unused lines of credit to borrowers.  Commitments to purchase loans from third parties totaled $4.8 million at June 30, 2017.  Certificates of deposit due within one year of June 30, 2017 totaled $71.2 million, or 14.8%, of total deposits, of which $14.4 million are national market certificates of deposit.  If these deposits do not remain with us, we may be required to seek other sources of funds, including utilizing additional Federal Home Loan Bank of Boston advances and selling the guaranteed portions of SBA loans of $20.8 million as of June 30, 2017.  Depending on market conditions, the Bank may be required to pay higher rates on such deposits or other borrowed funds than it currently pays on the certificates of deposit due on or before June 30, 2018.  Management believes, however, based on historical experience and current market interest rates, that the Bank will retain upon maturity, a large portion of certificates of deposit with maturities of one year or less as of June 30, 2017.

The Corporation’s primary investing activity is originating loans.  During the six months ended June 30, 2017 and for the year ended December 31, 2016, loan originations, net of principal repayments totaled $25.1 million, and $42.6 million, respectively. During the six months ended June 30, 2017 and year ended December 31, 2016, purchases of loans from third party originators totaled $13.3 million and $17.8 million, respectively.

Financing activities consist primarily of activity in deposit accounts, borrowed funds from the Federal Home Loan Bank of Boston (FHLB) advances and stock repurchases.  We experienced a net increase in deposits of $24.1 million and $73.8 million for the three months ended June 30, 2017 and for the year ended December 31, 2016, respectively.  Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors, and by other factors. The net increase in short term borrowed funds was $6.7 million during the six months ended June 30, 2017 as compared to an increase of $4.0 million for the year ended December 31, 2016 and $1.8 million in long-term advances for the year ended December 31, 2016.  The Corporation repurchased $333,000 of its common stock as part of a previously announced 5% stock repurchase program during the six months ended June 30, 2017.

Liquidity management is both a daily and long-term function of business management.  If we require funds beyond our ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Boston that provide an additional source of funds.  Borrowed funds were $127.9 million and $121.3 million at June 30, 2017 and December 31, 2016, respectively.  At June 30, 2017, we had the ability to borrow up to an additional $99.4 million from the Federal Home Loan Bank of Boston.  We also have the ability to borrow with the Federal Reserve discount window.  At June 30, 2017, the Bank had the capacity to borrow up to $16.8 million from the Federal Reserve discount window, but had no outstanding borrowings as of that date.

43

Capital Resources

The Corporation believes its current capital is adequate to support ongoing operations. In July 2013, the Bank’s primary federal regulator, the FDIC, published final rules (the “Basel III Capital Rules”) that implement, in part, agreements reached by the Basel Committee on Banking Supervision (“Basel Committee”) in “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems” (“Basel III”) and imposed new capital requirements on the Bank, effective January 1, 2015. When fully phased in, the Basel III Capital Rules will additionally require institutions to retain a capital conservation buffer, composed of CET1, of 2.5% above these required minimum capital ratio levels.  Banking organizations that fail to maintain the minimum 2.5% capital conservation buffer could face restrictions on capital distributions or discretionary bonus payments to executive officers.  Restrictions would begin phasing in where the banking organization’s capital conservation buffer was below 2.5% at the beginning of a quarter, and distributions and discretionary bonus payments would be completely prohibited if no capital conservation buffer exists.  When the capital conservation buffer is fully phased in on January 1, 2019, the Bank will effectively have the following minimum capital to risk-weighted assets ratios: a) 7.0% based upon CET1; b) 8.5% based upon tier 1 capital; and c) 10.5% based upon total regulatory capital.  The implementation of the capital conservation buffer began on January 1, 2016 at 0.625% and increases by 0.625% each subsequent January 1, until it reaches 2.5% on January 1, 2019.  For 2017, the capital conservation buffer is 1.25%.  As of June 30, 2017, the Bank qualifies as “well capitalized” under applicable regulations of the Rhode Island Department of Business Regulation and the FDIC.  To be categorized as “well capitalized” under Basel III, framework, the Bank must maintain minimum Total Capital, Tier 1 and Common Equity Tier 1 Capital ratios of 10%, 8% and 6.5% respectively, and, maintain a leverage capital ratio (Tier 1 capital to average assets) of at least 5%.

The Bank’s actual capital amounts and ratios are presented as of June 30, 2017 in the table below.

	Actual				Minimum Capital for Capital Adequacy Purposes				Minimum Capital for Adequacy with Capital Buffer				Minimum Capital To Be Well Capitalized
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to risk weighed assets)	$	61,511	13.13	%	$	37,479	8.00	%	$	43,335	9.25	%	$	46,849	10.00	%
Tier 1 Capital (to risk weighed assets)	$	58,791	12.55	%	$	28,109	6.00	%	$	33,965	7.25	%	$	37,479	8.00	%
Common Equity Tier 1 (to risk weighed assets)	$	58,791	12.55	%	$	21,082	4.50	%	$	26,938	5.75	%	$	30,452	6.50	%
Tier 1 Leverage Capital (to average assets)	$	58,791	9.14	%	$	25,726	4.00	%	N/A		N/A		$	32,157	6.00	%

On April 9, 2015, the Board of Governors of the Federal Reserve System issued the Final Rule to implement Public Law 113-250 enacted on December 18, 2014 that updates the Small Bank Holding Company Policy Statement (“Policy Statement”), which became effective in May 2015.  Pursuant to the Policy Statement, capital rules and reporting requirements will not apply to the small bank holding companies (defined as less than $1.0 billion in assets) which meet the following criteria: (1) not engaged in significant non-bank activities; (2) no significant off-balance sheet activities conducted through a non-bank subsidiary, and (3) no material amount of SEC registered debt or equity securities outstanding (other than trust preferred).  The Bank is subject to the capital rules and reporting requirements though the Holding Company is exempt.

Item 3 -Quantitative and Qualitative Disclosures About Market Risk

Not required for smaller reporting companies.

44

Item 4 -Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, the Corporation carried out an evaluation as defined in Rule 13a-15(e) under the Exchange Act of 1934, under the supervision and with the participation of the Corporation’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures.  Based on this evaluation, the Corporation’s principal executive officer and principal financial officer concluded that the Corporation’s disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

There has been no change in the Corporation’s internal control over financial reporting that has occurred during the Corporation’s most recent fiscal quarter (i.e., the three months ended June 30, 2017) that has materially affected, or is reasonably likely to materially affect, such internal controls.

PART II - OTHER INFORMATION

Item 1 -Legal Proceedings

At June 30, 2017 there were no material legal proceedings to which the Corporation is a party or of which any of its property is subject.  From time to time, the Corporation is a party to various legal proceedings incident to its business.

Item 1A -Risk Factors

Not required for smaller reporting companies.

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

a)Unregistered Sales of Equity Securities.  None

b)Use of Proceeds.  None

c)Repurchase of Equity Securities

The following table provides certain information with regard to shares repurchased by the Company in the second quarter of 2017.

Period	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)	(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(1)
April 1 — April 30, 2017	4,500	$	17.72	4,500	101,548
May 1 — May 31, 2017	—	$	—	—	101,548
June 1 — June 30, 2017	—	$	—	—	101,548
Total	4,500	$	17.72	4,500	101,548

(1) The Corporation’s Board of Directors authorized its third stock repurchase program on November 22, 2016 to acquire up to 247,459 shares, or 5.0% of the Corporation’s then outstanding common stock.  Repurchases will be made from time to time depending on market conditions and other factors, and will be conducted through open market or private transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission.  There is no guarantee as to the exact number of shares to be repurchased by the Corporation.

45

Item 3 -Defaults upon Senior Securities

Not Applicable

Item 4 -Mine Safety Disclosures

Not Applicable

Item 5 -Other Information

Not Applicable

Item 6 -Exhibits

EXHIBIT INDEX

Exhibit No.	Description
31.1*	Certification of Principal Executive Officer under Securities Exchange Act Rule 13a-14(a)
31.2*	Certification of Principal Financial Officer under Securities Exchange Act Rule 13a-14(a)
32*	Certification of Principal Executive Officer and Principal Financial Officer under 18 U.S.C. § 1350 Furnished Pursuant to Securities Exchange Act Rule 13a-14(b)
101*	The following materials from Coastway Bancorp, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 were formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016, (ii) Consolidated Statements of Net Income for the three and six months ended June 30, 2017 and 2016, (iii) Consolidated Statements of Comprehensive Income for the six months ended June 30, 2017 and 2016, (iv) Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2017 and (v) Notes to Unaudited Consolidated Financial Statements.

*Filed herewith

46

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.

	COASTWAY BANCORP, INC.
Dated: August 3, 2017
	By:	/s/ William A. White
		President and Chief Executive Officer
		(Principal Executive Officer)
		/s/ Jeanette Fritz
		Executive Vice President and
		Chief Financial Officer
		(Principal Financial Officer)

47

EX-31.1

Exhibit 31.1

CERTIFICATION

1)I have reviewed this report on Form 10-Q of Coastway Bancorp, Inc.;

2)Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3)Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations an ash flows of the registrant of as of, and for, the periods presented in this report;

4)The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5)The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial report, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to records, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 3, 2017

/s/ William A. White

William A. White

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

1)I have reviewed this report on Form 10-Q of Coastway Bancorp, Inc.;

2)Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3)Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations an ash flows of the registrant of as of, and for, the periods presented in this report;

4)The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5)The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial report, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to records, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 3, 2017

/s/ Jeanette Fritz

Jeanette Fritz

Executive Vice President and Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Coastway Bancorp, Inc. (the “Company”) on Form 10-Q for the period ended June  30, 2017 as filed with the Securities and Exchange Commission (the “Report”), the undersigned, William A. White, President, and Chief Executive Officer of the Company, and Jeanette Fritz, Executive Vice President and Chief Financial Officer, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his/her knowledge:

1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and

2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ William A. White	Dated: August 3, 2017
William A. White
President and Chief Executive Officer

/s/ Jeanette Fritz	Dated: August 3, 2017
Jeanette Fritz
Executive Vice President and Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to Coastway Bancorp, Inc. and will be retained by Coastway Bancorp, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2017	Jul. 31, 2017
Document and Entity Information
Entity Registrant Name	Coastway Bancorp, Inc.
Entity Central Index Key	0001585023
Document Type	10-Q
Document Period End Date	Jun. 30, 2017
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		4,392,441
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q2

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Cash and cash equivalents:
Cash and due from banks	$ 2,275	$ 2,946
Interest-earning deposits	44,225	41,712
Total cash and cash equivalents	46,500	44,658
Federal Home Loan Bank stock, at cost	6,172	6,184
Loans, net of allowance for loan losses of $2,720 and $2,493, respectively	562,906	525,215
Loans held for sale	13,228	23,157
Premises and equipment, net	31,684	31,426
Accrued interest receivable	1,716	1,598
Foreclosed real estate	422	422
Bank-owned life insurance	4,522	4,452
Net deferred tax asset	1,059	925
Other assets	7,512	6,154
Total assets	675,721	644,191
Deposits:
Interest-bearing	358,445	340,352
Non-interest-bearing	112,922	106,962
Total deposits	471,367	447,314
Borrowed funds	127,941	121,250
Accrued expenses and other liabilities	6,601	7,055
Total liabilities	605,909	575,619
Commitments and contingencies (Note 6)
Stockholders' equity:
Preferred stock, $0.01 par value; 20,000,000 shares authorized, none issued or outstanding at June 30, 2017 and December 31, 2016
Common stock, $0.01 par value; 50,000,000 shares authorized; 4,392,441 and 4,403,096 issued and outstanding at June 30, 2017 and December 31, 2016, respectively	44	44
Additional paid-in capital	39,888	40,107
Retained earnings	33,565	32,186
Unearned compensation - Employee Stock Ownership Plan (ESOP)	(3,405)	(3,485)
Accumulated other comprehensive loss	(280)	(280)
Total stockholders' equity	69,812	68,572
Total liabilities and stockholders' equity	$ 675,721	$ 644,191

XML

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Consolidated Balance Sheets
Loans, allowance for loan losses	$ 2,720	$ 2,493
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	20,000,000	20,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares issued	4,392,441	4,403,096
Common stock, shares outstanding	4,392,441	4,403,096

XML

Consolidated Statements of Net Income and Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Interest income:
Interest and fees on loans	$ 5,706	$ 5,107	$ 11,169	$ 10,057
Other interest income	153	73	303	145
Total interest income	5,859	5,180	11,472	10,202
Interest expense:
Interest on deposits	733	499	1,439	985
Interest on borrowed funds	290	150	516	293
Total interest expense	1,023	649	1,955	1,278
Net interest income	4,836	4,531	9,517	8,924
Provision for loan losses	153	145	213	254
Net interest income after provision for loan losses	4,683	4,386	9,304	8,670
Non-interest income:
Customer service fees	868	804	1,700	1,575
Net gain on sales of loans and other mortgage banking income	1,025	1,267	1,843	2,151
Bank-owned life insurance income	32	32	70	64
Other income	48	32	108	66
Total non-interest income	1,973	2,135	3,721	3,856
Non-interest expenses:
Salary and employee benefits	2,991	2,716	5,950	5,428
Occupancy and equipment	795	696	1,665	1,512
Data processing	481	447	955	847
Deposit servicing	235	236	476	444
Professional fees	178	185	400	384
FDIC insurance assessment	73	89	152	185
Advertising	92	114	193	161
Foreclosed real estate	7	25	14	42
Other general and administrative	431	442	923	887
Total non-interest expenses	5,283	4,950	10,728	9,890
Income before income taxes	1,373	1,571	2,297	2,636
Income tax expense	556	625	918	1,051
Net income and comprehensive income	$ 817	$ 946	$ 1,379	$ 1,585
Weighted average common shares outstanding-basic	4,002,657	4,321,996	4,008,281	4,380,932
Weighted average common shares outstanding-diluted	4,028,360	4,324,061	4,030,141	4,382,178
Per share information:
Diluted earnings per common share	$ 0.20	$ 0.22	$ 0.34	$ 0.36
Basic earnings per common share	$ 0.20	$ 0.22	$ 0.34	$ 0.36

XML

Consolidated Statements of Changes in Stockholders' Equity - 6 months ended Jun. 30, 2017 - USD ($) $ in Thousands	Common Stock	Additional Paid-in Capital	Retained Earnings	Unearned Compensation-ESOP	Accumulated Other Comprehensive Loss	Total
Balance at Dec. 31, 2016	$ 44	$ 40,107	$ 32,186	$ (3,485)	$ (280)	$ 68,572
Balance (in shares) at Dec. 31, 2016	4,403,096					4,403,096
Increase (Decrease) in Stockholders' Equity
Net income			1,379			$ 1,379
Common stock repurchased		(333)				(333)
Common stock repurchased (in shares)	(19,200)
Stock-based compensation, net of awards surrendered		49				49
Stock-based compensation, net of awards surrendered (in shares)	8,545
ESOP shares committed to be allocated (7,919 shares)		65		80		145
Balance at Jun. 30, 2017	$ 44	$ 39,888	$ 33,565	$ (3,405)	$ (280)	$ 69,812
Balance (in shares) at Jun. 30, 2017	4,392,441					4,392,441

XML

Consolidated Statements of Changes in Stockholders' Equity (Parenthetical)	6 Months Ended
	Jun. 30, 2017 shares
Consolidated Statements of Changes in Stockholders' Equity
ESOP shares allocated (in shares)	7,919

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Cash flows from operating activities:
Net income	$ 1,379	$ 1,585
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	213	254
Loans originated for sale	(95,253)	(94,286)
Loans sold	107,172	91,512
Gain on sale of mortgage loans, net	(1,990)	(1,773)
Amortization of deferred loan costs	493	515
Loss on foreclosed real estate		14
Loss on sale of real estate held for sale		11
Depreciation and amortization expense	719	650
Income from Bank-owned life insurance	(70)	(64)
Deferred income tax expense (benefit)	(134)	333
ESOP expense	145	99
Stock-based compensation, net of awards surrendered	49	54
Net change in:
Accrued interest receivable	(118)	(116)
Other, net	(1,812)	(323)
Net cash provided by operating activities	10,793	(1,535)
Cash flows from investing activities:
Purchase of and increases in certificates of deposit		(15)
Maturities of certificates of deposit		3,043
Purchase of FHLB stock	(826)	(1,317)
Redemption of FHLB stock	838	100
Loan originations, net of principal payments	(25,124)	(29,200)
Purchase of loans from third party originators	(13,273)	(9,068)
Proceeds from the sale of real estate held for sale		3,294
Purchases of premises and equipment	(977)	(511)
Net cash used by investing activities	(39,362)	(33,674)
Cash flows from financing activities:
Net increase in deposits	24,053	13,337
Net change in short-term borrowed funds	6,691	23,350
Repurchase of common stock	(333)	(4,616)
Net cash provided (used) by financing activities	30,411	32,071
Net change in cash and cash equivalents	1,842	(3,138)
Cash and cash equivalents at beginning of period	44,658	18,322
Cash and cash equivalents at end of period	46,500	15,184
Supplemental cash flow information:
Interest paid on deposits	1,438	984
Interest paid on borrowed funds	515	278
Income taxes paid	$ 1,741	1,465
Supplemental cash flow information:
Loans transferred to foreclosed real estate		$ 211

XML

Basis of Presentation and Consolidation

6 Months Ended

Jun. 30, 2017

Basis of Presentation and Consolidation

Basis of Presentation and Consolidation

(1)Basis of Presentation and Consolidation

General information

Coastway Bancorp, Inc., a Maryland chartered stock corporation (“Company” or “Corporation”), was formed to serve as the holding company for Coastway Community Bank.  Coastway Community Bank (the “Bank”) is a Rhode Island-chartered savings bank.  The Bank provides a variety of financial services to individuals and small businesses throughout Rhode Island.  Its primary deposit products are savings, demand, money market and term certificate accounts and its primary lending products are one-to four-family residential mortgage loans, home equity loans and lines of credit, commercial real estate and SBA loans.

Basis of Presentation

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

The unaudited consolidated financial statements of the Corporation presented herein have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and pursuant to the rules of the SEC for quarterly reports on Form 10-Q and Article 8 of Regulation S-X and do not include all of the information and note disclosures required by GAAP for a complete set of financial statements.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures necessary for the fair presentation of the accompanying consolidated financial statements have been included. The results of operations for interim periods are not necessarily indicative of results for the full year or any other interim period. The accompanying unaudited financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2016, included in the Corporation’s annual report on Form 10-K.

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the 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, the valuation of deferred tax assets, the valuation of loans held for sale, mortgage-banking derivatives and commitments to sell fixed-rate residential mortgages.

Stock-Based Compensation

Compensation cost is recognized for stock options and restricted stock awards issued to employees based on the fair value of these awards at the grant date.  A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Corporation’s stock at the grant date is utilized for restricted stock awards.

Compensation cost is recognized over the required service period, generally defined as the vesting period.  For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

Recent Accounting Pronouncements

As an “emerging growth company” as defined in Title 1 of the Jumpstart Our Business Startups (JOBS) Act, the Corporation has elected to use the extended transition period to delay the adoption of new or reissued accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies.  As of June 30, 2017, there is no significant difference in the comparability of the financial statements as a result of this extended transition period.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.”  The objective of this amendment is to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS.  This update 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 in the scope of other standards.  In August 2015, the FASB issued ASU 2015-14 to defer for one year the effective date of the new revenue standard.  The requirements are effective for annual periods and interim periods within fiscal years beginning after December 15, 2018.  During 2016, the FASB issued further implementation guidance regarding revenue recognition.  This additional guidance included clarification on certain principal versus agent considerations within the implementation of the guidance as well as clarification related to identifying performance obligations and licensing, assessing collectability, presenting sales taxes, measuring noncash consideration, and certain transition matters.  The Corporation does not expect the adoption of this guidance will have a significant impact on the Corporation’s consolidated financial statements, but is expected to require additional disclosures.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10), which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments.  The ASU requires equity instruments (except those accounted for under the equity method of accounting or that result in consolidations of the investee) to be measured at fair value with changes in fair value recognized in net income.  However, an entity may choose to measure an equity investment that does not have a readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions.  For public business entities, the standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  For all other entities, including emerging growth companies, the standard is effective for fiscal years beginning after December 15, 2018 and interim periods within fiscal periods after December 15, 2019.  We do not expect a significant impact upon adoption on January 1, 2019.

In February 2016, the FASB issued ASU 2016-02, Leases, which will require organizations that lease assets — referred to as “lessees” — to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases.  Under the new guidance, a lessee will be required to recognize right to use assets and lease liabilities for leases with lease terms of more than 12 months.  However, unlike current Generally Accepted Accounting Principles (GAAP) — which requires only capital leases to be recognized on the balance sheet — the new ASU will require both types of leases to be recognized on the balance sheet.

The accounting by organizations that own the assets leased by the lessee — also known as lessor accounting — will remain largely unchanged from current GAAP.  However, the ASU contains some targeted improvements that are intended to align, where necessary, lessor accounting with the lessee accounting model.  The ASU on leases will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  For all other organizations, including emerging growth companies, the ASU on leases will take effect for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020.  We are currently evaluating the impact of adoption of this standard, including identifying contracts that are, or contain, leases, as the lease identification guidance in the new standard is different than the current standard.

On March 30, 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-09, which is intended to improve the accounting for employee share-based payments.  The ASU affects all organizations that issue share-based payment awards to their employees.  The ASU, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, simplifies several aspects of the accounting for share-based payment award transactions, including:

· The income tax consequences

· Classification of awards as either equity or liabilities, and

· Classification on the statement of cash flows.

For public companies, the amendments in this ASU are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods.  For private companies and emerging growth companies, the amendments are effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018.  Early adoption is permitted for any organization in any interim or annual period.  This standard will be effective for the Corporation for the year ended December 31, 2018.  The Corporation early adopted the standard as of January 1, 2017, and the impact of adoption was not material.  The standard adds volatility in the effective tax rate.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses, that will significantly change how banks measure and recognize credit impairment for many financial assets from an incurred loss methodology to a current expected credit loss model.  The current expected credit loss model will require companies to immediately recognize an estimate of credit losses expected to occur over the remaining life of the financial assets that are in the scope of the standard.  The FASB also made targeted amendments to the current impairment model for available-for-sale debt securities.  The ASU is effective for public business entities that are SEC filers, for annual and interim periods in fiscal years beginning after December 15, 2019, and for other companies, including emerging growth companies, for interim and annual periods in fiscal years beginning after December 15, 2020.  All entities may early adopt the standard for annual and interim periods in fiscal years after December 15, 2018.  The standard will be effective for the Corporation on January 1, 2020.  We are currently evaluating the impact of adoption of this standard, including different methodologies that may be employed to estimate credit losses, such as loss rate methods, component loss methods, and qualitative factors, as well as additional data gathering that will be needed to adopt the standard.  The standard will add new disclosures related to factors that influenced management’s estimate, including current expected credit losses, the changes in those factors, and reasons for the changes as well as the method applied to revert to historical credit loss experience.

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Loans

6 Months Ended

Jun. 30, 2017

Loans

Loans

(2)Loans

Major classifications of loans at the dates indicated, are as follows:

(Dollars in thousands)	June 30, 2017			December 31, 2016
Residential real estate mortgage loans:
1-4 family	$	272,972		$	243,385
Home equity loans and lines of credit	73,553			76,175
Total residential real estate mortgage loans	346,525			319,560
Commercial:
Commercial real estate	146,252			138,946
Commercial business	14,511			13,308
Commercial construction	13,441			10,946
SBA	39,502			39,948
Consumer	1,246			1,165
Total loans	561,477			523,873
Allowance for loan losses	(2,720		)	(2,493		)
Net deferred loan costs	4,149			3,835
Loans, net	$	562,906		$	525,215

Residential one- to four-family loans of $273.0 million at June 30, 2017 and $243.4 million at December 31, 2016 include purchased loans which were individually underwritten based on the Bank’s credit standards, totaling $71.5 million and $67.5 million at June 30, 2017 and December 31, 2016, respectively.  During the six months ended June 30, 2017 and 2016, the Bank purchased $13.1 million and $9.0 million of loans at a cost of $13.3 million and $9.1 million, respectively.  The loans purchased from third parties are located in New England, primarily Massachusetts.

Loan Segments

One-to four-family residential real estate and home equity — Loans in these segments are collateralized by owner-occupied residential real estate and repayment is dependent on the credit quality of the individual borrower.  The Bank generally has first liens on one-to four-family residential real estate loans and first or second liens on property securing home equity loans and equity lines-of-credit.  Jumbo one- to four-family loans generally have maximum loan-to-value ratios of 95%.  Loan-to-value ratios of one- to four-family loans without private mortgage insurance may be made with loan-to-value ratios up to 95%.  Home equity loans and lines of credit may be underwritten with a loan-to-value ratio up to 80%.  The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in these segments.

Commercial — Commercial loan segments include commercial real estate, commercial and industrial loans for businesses and construction financing for business/properties located principally in Rhode Island.  For commercial real estate loans, the underlying cash flows generated by the properties are adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, will have an effect on the credit quality in this segment.  Non-real estate commercial loans are made to businesses and are generally secured by assets of the business.  Repayment is expected from the cash flows of the business.  Commercial construction generally represent loans to finance construction of retail and office space.  Commercial loans also include loans made under the SBA 504 program which is an economic development program that finances the expansion of small businesses.  The Bank generally provides 50% of the projected costs, and the loan is secured by a first lien on the commercial property.  The SBA does not provide a guarantee on loans made under the SBA 504 program.  A weakened economy, and resultant decreased consumer spending, will have an effect on the credit quality in this segment.  Management monitors the cash flows of these loans.

SBA — Loans in this segment include commercial loans underwritten using SBA guidelines for the SBA’s 7(a) program and include both guaranteed and unguaranteed portions of the same loans.  Currently, under the SBA 7(a) program, loans may qualify for guarantees up to 85% of principal and accrued interest up to a maximum SBA guarantee of $3.75 million per borrower and related entities.  The Bank does not treat the SBA guarantee as a substitute for a borrower meeting reasonable credit standards.  SBA guarantees are generally sought on loans to borrowers that exhibit minimum capital levels, a short time in business, lower collateral coverage or maximum loan terms beyond the Bank’s normal underwriting criteria.  For a number of SBA loans, the Bank has sold portions of certain loans and retains the unguaranteed portion while continuing to service the entire loan.  The guaranteed portion of SBA loans in the Bank’s portfolio is not allocated a general reserve because the Bank has not experienced losses on such loans and management expects the guarantees will be effective, if necessary.  Guaranteed portions of SBA loans totaled $25.4 million and $25.9 million at June 30, 2017 and December 31, 2016, respectively.

Consumer — This segment includes unsecured and vehicle loans and repayment is dependent on the credit quality of the individual borrower.  Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans.

Allowance for Loan Losses

Allowance for Loan Loss Methodology

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 uncollectibility of a loan balance is confirmed.  For impaired loans that are deemed collateral dependent, the recorded balance of the loan is reduced by a charge-off to fair value of the collateral net of estimated selling costs.

The allowance for loan losses is evaluated on a regular basis by management.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.  The allowance consists of general and specific components as described below.

The general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by loan segments.  Management uses a ten year historical loss period to capture relevant loss data for each loan segment.  This historical loss factor is adjusted for the following qualitative factors: levels/trends in delinquencies; charge-off trends over the past three and five year periods; weighted average risk ratings; loan concentrations; management’s assessment of internal factors; and management’s assessment of external factors such as interest rates, real estate markets and local and national economic factors.  There were no changes in the Bank’s policies or methodology pertaining to the general component of the allowance for loan losses during the three and six months ended June 30, 2017 and the year ended December 31, 2016.

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

Credit Quality Indicators

Commercial and SBA loans are risk rated based on key factors such as management ability, financial condition, debt repayment ability, collateral, industry conditions and loan structure.

Risk Rating 6 — Special Mention:  these loans have potential weaknesses and require management’s close attention.  If these weaknesses are not addressed, they may weaken the prospects for repayment at a future date.  Special mention assets do not expose the institution to sufficient risk to warrant a classified rating.

Risk Rating 7 — Substandard:  loans in this category are inadequately protected by the current financial condition and repayment ability of the borrower or pledged collateral, if any.  These assets have a well-defined weakness(es) that jeopardizes the repayment of the debt in full, and are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Risk Rating 8 — Doubtful:  loans have all the weaknesses of those classified substandard.  In addition, it is highly unlikely that a doubtful asset can be collected or liquidated in full.  The possibility of loss is extremely high.  However, because of certain important and reasonably specific pending factors, which may work to strengthen the asset, its classification as a loss is deferred until the asset’s status can be better determined.

Risk Rating 9 — Loss:  loans classified as loss are considered uncollectible and of such little value that they are no longer considered bankable.  This classification does not mean that the asset has no recovery or salvage value.  However, it is not practical or desirable to defer writing off the asset even though partial recovery may occur in the future.

Loans not meeting the criteria above that are analyzed individually as part of the above process are considered to be pass-rated loans.

On an annual basis, or more often if needed, the Bank formally reviews the ratings on commercial and SBA loans over $250,000.  On an annual basis, the Bank engages an independent third-party to review a significant portion of loans within these segments.  Management uses the results of these reviews as part of its annual review of its control process related to loan ratings.  Credit quality for residential real estate mortgage and consumer loans is determined by monitoring loan payment history and on-going communications with borrowers, and are not risk graded.  Non-performing homogenous loans are individually evaluated for impairment.

The following table presents the credit risk profile by internally assigned risk rating category at the dates indicated:

	June 30, 2017
	Commercial		Commercial		Commercial
(Dollars in thousands)	Real Estate		Business		Construction		SBA		Total
Pass	137,853		14,511		$	13,441	$	37,360	$	203,165
Loans rated 6	—		—		—		796		796
Loans rated 7	8,399		—		—		1,346		9,745
Loans rated 8	—		—		—		—		—
	$	146,252	$	14,511	$	13,441	$	39,502	$	213,706

	December 31, 2016
	Commercial		Commercial		Commercial
(Dollars in thousands)	Real Estate		Business		Construction		SBA		Total
Pass	$	133,660	$	13,308	$	10,946	$	37,430	$	195,344
Loans rated 6	667		—		—		1,337		2,004
Loans rated 7	4,619		—		—		1,181		5,800
Loans rated 8	—		—		—		—		—
	$	138,946	$	13,308	$	10,946	$	39,948	$	203,148

Past Due and Non-Accrual Loans

The accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the loan is both well secured and in the process of collection.  Past due status is based on the contractual terms of the loan.  In all cases, loans are placed on non-accrual at an earlier date if collection of principal or interest is considered doubtful.  All interest accrued, but not collected for loans that are placed on non-accrual, is reversed against interest income.  The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, the loan has performed in accordance with the contractual terms for a reasonable period of time, typically a minimum of six months and future payments are reasonably assured.

The following table presents past due loans as of the dates indicated.

	June 30, 2017
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Past Due > 90 Days and Still Accruing		Loans on Non-accrual
Residential real estate:
1-4 family	$	—	$	948	$	—	$	948	$	—	$	2,270
Home equity loans and lines of credit	484		132		151		767		—		719
Commercial real estate	3,999		—		108		4,107		—		108
Commercial business	—		—		—		—		—		—
Commercial construction	—		—		—		—		—		—
SBA	—		300		—		300		—		389
Consumer	—		—		—		—		—		—
Total gross loans	$	4,483	$	1,380	$	259	$	6,122	$	—	$	3,486

	December 31, 2016
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Past Due > 90 Days and Still Accruing		Loans on Non-accrual
Residential real estate:
1-4 family	$	625	$	587	$	738	$	1,950	$	—	$	3,662
Home equity loans and lines of credit	109		547		491		1,147		—		735
Commercial real estate	—		—		130		130		—		238
Commercial business	—		—		—		—		—		—
Commercial construction	—		—		—		—		—		—
SBA	—		148		18		166		—		18
Consumer	2		—		—		2		—		—
Total gross loans	$	736	$	1,282	$	1,377	$	3,395	$	—	$	4,653

The balance of loans on non-accrual at June 30, 2017 and December 31, 2016 exceeds loans past due, due to a combination of loans that are current, but that have been modified in a troubled debt restructuring and/or loans for which future payments are not reasonably assured.

Impaired Loans

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

The Bank periodically may agree to modify the contractual terms of loans, such as a reduction in interest rate of the loan for some period of time, an extension of the maturity date or an extension of time to make payments with the delinquent payments added to the end of the loan term.  When a loan is modified and a concession is made to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring (“TDR”).  All TDRs are classified as impaired.  Loans on non-accrual status at the date of modification are initially classified as non-accruing troubled debt restructurings.  TDRs may be returned to accrual status after a period of satisfactory payment performance according to the terms of the restructuring, generally six months of current payments.

The following tables set forth the recorded investment in impaired loans and the related specific allowance allocated as of the dates indicated.

	June 30, 2017
(Dollars in thousands)	Unpaid contractual principal balance		Total recorded investment in impaired loans		Recorded investment with no allowance		Recorded investment with allowance		Related allowance
Residential real estate:
1-4 family	$	4,710	$	4,421	$	4,421	$	—	$	—
Home equity loans & lines of credit	1,980		1,960		1,743		217		30
Commercial real estate	4,601		4,601		4,601		—		—
SBA	1,817		1,815		1,815		—		—
Consumer	56		56		43		13		3
Total	$	13,164	$	12,853	$	12,623	$	230	$	33

	December 31, 2016
(Dollars in thousands)	Unpaid contractual principal balance		Total recorded investment in impaired loans		Recorded investment with no allowance		Recorded investment with allowance		Related allowance
Residential real estate:
1-4 family	$	5,978	$	5,628	$	5,493	$	135	$	19
Home equity loans & lines of credit	1,369		1,349		1,131		218		31
Commercial real estate	4,487		4,487		4,487		—		—
SBA	1,511		1,493		1,493		—		—
Consumer	13		13		—		13		3
Total	$	13,358	$	12,970	$	12,604	$	366	$	53

Of the $1.8 million and $1.5 million of impaired SBA loans at June 30, 2017 and at December 31, 2016, respectively, guaranteed portions of such loans amounted to $1.3 million and $1.2 million at  June 30, 2017 and December 31, 2016, respectively.

The following table presents the average recorded investment in impaired loans and the related interest recognized during the periods indicated.

	Three Months Ended June 30, 2017				Three Months Ended June 30, 2016
(Dollars in thousands)	Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
Residential 1-4 family	$	4,742	$	69	$	5,112	$	55
Home equity loans & lines of credit	1,854		25		1,381		17
Commercial real estate	4,411		52		392		4
SBA	1,606		22		2,168		41
Consumer	24		—		14		—
Total	$	12,637	$	168	$	9,067	$	117

	Six Months Ended June 30, 2017				Six Months Ended June 30, 2016
(Dollars in thousands)	Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
Residential 1-4 family	$	5,115	$	122	$	4,722	$	90
Home equity loans & lines of credit	1,759		50		1,299		31
Commercial real estate	4,405		100		394		6
SBA	1,550		46		2,099		81
Consumer	19		—		14		—
Total	$	12,848	$	318	$	8,528	$	208

Troubled Debt Restructurings

Loans are designated as a TDR when, as part of an agreement to modify the original contractual terms of the loan, the Bank grants a concession on the terms, that would not otherwise be considered, as a result of financial difficulties of the borrower.  Typically, such concessions may consist of a reduction in interest rate to a below market rate, taking into account the credit quality of the note, or a deferment or reduction of payments, principal or interest, which materially alters the Bank’s position or significantly extends the note’s maturity date, such that the present value of cash flows to be received is materially less than those contractually established at the loan’s origination.  All loans that are modified are reviewed by the Bank to identify if a TDR has occurred.  TDRs are included in the impaired loan category and as such, these loans are individually evaluated for impairment and a specific reserve is assigned for the amount of the estimated credit loss. Total TDR loans, included in impaired loans as of June 30, 2017 and December 31, 2016 were $11.1 million and $10.9 million, respectively.  No additional funds are committed to be advanced in connection with TDR loans.  TDR loans on accrual status amounted to $9.4 million and $8.3 million at June 30, 2017 and December 31, 2016, respectively.

Troubled debt restructuring agreements entered into during the period indicated are as follows:

	Three Months Ended June 30, 2017					Six Months Ended June 30, 2017
(Dollars in thousands)	Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Residential 1-4 family	—	$	—	$	—	—	$	—	$	—
Home equity	2	255		255		6	654		654
Commercial real estate	1	259		259		1	259		259
SBA	1	250		250		1	250		250
Consumer	1	44		44		1	44		44
Total	5	$	808	$	808	9	$	1,207	$	1,207

The troubled debt restructurings described above had no impact to the allowance for loan losses and resulted in no charge-offs during the three and six months ended June 30, 2017.

Troubled debt restructurings that subsequently defaulted within 12 months of restructuring are as follows during the period indicated:

	Three Months Ended June 30, 2017			Six Months Ended June 30, 2017
(Dollars in thousands)	Number of TDRs that defaulted	Post-modification outstanding recorded investment		Number of TDRs that defaulted	Post-modification outstanding recorded investment
Residential 1-4 family	1	$	71	1	$	71
Home equity	—	—		1	74
Commercial real estate	—	—		2	4,108
SBA	—	—		—	—
Total	1	$	71	4	$	4,253

The troubled debt restructurings described above resulted in no charge-offs and no specific reserves for the three and six months ended June 30, 2017.

Troubled debt restructuring agreements entered into during the periods indicated are as follows:

	Three Months Ended June 30, 2016					Six Months Ended June 30, 2016
(Dollars in thousands)	Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Residential 1-4 family	1	$	175	$	175	1	$	175	$	175
Home equity	2	286		286		3	296		296
Commercial real estate	—	—		—		—	—		—
SBA	1	50		50		1	50		50
Total	4	$	511	$	511	5	$	521	$	521

The troubled debt restructurings described above had no impact to the allowance for loan losses and resulted in no charge-offs during the three and six months ended June 30, 2016, respectively.

Troubled debt restructurings that subsequently defaulted within 12 months of restructuring are as follows during the periods indicated:

	Three Months Ended June 30, 2016			Six Months Ended June 30, 2016
(Dollars in thousands)	Number of TDRs that defaulted	Post-modification outstanding recorded investment		Number of TDRs that defaulted	Post-modification outstanding recorded investment
Residential 1-4 family	—	$	—	3	$	647
Total	—	$	—	3	$	647

The troubled debt restructurings described above resulted in no charge-offs and no specific reserves for the three months ended June 30, 2016 and resulted in a $20,000 charge-off and a $12,000 specific reserve during the six months ended June 30, 2016.

Allowance for loan loss activity

Changes in the allowance for loan losses by segment are presented below:

Three Months Ended June 30, 2017

(Dollars in thousands)	Residential 1-4 family			Home Equity			Commercial Real Estate		Commercial Business		Commercial Construction		SBA		Consumer			Total
Allowance at March 31, 2017	$	1,033		$	533		$	629	$	64	$	61	$	231	$	8		$	2,559
Provision (credit)	54			(11		)	63		5		8		42		(8		)	153
Loans charged-off	(6		)	—			—		—		—		—		—			(6		)
Recoveries	6			1			—		—		—		—		7			14
Allowance at June 30, 2017	$	1,087		$	523		$	692	$	69	$	69	$	273	$	7		$	2,720

Three Months Ended June 30, 2016

(Dollars in thousands)	Residential 1-4 family		Home Equity			Commercial Real Estate		Commercial Business		Commercial Construction		SBA			Consumer			Total
Allowance at March 31, 2016	$	906	$	522		$	527	$	51	$	31	$	238		$	8		$	2,283
Provision (credit)	40		62			14		14		6		15			(6		)	145
Loans charged-off	—		(62		)	—		—		—		(12		)	—			(74		)
Recoveries	—		7			—		—		—		7			6			20
Allowance at June 30, 2016	$	946	$	529		$	541	$	65	$	37	$	248		$	8		$	2,374

Six Months Ended June 30, 2017

(Dollars in thousands)	Residential 1-4 family			Home Equity			Commercial Real Estate		Commercial Business		Commercial Construction		SBA		Consumer			Total
Allowance at December 31, 2016	$	1,009		$	541		$	596	$	60	$	51	$	228	$	8		$	2,493
Provision (credit)	78			(20		)	96		9		18		42		(10		)	213
Loans charged-off	(6		)	—			—		—		—		—		—			(6		)
Recoveries	6			2			—		—		—		3		9			20
Allowance at June 30, 2017	$	1,087		$	523		$	692	$	69	$	69	$	273	$	7		$	2,720

Six Months Ended June 30, 2016

(Dollars in thousands)	Residential 1-4 family			Home Equity			Commercial Real Estate		Commercial Business		Commercial Construction		SBA			Consumer			Total
Allowance at December 31, 2015	$	863		$	525		$	503	$	39	$	21	$	234		$	9		$	2,194
Provision (credit)	103			63			38		26		16		18			(10		)	254
Loans charged-off	(20		)	(67		)	—		—		—		(12		)	—			(99		)
Recoveries	—			8			—		—		—		8			9			25
Allowance at June 30, 2016	$	946		$	529		$	541	$	65	$	37	$	248		$	8		$	2,374

The allowance for loan losses and loan balances by impaired and non-impaired components are as follows at the dates indicated:

June 30, 2017

(Dollars in thousands)	Residential 1-4 family		Home Equity		Commercial Real Estate		Commercial Business		Commercial Construction		SBA		Consumer		Total
Allowance for impaired loans	$	—	$	30	$	—	$	—	$	—	$	—	$	3	$	33
Allowance for non-impaired loans	1,087		493		692		69		69		273		4		2,687
Total	$	1,087	$	523	$	692	$	69	$	69	$	273	$	7	$	2,720
Impaired loans	$	4,421	$	1,960	$	4,601	$	—	$	—	$	1,815	$	56	$	12,853
Non-impaired loans	268,551		71,593		141,651		14,511		13,441		37,687		1,190		548,624
Total loans	$	272,972	$	73,553	$	146,252	$	14,511	$	13,441	$	39,502	$	1,246	$	561,477

December 31, 2016

(Dollars in thousands)	Residential 1-4 family		Home Equity		Commercial Real Estate		Commercial Business		Commercial Construction		SBA		Consumer		Total
Allowance for impaired loans	$	19	$	31	$	—	$	—	$	—	$	—	$	3	$	53
Allowance for non-impaired loans	990		510		596		60		51		228		5		2,440
Total	$	1,009	$	541	$	596	$	60	$	51	$	228	$	8	$	2,493
Impaired loans	$	5,628	$	1,349	$	4,487	$	—	$	—	$	1,493	$	13	$	12,970
Non-impaired loans	237,757		74,826		134,459		13,308		10,946		38,455		1,152		510,903
Total loans	$	243,385	$	76,175	$	138,946	$	13,308	$	10,946	$	39,948	$	1,165	$	523,873

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Employee Benefits

6 Months Ended

Jun. 30, 2017

Employee Benefits

Employee Benefits

(3)Employee Benefits

Deferred Compensation Supplemental Executive Plan

The Bank maintains a non-qualified deferred compensation supplemental executive retirement plan (“DCSERP”) with a senior executive.  The DCSERP allows the executive to invest all or a portion of the deferred compensation in Corporation Stock, provided that such stock will only be settled in Corporation Stock.  The assets invested in bonds, which are held in a Rabbi Trust, related to this Plan totaled $1.3 million at June 30, 2017 and $1.1 million at December 31, 2016, and are included in other assets at fair value in the consolidated balance sheet.  The liability for the benefit obligation reported in accrued expenses and other liabilities totaled $1.3 million at June 30, 2017 and $1.1 million at December 31, 2016. Additionally, the Rabbi Trust holds 8,900 shares of Corporation stock at June 30, 2017 and December 31, 2016 which is accounted for at its cost basis of $100,000, which is offset in stockholders’ equity by the benefit obligation of $100,000.  Rabbi trust shares are considered outstanding shares for both basic and diluted EPS.

Supplemental Retirement Agreements

The Bank has entered into supplemental retirement agreements (“SERP”) with seven executive officers, which provide for payments upon attaining the retirement age specified in the agreements, generally ages 65-67.  The present value of these future payments is accrued over the remaining service or vesting term.  Supplemental retirement benefits generally accrue as they are vested; however a termination of employment subsequent to a change in control will result in the vesting of all benefits that would have accrued to the officer’s normal retirement date.  During the three months ended June 30, 2017 and 2016, SERP expense totaled $241,000 and $192,000, respectively, and for the six months ended June 30, 2017 and 2016, SERP expense totaled $482,000 and $384,000, respectively.

Defined Benefit Pension Plan

Pension expense totaled $8,000 and $5,000 for the three months ended June 30, 2017 and 2016, respectively, and $16,000 and $11,000 for the six months ended June 30, 2017 and 2016, respectively. The Bank expects to contribute $8,000 during the plan year ending December 31, 2017.

Employee Stock Ownership Plan

The Corporation maintains an Employee Stock Ownership Plan (“ESOP”) to provide eligible employees the opportunity to own Corporation stock.  This plan is a tax-qualified retirement plan for the benefit of all Corporation employees.  Contributions are allocated to eligible participants on the basis of compensation, subject to federal tax limits.

The Corporation granted a loan to the ESOP for the purchase of shares of the Corporation’s common stock at the Conversion date.  As of June 30, 2017, the ESOP holds 395,219 shares, or 9% of the common stock outstanding on that date.  The loan obtained by the ESOP from the Corporation to purchase common stock is payable annually over 25 years at the prime rate, as published in The Wall Street Journal at the beginning of its calendar year, which was 3.50% at January 1, 2017.  The loan is secured by the shares purchased, which are held in a suspense account for allocation among participants as the loan is repaid.  Any cash dividends paid on allocated shares will, at the direction of the Corporation, be credited to the participant accounts and invested in the Investment Fund; be distributed to the participants in proportion with the participants’ stock fund account balance; be distributed to the participants within 90 days of the calendar year in which paid in proportion with the participants’ stock fund account balance; or be used to make payments on the outstanding debt of the ESOP.  Cash dividends paid on unallocated shares will be used to repay the outstanding debt of the ESOP then due.  If the amount of dividends exceeds the outstanding debt of the ESOP, then, in the sole discretion of the Corporation, cash dividends may be allocated to active participants on a non-discriminatory basis, or be deemed to be general earnings of the ESOP.  Shares used as collateral to secure the loan are released and available for allocation to eligible employees as the principal and interest on the loan is paid.

Shares held by the ESOP include the following:

	June 30, 2017
Allocated	47,512
Distributions	(715	)
Committed to be allocated	7,919
Unallocated	340,503
	395,219

The fair value of unallocated shares was approximately $7.0 million at June 30, 2017.

Total expense recognized in connection with the ESOP for the three month period ended June 30, 2017 and 2016 was $78,000 and $49,000, respectively, and total expense for the six month period ended June 30, 2017 and 2016 was $145,000 and $99,000, respectively.

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Other Stock-Based Compensation

6 Months Ended

Jun. 30, 2017

Other Stock-Based Compensation

Other Stock-Based Compensation

(4)Other Stock-Based Compensation

On May 21, 2015, the Coastway Bancorp, Inc. stockholders approved the 2015 Equity Incentive Plan (“EIP”).  Types of awards permitted by the EIP include stock options, restricted stock awards, restricted stock units, and performance awards.  The number of shares available for issuance under the EIP was 692,885 at December 31, 2015.  Stock options under the EIP will generally expire ten years after the date of grant.  Unless otherwise determined by the Compensation Committee, awards under the EIP (other than Performance Awards) shall be granted with a vesting rate not exceeding twenty percent per year, with the first installment vesting no earlier than one year after the date of grant.  Upon an involuntary termination following a change in control, all stock options, restricted stock awards and units will become fully vested and performance awards will be deemed earned.

In February 2016, the Compensation Committee of the Board of Directors authorized the grant of 91,225 options at a strike price of $12.41 and 39,045 shares of restricted stock to directors and certain key senior executives.  The options and the restricted stock both vest over a five year period.  The $12.41 fair value of the restricted stock is based on the closing price of the Company’s common stock on the date of the grant.  The holders of restricted stock participate fully in rewards of stock ownership of the Company, including voting, and dividend rights when vested.  The grant-date fair value of stock options of $2.59 was estimated using the Black-Scholes Option-Pricing Model.

In February 2017, the Compensation Committee of the Board of Directors authorized the grant of 26,155 options at a strike price of $16.40 and 11,228 shares of restricted stock to directors and certain key senior executives.  The options and the restricted stock both vest over a five year period.  The $16.40 fair value of the restricted stock is based on the closing price of the Company’s common stock on the date of the grant.  The holders of restricted stock participate fully in rewards of stock ownership of the Company, including voting, and dividend rights when vested.  The grant-date fair value of stock options of $4.11 was estimated using the Black-Scholes Option-Pricing Model.

Restricted stock expense for the three month period ended June 30, 2017 and 2016 was $33,000 and $24,000, respectively and restricted stock expense for the six month period ended June 30, 2017 and 2016 was $62,000 and $36,000, respectively.  At June 30, 2017 and 2016, there was $522,000 and $448,000, respectively, of unrecognized salary and employee benefits cost related to restricted stock.  Executive officers forfeited 2,683 shares of restricted stock in February 2017 for tax withholding purposes with a fair value of $44,000.

Stock option expense for the three months ended June 30, 2017 and 2016 was $17,000 and $12,000, respectively, and stock option expense for the six month period ended June 30, 2017 and 2016 was $31,000 and $18,000, respectively.  At June 30, 2017 and 2016, there was $271,000 and $219,000, respectively, of unrecognized salary and employee benefits cost related to stock options.

The following presents the assumptions that were used in determining the grant-date fair value of stock options:

	2017 Grant		2016 Grant
Volatility	15.04	%	13.52	%
Forfeiture rate	00.00		00.00
Dividend yield	00.00		00.00
Expected term	8 years		8 years
Risk free interest rate	2.25	%	1.56	%

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Earnings per Common Share

6 Months Ended

Jun. 30, 2017

Earnings per Common Share.

Earnings per Common Share

(5)Earnings per Common Share

Basic earnings per share represents income available to common stockholders divided by the weighted average number of common shares outstanding during the period.  Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance.  Unallocated ESOP shares are not deemed outstanding for earnings per share calculations.

Earnings per common share have been computed as follows for the three months ended June 30, 2017 and 2016 and the six months ended June 30, 2017 and 2016:

	Three months ended						Six months ended
	June 30,						June 30,
(Dollars in thousands)	2017			2016			2017			2016
Net income applicable to common stock	$	817		$	946		$	1,379		$	1,585
Weighted average common shares outstanding	4,345,146			4,680,322			4,352,733			4,741,221
Less: Average unallocated ESOP shares	(342,489		)	(358,326		)	(344,452		)	(360,289		)
Weighted average number of common shares outstanding — basic	4,002,657			4,321,996			4,008,281			4,380,932
Dilutive impact of stock options	15,993			—			12,680			—
Dilutive impact of restricted stock	9,710			2,065			9,180			1,246
Weighted average number of common shares outstanding — diluted	4,028,360			4,324,061			4,030,141			4,382,178
Earnings per share — basic	$	0.20		$	0.22		$	0.34		$	0.36
Earnings per share — diluted	$	0.20		$	0.22		$	0.34		$	0.36

Stock options to purchase 26,155 shares at $16.40 per share for the three months ended June 30, 2017 and 91,225 shares of common stock at $12.41 per share for the three months ended June 30, 2016 were not considered in computing diluted earnings per share for the three months ended June 30, 2017 and 2016, respectively, because the option exercise price was greater than the average market price of the common stock.  Stock options to purchase 26,155 shares at $16.40 per share for the six months ended June 30, 2017 and 91,225 shares of common stock at $12.41 per share for the six months ended June 30, 2016, respectively, were not considered in computing diluted earnings per share for the six months ended June 30, 2017 and 2016, respectively because the option exercise price was greater than the average market price of the common stock.

In November 2016, the Corporation authorized a program to repurchase, from time to time and as business conditions warrant, up to 223,331 shares of the Corporation’s common stock.  During the three months and six months ended June 30, 2017, the Corporation repurchased 4,500 and 19,200 shares under this third stock repurchase program, with 101,548 shares remaining to be repurchased under this program at June 30, 2017.

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Off-Balance Sheet Activities and Mortgage Banking

6 Months Ended

Jun. 30, 2017

Off-Balance Sheet Activities and Mortgage Banking

Off-Balance Sheet Activities and Mortgage Banking

(6)Off-Balance Sheet Activities and Mortgage Banking

In the normal course of business, there are outstanding commitments and contingencies which are not reflected in the accompanying consolidated financial statements.

Loan Commitments

The Bank is a party to conditional commitments to lend funds in the normal course of business to meet the financing needs of its customers.  These financial instruments include commitments to extend credit which include commercial lines of credit and home equity lines that involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet.  The Bank’s exposure to credit loss is represented by the contractual amount of those instruments.  The Bank uses the same credit policies in making commitments as it does for on-balance-sheet instruments.

The following financial instruments were outstanding whose contract amounts represent credit risk:

	June 30,		December 31,
	2017		2016
	(In thousands)
Commitments to originate loans for portfolio	$	20,849	$	18,461
Commitments to originate loans to be sold	32,411		24,307
Commitments to purchase loans from third parties	4,817		4,236
Unfunded commitments under home equity lines of credit	57,494		53,342
Unfunded commitments under commercial lines of credit	17,819		14,730
Unfunded commitments under SBA lines of credit	5,162		4,106
Unfunded commitments under overdraft lines of credit	176		180
Unadvanced funds on construction loans	7,746		5,735

The commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  The commitments for lines-of-credit may expire without being drawn upon.  Therefore, the total commitment amounts do not necessarily represent future cash requirements.  The Bank evaluates each customer’s creditworthiness on a case-by-case basis.  The amount of collateral obtained if deemed necessary by the Bank upon extension of credit is based upon management’s credit evaluation of the counterparty.  Collateral held generally consists of real estate.

Mortgage Banking

At June 30, 2017, the Bank had $32.4 million of interest rate lock commitments to borrowers and loans held for sale of $13.2 million with $40.5 million of forward commitments for the future delivery of residential mortgage loans.  Included in the forward commitments total are open To Be Announced securities (“TBAs”) with a notional amount of $20.0 million, mandatory delivery contracts with a notional amount of $4.7 million, and best efforts contracts with a notional amount of $15.8 million.  The Bank has $4.0 million of closed hedge instruments that are not settled at June 30, 2017.

At December 31, 2016, the Bank had $24.3 million of interest rate lock commitments to borrowers and loans held for sale of $23.2 million with $41.9 million of forward commitments for the future delivery of residential mortgage loans.  Included in the forward commitments total are open TBAs with a notional amount of $15.2 million, mandatory delivery contracts with a notional amount of $7.4 million, and best efforts contracts with a notional amount of $19.3 million.  The Bank had $8.5 million of closed hedge instruments that are not settled at December 31, 2016.

Leases

In May 2017, the Bank entered into two agreements to lease out 8,650 square feet of the corporate headquarters for 63 months, with two additional renewal options of two years each.  The schedule of minimum rental payments to be received under such leases as of December 31 are as follows (in thousands):

2017	$	—
2018	182
2019	182
2020	182
2021	182
Thereafter	197
	$	925

The following table presents the fair values of derivative instruments and forward loan sale commitments in the consolidated balance sheets:

	Assets			Liabilities
	Balance			Balance
	Sheet	Fair		Sheet	Fair
	Location	Value		Location	Value
	(In thousands)
June 30, 2017
Derivative loan commitments
Commitments hedged with best efforts	Other assets	$	164	N/A	$	—
Commitments hedged with TBA	Other assets	311		N/A	—
Total derivative commitments		475		N/A	—
Forward loan sale commitments
Best efforts contracts hedging:
Commitments	Other assets	12		N/A	—
Loans held for sale	Other assets	3		N/A	—
Total best efforts contracts		15			—
Mandatory delivery contracts	Other assets	12		N/A	—
TBA securities	Other assets	22		N/A	—
Total forward loans sale commitments		49			—
Total derivative loan and forward loan sale commitments		$	524		$	—
December 31, 2016
Derivative loan commitments:
Commitments hedged with best efforts	Other assets	$	255	N/A	$	—
Commitments hedged with TBA	Other assets	311		N/A	—
Total derivative commitments		566		N/A	—
Forward loan sale commitments
Best efforts contracts hedging:
Commitments	N/A	—		Other liabilities	125
Loans held for sale	Other assets	77		N/A	—
Total best efforts contracts		77			125
Mandatory delivery contracts	N/A	—		Other liabilities	37
TBA securities	N/A	—		Other liabilities	57
Total forward loan sale commitments		77			219
Total derivative loan and forward loan sale commitments		$	643		$	219

The following table presents information pertaining to the gains and losses on Bank’s derivative loan commitments not designated as hedging instruments and forward loan sale commitments:

			Three Months Ended June 30,						Six Months Ended June 30,
	Location of Gain/(Loss)		2017			2016			2017			2016
		(In thousands)							(In thousands)
Derivative loan commitments	Net gain on sales of loans and other mortgage banking income		$	(133	)	$	235		$	(91	)	$	785
Best efforts contracts	Net gain on sales of loans and other mortgage banking income		(12		)	(141		)	63			(379		)
Mandatory delivery contracts	Net gain on sales of loans and other mortgage banking income		12			(8		)	49			(16		)
TBA securities	Net gain on sales of loans and other mortgage banking income		143			(160		)	79			(221		)
			$	10		$	(74	)	$	100		$	169

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Fair Value Measurements

6 Months Ended

Jun. 30, 2017

Fair Value Measurements

Fair Value Measurements

(7)Fair Value Measurements

The Bank uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.  The fair value of an asset or liability is the price which a seller would receive in an orderly transaction between market participants (an exit price).  Assets and liabilities are placed in a fair value hierarchy based on fair value measurements using three levels of inputs: (Level 1) quoted market prices in active markets for identical assets or liabilities; (Level 2) significant other observable inputs, including quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs such as interest rates and yield curves, volatilities, prepayment speeds, credit risks and default rates which provide a reasonable basis for fair value determination or inputs derived principally from observed market data; (Level 3) significant unobservable inputs for situations in which there is little, if any, market activity for the asset or liability.  Unobservable inputs must reflect reasonable assumptions that market participants would use in pricing the asset or liability, which are developed on the basis of the best information available under the circumstances.

The Bank has elected the fair value option pursuant to Accounting Standards Codification (“ASC”) 825, “Financial Instruments” for certain closed mortgage loans intended for sale.  ASC 825 allows for the irrevocable option to elect fair value accounting for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis that may otherwise not be required to be measured at fair value under other accounting standards.  The Bank elected the fair value option for certain residential real estate mortgage loans held for sale pursuant to forward sale commitments in order to better match changes in fair values for the loans with changes in the fair value of the forward loan sale contracts used to economically hedge them.  The aggregate fair value of loans held for sale, the contractual balance of loans held for sale and the gain on loans held for sale totaled $13.2 million, $12.8 million and $404,000 at June 30, 2017.  The aggregate fair value of loans held for sale, the contractual balance of loans held for sale and the gain on loans held for sale totaled $23.2 million, $22.7 million and $443,000 at December 31, 2016.  The change in fair value of loans held for sale reported as a component of net gains on sale of loans and other mortgage banking income was $240,000 and $561,000 for the three months ended June 30, 2017 and 2016, respectively, and $65,000 and $ 404,000 for the six months ended June 30, 2017 and 2016, respectively.

The following tables summarize significant assets and liabilities carried at fair value and placement in the fair value hierarchy at the dates specified:

	June 30, 2017
(Dollars in thousands)	(Level 1)		(Level 2)		(Level 3)
Assets measured on a recurring basis:
Loans held for sale	$	—	$	13,228	$	—
Derivative loan commitments hedged with best efforts	—		—		164
Derivative loan commitments hedged with TBAs	—		—		311
Forward loan sale commitments:
Best efforts contracts hedging loans held for sale	—		—		3
Best efforts contracts hedging loan commitments	—		—		12
Mandatory delivery contracts	—		12		—
TBA securities	—		22		—

	December 31, 2016
(Dollars in thousands)	(Level 1)		(Level 2)		(Level 3)
Assets measured on a recurring basis:
Loans held for sale	$	—	$	23,157	$	—
Derivative loan commitments hedged with best efforts	—		—		255
Derivative loan commitments hedged with TBAs	—		—		311
Best efforts contracts hedging loans held for sale	—		—		77
Liabilities measured on a recurring basis:
Forward loan sale commitments:
Best efforts contracts — hedging commitments	—		—		125
TBA securities	—		57		—
Mandatory delivery contracts	—		37		—
Assets measured on a non-recurring basis:
Impaired loans (collateral dependent)	—		—		558
Foreclosed real estate	—		—		422

The Bank did not have cause to transfer any assets between the fair value measurement levels during the three and six months ended June 30, 2017 or the year ended December 31, 2016.

Impaired loan balances in the table above represent those collateral dependent impaired  loans where management has estimated the credit loss by comparing the loan’s carrying value against the expected realizable fair value of the collateral (appraised value or internal analysis less estimated cost to sell, adjusted as necessary for changes in relevant valuation factors subsequent to the measurement date).  Certain inputs used in these assessments, and possible subsequent adjustments, are not always observable, and therefore, collateral dependent impaired loans are categorized as Level 3 within the fair value hierarchy.  A specific allowance or partial charge-off is recorded to the collateral dependent impaired loan for the amount of management’s estimated credit loss.  There were no impaired loans recorded at fair value at June 30, 2017.  There were no losses related to collateral dependent impaired loans at fair value during the three and six months ended June 30, 2017.  The provision to the allowance for loan losses related to collateral dependent impaired loans recorded at fair value for the three and six months ended June 30, 2016 was $22,000 and $23,000, respectively.  The carrying value of impaired loans recorded at fair value was $558,000 net of no charge-offs and $23,000 in specific reserves at December 31, 2016.

Real estate acquired by the Bank through foreclosure proceedings or the acceptance of a deed in lieu of foreclosure is classified as foreclosed real estate.  When property is acquired, it is generally recorded at the estimated fair value of the property acquired, less estimated costs to sell.  The estimated fair value is based on market appraisals and the Bank’s internal analysis.  Certain inputs used in appraisals or the Bank’s internal analysis, are not always observable, and therefore, foreclosed real estate may be categorized as Level 3 within the fair value hierarchy.   There was no foreclosed real estate carried at fair value at June 30, 2017.  There were no losses on foreclosed real estate held at period end for the three and six months ended June 30, 2017 and 2016.

Derivatives fair value methodology

Fair value changes in mortgage banking derivatives (interest rate lock commitments and commitments to sell fixed-rate residential mortgages) subsequent to inception are estimated using anticipated market prices based on pricing indications provided from syndicate banks and consideration of pull-through and fallout rates.  The fair value of the mortgage banking derivatives are considered to be Level 3 assets.

The table below presents for the three and six months ended June 30, 2017 and 2016, the change in Level 3 assets and liabilities that are measured on a recurring basis:

	Derivative Loan Commitments and Forward Loan Sale Commitments
	Three months ended June 30,
(Dollars in thousands)	2017			2016
Balance at beginning of period	$	635		$	354
Gains on new commitments during the period	501			466
Gain (losses) arising during the period	(17		)	(18		)
Reclassifications of realized gains (losses) on settled commitments	(629		)	(354		)
Balance at end of period	$	490		$	448

	Derivative Loan Commitments and Forward Loan Sale Commitments
	Six months ended June 30,
(Dollars in thousands)	2017			2016
Balance at beginning of period	$	518		$	42
Gains on new commitments during the period	490			841
Gain (losses) arising during the period	(12		)	(18		)
Reclassifications of realized gains (losses) on settled commitments	(506		)	(417		)
Balance at end of period	$	490		$	448

The following tables present additional quantitative information about assets and liabilities measured at fair value on a recurring and non-recurring basis for which the Bank utilized Level 3 inputs (significant unobservable inputs for situations in which there is little, if any, market activity for the asset or liability) to determine fair value:

June 30, 2017

(Dollars in thousands)	Fair Value		Valuation Technique	Unobservable Input	Unobservable Input Value or Range
Assets measured on a recurring basis:
Derivative loan commitments	$	475	Investor pricing	Pull-through rate	75.0% – 100%
Best efforts contracts — hedging loans held for sale	3		Investor pricing	Pull-through rate	82.5% – 100%
Best efforts contracts — hedging commitments:	12		Investor pricing	Pull-through rate	82.5% – 100%

December 31, 2016

(Dollars in thousands)	Fair Value		Valuation Technique	Unobservable Input	Unobservable Input Value or Range
Assets measured on a recurring basis:
Derivative commitments	$	566	Investor pricing	Pull-through rate	75.1% – 100%
Best efforts contracts — hedging loans held for sale	77		Investor pricing	Pull-through rate	82.5% – 100%
Liabilities measured on a recurring basis:
Forward loan sale commitments:	125		Investor pricing	Pull-through rate	82.5% – 100%
Best efforts contracts — hedging commitments
Assets measured on a non-recurring basis:
Impaired loans (collateral dependent)	558		Discounted appraisals	Collateral discounts	5 – 30	%
Foreclosed real estate	422		Discounted appraisals	Collateral discounts	5 – 30	%

Estimated Fair Values of Assets and Liabilities

In addition to disclosures regarding the measurement of assets and liabilities carried at fair value on the balance sheet, the Corporation is also required to disclose fair value information about financial instruments for which it is practicable to estimate that value, whether or not recognized on the balance sheet.  In cases where quoted fair values are not available, fair values are based upon estimates using various valuation techniques.  Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.  Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.  The following methods and assumptions were used by the Corporation in estimating fair values of its financial instruments.

The following methods and assumptions were used by the Corporation in estimating fair value disclosures:

Cash and cash equivalents — The carrying amounts of cash and cash equivalents approximate fair values based on the short-term nature of the assets.

Federal Home Loan Bank stock  — It is not practical to determine the fair value of Federal Home Loan Bank stock due to restrictions placed on its transferability.

Loans, net — For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.  Fair values for other loans are estimated using discounted cash flow analyses, using market interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.  Fair values for non-performing loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

Loans held for sale  — Fair values of loans held for sale are based on prevailing market rates for loans with similar characteristics.

Accrued interest receivable — The carrying amounts of accrued interest receivable approximates fair value.

Deposits — The fair values of deposits with no stated maturity, such as demand deposits, savings, club and money market accounts, are equal to the amount payable on demand at the reporting date.  Fair values for term certificates are estimated using a discounted cash flow calculation that applies market interest rates currently being offered for deposits of similar remaining maturities.

Borrowed funds — The fair values of the Bank’s FHLB advances are estimated using discounted cash flow analyses based on the current incremental borrowing rates in the market for similar types of borrowing arrangements.

Accrued interest payable — The carrying amounts of accrued interest payable approximate fair value.

The estimates of fair value of financial instruments were based on information available at June 30, 2017 and December 31, 2016 and are not indicative of the fair market value of those instruments as of the date of this report.  These estimates do not reflect any premium or discount that could result from offering for sale at one time the Corporation’s entire holdings of a particular financial instrument.  The fair value of the Corporation’s time deposit liabilities do not take into consideration the value of the Corporation’s long-term relationships with depositors, which may have significant value.

Because no active market exists for a portion of the Corporation’s financial instruments, fair value estimates were based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors.  These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.  Changes in assumptions could significantly affect the estimates.

Fair value estimates were based on existing financial instruments without an attempt to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments, including premises and equipment and foreclosed real estate.

The carrying values, estimated fair values and placement in the fair value hierarchy of the Corporation’s financial instruments for which fair value is only disclosed but not recognized on the balance sheet at the dates indicated are summarized as follows:

	June 30, 2017 (unaudited)				Fair value measurement
(Dollars in thousands)	Carrying Amount		Fair Value		Level 1 inputs		Level 2 Inputs		Level 3 Inputs
Financial assets:
Cash and cash equivalents	$	46,500	$	46,500	$	46,500	$	—	$	—
Loans, net	562,906		567,120		—		—		567,120
Loans held for sale	13,228		13,228		—		13,228		—
FHLB stock	6,172		N/A		N/A		N/A		N/A
Accrued interest receivable	1,716		1,716		—		—		1,716
Financial liabilities:
Non-certificate accounts	304,562		304,562		304,562		—		—
Certificate accounts	166,805		167,386		—		167,386		—
Borrowed funds	127,941		127,774		—		127,774		—
Accounts interest payable	42		42		—		42		—

	December 31, 2016				Fair value measurement
(Dollars in thousands)	Carrying Amount		Fair Value		Level 1 inputs		Level 2 Inputs		Level 3 Inputs
Financial assets:
Cash and cash equivalents	$	44,658	$	44,658	$	44,658	$	—	$	—
Loans, net	525,215		525,822		—		—		525,822
Loans held for sale	23,157		23,157		—		23,157		—
FHLB stock	6,184		N/A		N/A		N/A		N/A
Accrued interest receivable	1,598		1,598		—		—		1,598
Financial liabilities:
Non-certificate accounts	284,430		284,430		284,430		—		—
Certificate accounts	162,884		163,145		—		163,145		—
Borrowed funds	121,250		121,053		—		121,053		—
Accrued interest payable	40		40		—		40		—

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Basis of Presentation and Consolidation (Policies)

6 Months Ended

Jun. 30, 2017

Basis of Presentation and Consolidation

Basis of Presentation

Basis of Presentation

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

The unaudited consolidated financial statements of the Corporation presented herein have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and pursuant to the rules of the SEC for quarterly reports on Form 10-Q and Article 8 of Regulation S-X and do not include all of the information and note disclosures required by GAAP for a complete set of financial statements.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures necessary for the fair presentation of the accompanying consolidated financial statements have been included. The results of operations for interim periods are not necessarily indicative of results for the full year or any other interim period. The accompanying unaudited financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2016, included in the Corporation’s annual report on Form 10-K.

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the 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, the valuation of deferred tax assets, the valuation of loans held for sale, mortgage-banking derivatives and commitments to sell fixed-rate residential mortgages.

Stock-Based Compensation

Stock-Based Compensation

Compensation cost is recognized for stock options and restricted stock awards issued to employees based on the fair value of these awards at the grant date.  A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Corporation’s stock at the grant date is utilized for restricted stock awards.

Compensation cost is recognized over the required service period, generally defined as the vesting period.  For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

As an “emerging growth company” as defined in Title 1 of the Jumpstart Our Business Startups (JOBS) Act, the Corporation has elected to use the extended transition period to delay the adoption of new or reissued accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies.  As of June 30, 2017, there is no significant difference in the comparability of the financial statements as a result of this extended transition period.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.”  The objective of this amendment is to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS.  This update 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 in the scope of other standards.  In August 2015, the FASB issued ASU 2015-14 to defer for one year the effective date of the new revenue standard.  The requirements are effective for annual periods and interim periods within fiscal years beginning after December 15, 2018.  During 2016, the FASB issued further implementation guidance regarding revenue recognition.  This additional guidance included clarification on certain principal versus agent considerations within the implementation of the guidance as well as clarification related to identifying performance obligations and licensing, assessing collectability, presenting sales taxes, measuring noncash consideration, and certain transition matters.  The Corporation does not expect the adoption of this guidance will have a significant impact on the Corporation’s consolidated financial statements, but is expected to require additional disclosures.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10), which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments.  The ASU requires equity instruments (except those accounted for under the equity method of accounting or that result in consolidations of the investee) to be measured at fair value with changes in fair value recognized in net income.  However, an entity may choose to measure an equity investment that does not have a readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions.  For public business entities, the standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  For all other entities, including emerging growth companies, the standard is effective for fiscal years beginning after December 15, 2018 and interim periods within fiscal periods after December 15, 2019.  We do not expect a significant impact upon adoption on January 1, 2019.

In February 2016, the FASB issued ASU 2016-02, Leases, which will require organizations that lease assets — referred to as “lessees” — to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases.  Under the new guidance, a lessee will be required to recognize right to use assets and lease liabilities for leases with lease terms of more than 12 months.  However, unlike current Generally Accepted Accounting Principles (GAAP) — which requires only capital leases to be recognized on the balance sheet — the new ASU will require both types of leases to be recognized on the balance sheet.

The accounting by organizations that own the assets leased by the lessee — also known as lessor accounting — will remain largely unchanged from current GAAP.  However, the ASU contains some targeted improvements that are intended to align, where necessary, lessor accounting with the lessee accounting model.  The ASU on leases will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  For all other organizations, including emerging growth companies, the ASU on leases will take effect for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020.  We are currently evaluating the impact of adoption of this standard, including identifying contracts that are, or contain, leases, as the lease identification guidance in the new standard is different than the current standard.

On March 30, 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-09, which is intended to improve the accounting for employee share-based payments.  The ASU affects all organizations that issue share-based payment awards to their employees.  The ASU, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, simplifies several aspects of the accounting for share-based payment award transactions, including:

· The income tax consequences

· Classification of awards as either equity or liabilities, and

· Classification on the statement of cash flows.

For public companies, the amendments in this ASU are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods.  For private companies and emerging growth companies, the amendments are effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018.  Early adoption is permitted for any organization in any interim or annual period.  This standard will be effective for the Corporation for the year ended December 31, 2018.  The Corporation early adopted the standard as of January 1, 2017, and the impact of adoption was not material.  The standard adds volatility in the effective tax rate.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses, that will significantly change how banks measure and recognize credit impairment for many financial assets from an incurred loss methodology to a current expected credit loss model.  The current expected credit loss model will require companies to immediately recognize an estimate of credit losses expected to occur over the remaining life of the financial assets that are in the scope of the standard.  The FASB also made targeted amendments to the current impairment model for available-for-sale debt securities.  The ASU is effective for public business entities that are SEC filers, for annual and interim periods in fiscal years beginning after December 15, 2019, and for other companies, including emerging growth companies, for interim and annual periods in fiscal years beginning after December 15, 2020.  All entities may early adopt the standard for annual and interim periods in fiscal years after December 15, 2018.  The standard will be effective for the Corporation on January 1, 2020.  We are currently evaluating the impact of adoption of this standard, including different methodologies that may be employed to estimate credit losses, such as loss rate methods, component loss methods, and qualitative factors, as well as additional data gathering that will be needed to adopt the standard.  The standard will add new disclosures related to factors that influenced management’s estimate, including current expected credit losses, the changes in those factors, and reasons for the changes as well as the method applied to revert to historical credit loss experience.

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Loans (Tables)

6 Months Ended

Jun. 30, 2017

Loans

Schedule of loan balances by classification

(Dollars in thousands)	June 30, 2017			December 31, 2016
Residential real estate mortgage loans:
1-4 family	$	272,972		$	243,385
Home equity loans and lines of credit	73,553			76,175
Total residential real estate mortgage loans	346,525			319,560
Commercial:
Commercial real estate	146,252			138,946
Commercial business	14,511			13,308
Commercial construction	13,441			10,946
SBA	39,502			39,948
Consumer	1,246			1,165
Total loans	561,477			523,873
Allowance for loan losses	(2,720		)	(2,493		)
Net deferred loan costs	4,149			3,835
Loans, net	$	562,906		$	525,215

Schedule of the credit risk profile by internally assigned risk rating category

	June 30, 2017
	Commercial		Commercial		Commercial
(Dollars in thousands)	Real Estate		Business		Construction		SBA		Total
Pass	137,853		14,511		$	13,441	$	37,360	$	203,165
Loans rated 6	—		—		—		796		796
Loans rated 7	8,399		—		—		1,346		9,745
Loans rated 8	—		—		—		—		—
	$	146,252	$	14,511	$	13,441	$	39,502	$	213,706

	December 31, 2016
	Commercial		Commercial		Commercial
(Dollars in thousands)	Real Estate		Business		Construction		SBA		Total
Pass	$	133,660	$	13,308	$	10,946	$	37,430	$	195,344
Loans rated 6	667		—		—		1,337		2,004
Loans rated 7	4,619		—		—		1,181		5,800
Loans rated 8	—		—		—		—		—
	$	138,946	$	13,308	$	10,946	$	39,948	$	203,148

Schedule of past due and non-accrual loans

	June 30, 2017
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Past Due > 90 Days and Still Accruing		Loans on Non-accrual
Residential real estate:
1-4 family	$	—	$	948	$	—	$	948	$	—	$	2,270
Home equity loans and lines of credit	484		132		151		767		—		719
Commercial real estate	3,999		—		108		4,107		—		108
Commercial business	—		—		—		—		—		—
Commercial construction	—		—		—		—		—		—
SBA	—		300		—		300		—		389
Consumer	—		—		—		—		—		—
Total gross loans	$	4,483	$	1,380	$	259	$	6,122	$	—	$	3,486

	December 31, 2016
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Past Due > 90 Days and Still Accruing		Loans on Non-accrual
Residential real estate:
1-4 family	$	625	$	587	$	738	$	1,950	$	—	$	3,662
Home equity loans and lines of credit	109		547		491		1,147		—		735
Commercial real estate	—		—		130		130		—		238
Commercial business	—		—		—		—		—		—
Commercial construction	—		—		—		—		—		—
SBA	—		148		18		166		—		18
Consumer	2		—		—		2		—		—
Total gross loans	$	736	$	1,282	$	1,377	$	3,395	$	—	$	4,653

Schedule of the recorded investment in impaired loans and the related specific allowance allocated

	June 30, 2017
(Dollars in thousands)	Unpaid contractual principal balance		Total recorded investment in impaired loans		Recorded investment with no allowance		Recorded investment with allowance		Related allowance
Residential real estate:
1-4 family	$	4,710	$	4,421	$	4,421	$	—	$	—
Home equity loans & lines of credit	1,980		1,960		1,743		217		30
Commercial real estate	4,601		4,601		4,601		—		—
SBA	1,817		1,815		1,815		—		—
Consumer	56		56		43		13		3
Total	$	13,164	$	12,853	$	12,623	$	230	$	33

	December 31, 2016
(Dollars in thousands)	Unpaid contractual principal balance		Total recorded investment in impaired loans		Recorded investment with no allowance		Recorded investment with allowance		Related allowance
Residential real estate:
1-4 family	$	5,978	$	5,628	$	5,493	$	135	$	19
Home equity loans & lines of credit	1,369		1,349		1,131		218		31
Commercial real estate	4,487		4,487		4,487		—		—
SBA	1,511		1,493		1,493		—		—
Consumer	13		13		—		13		3
Total	$	13,358	$	12,970	$	12,604	$	366	$	53

Schedule of the average recorded investment in impaired loans and the related interest recognized

	Three Months Ended June 30, 2017				Three Months Ended June 30, 2016
(Dollars in thousands)	Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
Residential 1-4 family	$	4,742	$	69	$	5,112	$	55
Home equity loans & lines of credit	1,854		25		1,381		17
Commercial real estate	4,411		52		392		4
SBA	1,606		22		2,168		41
Consumer	24		—		14		—
Total	$	12,637	$	168	$	9,067	$	117

	Six Months Ended June 30, 2017				Six Months Ended June 30, 2016
(Dollars in thousands)	Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
Residential 1-4 family	$	5,115	$	122	$	4,722	$	90
Home equity loans & lines of credit	1,759		50		1,299		31
Commercial real estate	4,405		100		394		6
SBA	1,550		46		2,099		81
Consumer	19		—		14		—
Total	$	12,848	$	318	$	8,528	$	208

Schedule of troubled debt restructurings

	Three Months Ended June 30, 2017					Six Months Ended June 30, 2017
(Dollars in thousands)	Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Residential 1-4 family	—	$	—	$	—	—	$	—	$	—
Home equity	2	255		255		6	654		654
Commercial real estate	1	259		259		1	259		259
SBA	1	250		250		1	250		250
Consumer	1	44		44		1	44		44
Total	5	$	808	$	808	9	$	1,207	$	1,207

	Three Months Ended June 30, 2016					Six Months Ended June 30, 2016
(Dollars in thousands)	Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Residential 1-4 family	1	$	175	$	175	1	$	175	$	175
Home equity	2	286		286		3	296		296
Commercial real estate	—	—		—		—	—		—
SBA	1	50		50		1	50		50
Total	4	$	511	$	511	5	$	521	$	521

Schedule of troubled debt restructurings that subsequently defaulted within 12 months of restructuring

	Three Months Ended June 30, 2017			Six Months Ended June 30, 2017
(Dollars in thousands)	Number of TDRs that defaulted	Post-modification outstanding recorded investment		Number of TDRs that defaulted	Post-modification outstanding recorded investment
Residential 1-4 family	1	$	71	1	$	71
Home equity	—	—		1	74
Commercial real estate	—	—		2	4,108
SBA	—	—		—	—
Total	1	$	71	4	$	4,253

	Three Months Ended June 30, 2016			Six Months Ended June 30, 2016
(Dollars in thousands)	Number of TDRs that defaulted	Post-modification outstanding recorded investment		Number of TDRs that defaulted	Post-modification outstanding recorded investment
Residential 1-4 family	—	$	—	3	$	647
Total	—	$	—	3	$	647

Schedule of activity in the allowance for loan losses and allocation of the allowance to loan segments

Three Months Ended June 30, 2017

(Dollars in thousands)	Residential 1-4 family			Home Equity			Commercial Real Estate		Commercial Business		Commercial Construction		SBA		Consumer			Total
Allowance at March 31, 2017	$	1,033		$	533		$	629	$	64	$	61	$	231	$	8		$	2,559
Provision (credit)	54			(11		)	63		5		8		42		(8		)	153
Loans charged-off	(6		)	—			—		—		—		—		—			(6		)
Recoveries	6			1			—		—		—		—		7			14
Allowance at June 30, 2017	$	1,087		$	523		$	692	$	69	$	69	$	273	$	7		$	2,720

Three Months Ended June 30, 2016

(Dollars in thousands)	Residential 1-4 family		Home Equity			Commercial Real Estate		Commercial Business		Commercial Construction		SBA			Consumer			Total
Allowance at March 31, 2016	$	906	$	522		$	527	$	51	$	31	$	238		$	8		$	2,283
Provision (credit)	40		62			14		14		6		15			(6		)	145
Loans charged-off	—		(62		)	—		—		—		(12		)	—			(74		)
Recoveries	—		7			—		—		—		7			6			20
Allowance at June 30, 2016	$	946	$	529		$	541	$	65	$	37	$	248		$	8		$	2,374

Six Months Ended June 30, 2017

(Dollars in thousands)	Residential 1-4 family			Home Equity			Commercial Real Estate		Commercial Business		Commercial Construction		SBA		Consumer			Total
Allowance at December 31, 2016	$	1,009		$	541		$	596	$	60	$	51	$	228	$	8		$	2,493
Provision (credit)	78			(20		)	96		9		18		42		(10		)	213
Loans charged-off	(6		)	—			—		—		—		—		—			(6		)
Recoveries	6			2			—		—		—		3		9			20
Allowance at June 30, 2017	$	1,087		$	523		$	692	$	69	$	69	$	273	$	7		$	2,720

Six Months Ended June 30, 2016

(Dollars in thousands)	Residential 1-4 family			Home Equity			Commercial Real Estate		Commercial Business		Commercial Construction		SBA			Consumer			Total
Allowance at December 31, 2015	$	863		$	525		$	503	$	39	$	21	$	234		$	9		$	2,194
Provision (credit)	103			63			38		26		16		18			(10		)	254
Loans charged-off	(20		)	(67		)	—		—		—		(12		)	—			(99		)
Recoveries	—			8			—		—		—		8			9			25
Allowance at June 30, 2016	$	946		$	529		$	541	$	65	$	37	$	248		$	8		$	2,374

Schedule of allowance for loan losses and loan balances by impaired and non-impaired components

June 30, 2017

(Dollars in thousands)	Residential 1-4 family		Home Equity		Commercial Real Estate		Commercial Business		Commercial Construction		SBA		Consumer		Total
Allowance for impaired loans	$	—	$	30	$	—	$	—	$	—	$	—	$	3	$	33
Allowance for non-impaired loans	1,087		493		692		69		69		273		4		2,687
Total	$	1,087	$	523	$	692	$	69	$	69	$	273	$	7	$	2,720
Impaired loans	$	4,421	$	1,960	$	4,601	$	—	$	—	$	1,815	$	56	$	12,853
Non-impaired loans	268,551		71,593		141,651		14,511		13,441		37,687		1,190		548,624
Total loans	$	272,972	$	73,553	$	146,252	$	14,511	$	13,441	$	39,502	$	1,246	$	561,477

December 31, 2016

(Dollars in thousands)	Residential 1-4 family		Home Equity		Commercial Real Estate		Commercial Business		Commercial Construction		SBA		Consumer		Total
Allowance for impaired loans	$	19	$	31	$	—	$	—	$	—	$	—	$	3	$	53
Allowance for non-impaired loans	990		510		596		60		51		228		5		2,440
Total	$	1,009	$	541	$	596	$	60	$	51	$	228	$	8	$	2,493
Impaired loans	$	5,628	$	1,349	$	4,487	$	—	$	—	$	1,493	$	13	$	12,970
Non-impaired loans	237,757		74,826		134,459		13,308		10,946		38,455		1,152		510,903
Total loans	$	243,385	$	76,175	$	138,946	$	13,308	$	10,946	$	39,948	$	1,165	$	523,873

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Employee Benefits (Tables)

6 Months Ended

Jun. 30, 2017

Employee Benefits

Schedule of shares held by the ESOP

	June 30, 2017
Allocated	47,512
Distributions	(715	)
Committed to be allocated	7,919
Unallocated	340,503
	395,219

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Other Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2017

Other Stock-Based Compensation

Schedule of assumptions used to determine grant-date fair value of options

	2017 Grant		2016 Grant
Volatility	15.04	%	13.52	%
Forfeiture rate	00.00		00.00
Dividend yield	00.00		00.00
Expected term	8 years		8 years
Risk free interest rate	2.25	%	1.56	%

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Earnings per Common Share (Tables)

6 Months Ended

Jun. 30, 2017

Earnings per Common Share.

Schedule of earnings per common share

	Three months ended						Six months ended
	June 30,						June 30,
(Dollars in thousands)	2017			2016			2017			2016
Net income applicable to common stock	$	817		$	946		$	1,379		$	1,585
Weighted average common shares outstanding	4,345,146			4,680,322			4,352,733			4,741,221
Less: Average unallocated ESOP shares	(342,489		)	(358,326		)	(344,452		)	(360,289		)
Weighted average number of common shares outstanding — basic	4,002,657			4,321,996			4,008,281			4,380,932
Dilutive impact of stock options	15,993			—			12,680			—
Dilutive impact of restricted stock	9,710			2,065			9,180			1,246
Weighted average number of common shares outstanding — diluted	4,028,360			4,324,061			4,030,141			4,382,178
Earnings per share — basic	$	0.20		$	0.22		$	0.34		$	0.36
Earnings per share — diluted	$	0.20		$	0.22		$	0.34		$	0.36

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Off-Balance Sheet Activities and Derivatives (Tables)

6 Months Ended

Jun. 30, 2017

Off-Balance Sheet Activities and Mortgage Banking

Schedule of financial instruments outstanding whose contract amounts represent credit risk

	June 30,		December 31,
	2017		2016
	(In thousands)
Commitments to originate loans for portfolio	$	20,849	$	18,461
Commitments to originate loans to be sold	32,411		24,307
Commitments to purchase loans from third parties	4,817		4,236
Unfunded commitments under home equity lines of credit	57,494		53,342
Unfunded commitments under commercial lines of credit	17,819		14,730
Unfunded commitments under SBA lines of credit	5,162		4,106
Unfunded commitments under overdraft lines of credit	176		180
Unadvanced funds on construction loans	7,746		5,735

Schedule of minimum rental payments to be received under lease agreements

The schedule of minimum rental payments to be received under such leases as of December 31 are as follows (in thousands):

2017	$	—
2018	182
2019	182
2020	182
2021	182
Thereafter	197
	$	925

Schedule of the fair values of derivative loan commitments and forward loan sale commitments

	Assets			Liabilities
	Balance			Balance
	Sheet	Fair		Sheet	Fair
	Location	Value		Location	Value
	(In thousands)
June 30, 2017
Derivative loan commitments
Commitments hedged with best efforts	Other assets	$	164	N/A	$	—
Commitments hedged with TBA	Other assets	311		N/A	—
Total derivative commitments		475		N/A	—
Forward loan sale commitments
Best efforts contracts hedging:
Commitments	Other assets	12		N/A	—
Loans held for sale	Other assets	3		N/A	—
Total best efforts contracts		15			—
Mandatory delivery contracts	Other assets	12		N/A	—
TBA securities	Other assets	22		N/A	—
Total forward loans sale commitments		49			—
Total derivative loan and forward loan sale commitments		$	524		$	—
December 31, 2016
Derivative loan commitments:
Commitments hedged with best efforts	Other assets	$	255	N/A	$	—
Commitments hedged with TBA	Other assets	311		N/A	—
Total derivative commitments		566		N/A	—
Forward loan sale commitments
Best efforts contracts hedging:
Commitments	N/A	—		Other liabilities	125
Loans held for sale	Other assets	77		N/A	—
Total best efforts contracts		77			125
Mandatory delivery contracts	N/A	—		Other liabilities	37
TBA securities	N/A	—		Other liabilities	57
Total forward loan sale commitments		77			219
Total derivative loan and forward loan sale commitments		$	643		$	219

Schedule of gains and losses on derivative loan commitments not designated as hedging instruments and forward loan sale commitments

			Three Months Ended June 30,						Six Months Ended June 30,
	Location of Gain/(Loss)		2017			2016			2017			2016
		(In thousands)							(In thousands)
Derivative loan commitments	Net gain on sales of loans and other mortgage banking income		$	(133	)	$	235		$	(91	)	$	785
Best efforts contracts	Net gain on sales of loans and other mortgage banking income		(12		)	(141		)	63			(379		)
Mandatory delivery contracts	Net gain on sales of loans and other mortgage banking income		12			(8		)	49			(16		)
TBA securities	Net gain on sales of loans and other mortgage banking income		143			(160		)	79			(221		)
			$	10		$	(74	)	$	100		$	169

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2017

Fair Value Measurements

Summary of significant assets and liabilities carried at fair value and placement in the fair value hierarchy

	June 30, 2017
(Dollars in thousands)	(Level 1)		(Level 2)		(Level 3)
Assets measured on a recurring basis:
Loans held for sale	$	—	$	13,228	$	—
Derivative loan commitments hedged with best efforts	—		—		164
Derivative loan commitments hedged with TBAs	—		—		311
Forward loan sale commitments:
Best efforts contracts hedging loans held for sale	—		—		3
Best efforts contracts hedging loan commitments	—		—		12
Mandatory delivery contracts	—		12		—
TBA securities	—		22		—

	December 31, 2016
(Dollars in thousands)	(Level 1)		(Level 2)		(Level 3)
Assets measured on a recurring basis:
Loans held for sale	$	—	$	23,157	$	—
Derivative loan commitments hedged with best efforts	—		—		255
Derivative loan commitments hedged with TBAs	—		—		311
Best efforts contracts hedging loans held for sale	—		—		77
Liabilities measured on a recurring basis:
Forward loan sale commitments:
Best efforts contracts — hedging commitments	—		—		125
TBA securities	—		57		—
Mandatory delivery contracts	—		37		—
Assets measured on a non-recurring basis:
Impaired loans (collateral dependent)	—		—		558
Foreclosed real estate	—		—		422

Schedule of changes in Level 3 assets and liabilities measured on a recurring basis

	Derivative Loan Commitments and Forward Loan Sale Commitments
	Three months ended June 30,
(Dollars in thousands)	2017			2016
Balance at beginning of period	$	635		$	354
Gains on new commitments during the period	501			466
Gain (losses) arising during the period	(17		)	(18		)
Reclassifications of realized gains (losses) on settled commitments	(629		)	(354		)
Balance at end of period	$	490		$	448

	Derivative Loan Commitments and Forward Loan Sale Commitments
	Six months ended June 30,
(Dollars in thousands)	2017			2016
Balance at beginning of period	$	518		$	42
Gains on new commitments during the period	490			841
Gain (losses) arising during the period	(12		)	(18		)
Reclassifications of realized gains (losses) on settled commitments	(506		)	(417		)
Balance at end of period	$	490		$	448

Schedule of additional quantitative information about assets and liabilities measured at fair value on a recurring and non-recurring basis for which the Bank utilized Level 3 inputs to determine fair value

June 30, 2017

(Dollars in thousands)	Fair Value		Valuation Technique	Unobservable Input	Unobservable Input Value or Range
Assets measured on a recurring basis:
Derivative loan commitments	$	475	Investor pricing	Pull-through rate	75.0% – 100%
Best efforts contracts — hedging loans held for sale	3		Investor pricing	Pull-through rate	82.5% – 100%
Best efforts contracts — hedging commitments:	12		Investor pricing	Pull-through rate	82.5% – 100%

December 31, 2016

(Dollars in thousands)	Fair Value		Valuation Technique	Unobservable Input	Unobservable Input Value or Range
Assets measured on a recurring basis:
Derivative commitments	$	566	Investor pricing	Pull-through rate	75.1% – 100%
Best efforts contracts — hedging loans held for sale	77		Investor pricing	Pull-through rate	82.5% – 100%
Liabilities measured on a recurring basis:
Forward loan sale commitments:	125		Investor pricing	Pull-through rate	82.5% – 100%
Best efforts contracts — hedging commitments
Assets measured on a non-recurring basis:
Impaired loans (collateral dependent)	558		Discounted appraisals	Collateral discounts	5 – 30	%
Foreclosed real estate	422		Discounted appraisals	Collateral discounts	5 – 30	%

Summary of carrying values, estimated fair values and placement in the fair value hierarchy of the Corporation's financial instruments

	June 30, 2017 (unaudited)				Fair value measurement
(Dollars in thousands)	Carrying Amount		Fair Value		Level 1 inputs		Level 2 Inputs		Level 3 Inputs
Financial assets:
Cash and cash equivalents	$	46,500	$	46,500	$	46,500	$	—	$	—
Loans, net	562,906		567,120		—		—		567,120
Loans held for sale	13,228		13,228		—		13,228		—
FHLB stock	6,172		N/A		N/A		N/A		N/A
Accrued interest receivable	1,716		1,716		—		—		1,716
Financial liabilities:
Non-certificate accounts	304,562		304,562		304,562		—		—
Certificate accounts	166,805		167,386		—		167,386		—
Borrowed funds	127,941		127,774		—		127,774		—
Accounts interest payable	42		42		—		42		—

	December 31, 2016				Fair value measurement
(Dollars in thousands)	Carrying Amount		Fair Value		Level 1 inputs		Level 2 Inputs		Level 3 Inputs
Financial assets:
Cash and cash equivalents	$	44,658	$	44,658	$	44,658	$	—	$	—
Loans, net	525,215		525,822		—		—		525,822
Loans held for sale	23,157		23,157		—		23,157		—
FHLB stock	6,184		N/A		N/A		N/A		N/A
Accrued interest receivable	1,598		1,598		—		—		1,598
Financial liabilities:
Non-certificate accounts	284,430		284,430		284,430		—		—
Certificate accounts	162,884		163,145		—		163,145		—
Borrowed funds	121,250		121,053		—		121,053		—
Accrued interest payable	40		40		—		40		—

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Loans - Summary of Loans and Loan Segments (Details) $ in Thousands	6 Months Ended		12 Months Ended
	Jun. 30, 2017 USD ($) family	Jun. 30, 2016 USD ($)	Dec. 31, 2016 USD ($) family	Mar. 31, 2017 USD ($)	Mar. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)
Loans
Total loans	$ 561,477		$ 523,873
Allowance for loan losses	(2,720)	$ (2,374)	(2,493)	$ (2,559)	$ (2,283)	$ (2,194)
Net deferred loan costs	4,149		3,835
Loans, net	562,906		525,215
Value of loans purchased from third parties	13,100	9,000
Cost of loans purchased from third parties during the year	13,300	9,100
Residential 1-4 family
Loans
Allowance for loan losses	(1,087)	(946)	(1,009)	(1,033)	(906)	(863)
Home equity loans and lines of credit
Loans
Allowance for loan losses	(523)	(529)	(541)	(533)	(522)	(525)
Commercial real estate
Loans
Allowance for loan losses	(692)	(541)	(596)	(629)	(527)	(503)
Commercial business
Loans
Allowance for loan losses	(69)	(65)	(60)	(64)	(51)	(39)
Commercial construction
Loans
Allowance for loan losses	(69)	(37)	(51)	(61)	(31)	(21)
SBA
Loans
Allowance for loan losses	(273)	(248)	(228)	(231)	(238)	(234)
Consumer
Loans
Total loans	1,246		1,165
Allowance for loan losses	(7)	$ (8)	(8)	$ (8)	$ (8)	$ (9)
Residential real estate mortgage loans
Loans
Total loans	346,525		319,560
Residential real estate mortgage loans | Residential 1-4 family
Loans
Total loans	272,972		243,385
Current balance of the loans purchased	$ 71,500		$ 67,500
Residential real estate mortgage loans | Residential 1-4 family | Minimum
Loans
Number of families per real estate property securing loans receivable | family	1		1
Residential real estate mortgage loans | Residential 1-4 family | Maximum
Loans
Number of families per real estate property securing loans receivable | family	4		4
Residential real estate mortgage loans | Residential 1-4 family | Maximum | Without PMI
Loans
Loan-to-value ratio (as a percent)	95.00%		95.00%
Residential real estate mortgage loans | Jumbo 1-4 family residential | Maximum
Loans
Loan-to-value ratio (as a percent)	95.00%		95.00%
Residential real estate mortgage loans | Home equity loans and lines of credit
Loans
Total loans	$ 73,553		$ 76,175
Residential real estate mortgage loans | Home equity loans and lines of credit | Maximum
Loans
Loan-to-value ratio (as a percent)	80.00%		80.00%
Commercial loans
Loans
Total loans	$ 213,706		$ 203,148
Loans provided as a percentage of projected costs	50.00%		50.00%
Commercial loans | Commercial real estate
Loans
Total loans	$ 146,252		$ 138,946
Commercial loans | Commercial business
Loans
Total loans	14,511		13,308
Commercial loans | Commercial construction
Loans
Total loans	13,441		10,946
Commercial loans | SBA
Loans
Total loans	39,502		39,948
Guaranteed portions	$ 25,400		$ 25,900
Commercial loans | SBA | Maximum
Loans
Percentage of principal and accrued interest that may qualify for guarantees	85.00%		85.00%
Guaranteed portions per borrower and related entities	$ 3,750

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Loans - Allowance for Loan Loss Methodology (Details)	6 Months Ended
	Jun. 30, 2017
Allowance for Loan Loss Methodology
Historical loss period used to capture relevant loss data for each loan segment	10 years
Minimum
Allowance for Loan Loss Methodology
Period of charge-off trends to be considered for adjustment to historical loss factor	3 years
Maximum
Allowance for Loan Loss Methodology
Period of charge-off trends to be considered for adjustment to historical loss factor	5 years

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Loans - Credit Quality (Details) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
Credit Quality Indicators
Value of commercial and SBA loan considered for risk review	$ 250,000
Total loans	561,477,000	$ 523,873,000
Commercial loans
Credit Quality Indicators
Total loans	213,706,000	203,148,000
Commercial loans | Pass
Credit Quality Indicators
Total loans	203,165,000	195,344,000
Commercial loans | Loans rated 6
Credit Quality Indicators
Total loans	796,000	2,004,000
Commercial loans | Loans rated 7
Credit Quality Indicators
Total loans	9,745,000	5,800,000
Commercial loans | Commercial real estate
Credit Quality Indicators
Total loans	146,252,000	138,946,000
Commercial loans | Commercial real estate | Pass
Credit Quality Indicators
Total loans	137,853,000	133,660,000
Commercial loans | Commercial real estate | Loans rated 6
Credit Quality Indicators
Total loans		667,000
Commercial loans | Commercial real estate | Loans rated 7
Credit Quality Indicators
Total loans	8,399,000	4,619,000
Commercial loans | Commercial business
Credit Quality Indicators
Total loans	14,511,000	13,308,000
Commercial loans | Commercial business | Pass
Credit Quality Indicators
Total loans	14,511,000	13,308,000
Commercial loans | Commercial construction
Credit Quality Indicators
Total loans	13,441,000	10,946,000
Commercial loans | Commercial construction | Pass
Credit Quality Indicators
Total loans	13,441,000	10,946,000
Commercial loans | SBA
Credit Quality Indicators
Total loans	39,502,000	39,948,000
Commercial loans | SBA | Pass
Credit Quality Indicators
Total loans	37,360,000	37,430,000
Commercial loans | SBA | Loans rated 6
Credit Quality Indicators
Total loans	796,000	1,337,000
Commercial loans | SBA | Loans rated 7
Credit Quality Indicators
Total loans	$ 1,346,000	$ 1,181,000

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Loans - Past Due and Non-Accrual Loans (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2017	Dec. 31, 2016
Past Due Loans
Total Past Due	$ 6,122	$ 3,395
Loans on Non-accrual	$ 3,486	$ 4,653
Minimum
Past Due Loans
Financing receivable past due threshold nonperforming	90 days	90 days
Residential 1-4 family
Past Due Loans
Total Past Due	$ 948	$ 1,950
Loans on Non-accrual	2,270	3,662
Home equity loans and lines of credit
Past Due Loans
Total Past Due	767	1,147
Loans on Non-accrual	719	735
Commercial real estate
Past Due Loans
Total Past Due	4,107	130
Loans on Non-accrual	108	238
SBA
Past Due Loans
Total Past Due	300	166
Loans on Non-accrual	389	18
Consumer
Past Due Loans
Total Past Due		2
30 to 59 Days Past Due
Past Due Loans
Total Past Due	4,483	736
30 to 59 Days Past Due | Residential 1-4 family
Past Due Loans
Total Past Due		625
30 to 59 Days Past Due | Home equity loans and lines of credit
Past Due Loans
Total Past Due	484	109
30 to 59 Days Past Due | Commercial real estate
Past Due Loans
Total Past Due	3,999
30 to 59 Days Past Due | Consumer
Past Due Loans
Total Past Due		2
60 to 89 Days Past Due
Past Due Loans
Total Past Due	1,380	1,282
60 to 89 Days Past Due | Residential 1-4 family
Past Due Loans
Total Past Due	948	587
60 to 89 Days Past Due | Home equity loans and lines of credit
Past Due Loans
Total Past Due	132	547
60 to 89 Days Past Due | SBA
Past Due Loans
Total Past Due	300	148
90 Days or more Past Due
Past Due Loans
Total Past Due	259	1,377
90 Days or more Past Due | Residential 1-4 family
Past Due Loans
Total Past Due		738
90 Days or more Past Due | Home equity loans and lines of credit
Past Due Loans
Total Past Due	151	491
90 Days or more Past Due | Commercial real estate
Past Due Loans
Total Past Due	$ 108	130
90 Days or more Past Due | SBA
Past Due Loans
Total Past Due		$ 18

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Loans - Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Recorded investment in impaired loans and the related specific allowance allocated
Unpaid contractual principal balance	$ 13,164		$ 13,164		$ 13,358
Total recorded investment in impaired loans	12,853		12,853		12,970
Recorded investment with no allowance	12,623		12,623		12,604
Recorded investment with allowance	230		230		366
Related allowance	33		33		53
Average recorded investment	12,637	$ 9,067	12,848	$ 8,528
Interest income recognized	168	117	$ 318	208
Period of current payments after which loans are returned to accrual status after a period of satisfactory payment performance			6 months
Residential 1-4 family
Recorded investment in impaired loans and the related specific allowance allocated
Unpaid contractual principal balance	4,710		$ 4,710		5,978
Total recorded investment in impaired loans	4,421		4,421		5,628
Recorded investment with no allowance	4,421		4,421		5,493
Recorded investment with allowance					135
Related allowance					19
Average recorded investment	4,742	5,112	5,115	4,722
Interest income recognized	69	55	122	90
Home equity loans and lines of credit
Recorded investment in impaired loans and the related specific allowance allocated
Unpaid contractual principal balance	1,980		1,980		1,369
Total recorded investment in impaired loans	1,960		1,960		1,349
Recorded investment with no allowance	1,743		1,743		1,131
Recorded investment with allowance	217		217		218
Related allowance	30		30		31
Average recorded investment	1,854	1,381	1,759	1,299
Interest income recognized	25	17	50	31
Commercial real estate
Recorded investment in impaired loans and the related specific allowance allocated
Unpaid contractual principal balance	4,601		4,601		4,487
Total recorded investment in impaired loans	4,601		4,601		4,487
Recorded investment with no allowance	4,601		4,601		4,487
Average recorded investment	4,411	392	4,405	394
Interest income recognized	52	4	100	6
SBA
Recorded investment in impaired loans and the related specific allowance allocated
Unpaid contractual principal balance	1,817		1,817		1,511
Total recorded investment in impaired loans	1,815		1,815		1,493
Recorded investment with no allowance	1,815		1,815		1,493
Guaranteed portions of impaired loans	1,300		1,300		1,200
Average recorded investment	1,606	2,168	1,550	2,099
Interest income recognized	22	41	46	81
Consumer
Recorded investment in impaired loans and the related specific allowance allocated
Unpaid contractual principal balance	56		56		13
Total recorded investment in impaired loans	56		56		13
Recorded investment with no allowance	43		43
Recorded investment with allowance	13		13		13
Related allowance	3		3		$ 3
Average recorded investment	$ 24	$ 14	$ 19	$ 14

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Loans - Troubled Debt Restructuring (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2017 USD ($) loan	Jun. 30, 2016 USD ($) loan	Jun. 30, 2017 USD ($) loan	Jun. 30, 2016 USD ($) loan	Dec. 31, 2016 USD ($)
Troubled Debt Restructurings (TDRs)
Total TDR loans	$ 11,100,000		$ 11,100,000		$ 10,900,000
Number of contracts restructured | loan	5	4	9	5
Pre-modification outstanding recorded investment	$ 808,000	$ 511,000	$ 1,207,000	$ 521,000
Post-modification outstanding recorded investment	808,000	511,000	1,207,000	521,000
Impact on allowance for loan losses	0	0	0	0
Charge-offs, troubled debt restructurings	$ 0	0	$ 0	$ 0
Troubled debt restructurings that subsequently defaulted within 12 months of restructuring
Number of TDRs that defaulted (in loans) | loan	1		4	3
Recorded investment	$ 71,000		$ 4,253,000	$ 647,000
Accrual status
Troubled Debt Restructurings (TDRs)
Total TDR loans	9,400,000		9,400,000		$ 8,300,000
Default status
Troubled debt restructurings that subsequently defaulted within 12 months of restructuring
Charge-offs, troubled debt restructurings that subsequently defaulted within 12 months	0	0	0	20,000
Specific reserves	$ 0	$ 0	$ 0	$ 12,000
Residential 1-4 family
Troubled Debt Restructurings (TDRs)
Number of contracts restructured | loan		1		1
Pre-modification outstanding recorded investment		$ 175,000		$ 175,000
Post-modification outstanding recorded investment		$ 175,000		$ 175,000
Troubled debt restructurings that subsequently defaulted within 12 months of restructuring
Number of TDRs that defaulted (in loans) | loan	1		1	3
Recorded investment	$ 71,000		$ 71,000	$ 647,000
Home equity loans and lines of credit
Troubled Debt Restructurings (TDRs)
Number of contracts restructured | loan	2	2	6	3
Pre-modification outstanding recorded investment	$ 255,000	$ 286,000	$ 654,000	$ 296,000
Post-modification outstanding recorded investment	$ 255,000	$ 286,000	$ 654,000	$ 296,000
Troubled debt restructurings that subsequently defaulted within 12 months of restructuring
Number of TDRs that defaulted (in loans) | loan			1
Recorded investment			$ 74,000
Commercial real estate
Troubled Debt Restructurings (TDRs)
Number of contracts restructured | loan	1		1
Pre-modification outstanding recorded investment	$ 259,000		$ 259,000
Post-modification outstanding recorded investment	$ 259,000		$ 259,000
Troubled debt restructurings that subsequently defaulted within 12 months of restructuring
Number of TDRs that defaulted (in loans) | loan			2
Recorded investment			$ 4,108,000
SBA
Troubled Debt Restructurings (TDRs)
Number of contracts restructured | loan	1	1	1	1
Pre-modification outstanding recorded investment	$ 250,000	$ 50,000	$ 250,000	$ 50,000
Post-modification outstanding recorded investment	$ 250,000	$ 50,000	$ 250,000	$ 50,000
Consumer
Troubled Debt Restructurings (TDRs)
Number of contracts restructured | loan	1		1
Pre-modification outstanding recorded investment	$ 44,000		$ 44,000
Post-modification outstanding recorded investment	$ 44,000		$ 44,000

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Loans - Allowance for Loan Losses (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Dec. 31, 2016
Changes in the allowance for loan losses
Allowance at beginning of the period	$ 2,559	$ 2,283	$ 2,493	$ 2,194
Provision (credit)	153	145	213	254
Loans charged-off	(6)	(74)	(6)	(99)
Recoveries	14	20	20	25
Allowance at the end of the period	2,720	2,374	2,720	2,374
Allowance for loan losses
Allowance for impaired loans					$ 33	$ 53
Allowance for non-impaired loans					2,687	2,440
Total	2,559	2,283	2,493	2,194	2,720	2,493
Loan balances
Impaired loans					12,853	12,970
Non-impaired loans					548,624	510,903
Total Loans					561,477	523,873
Residential 1-4 family
Changes in the allowance for loan losses
Allowance at beginning of the period	1,033	906	1,009	863
Provision (credit)	54	40	78	103
Loans charged-off	(6)		(6)	(20)
Recoveries	6		6
Allowance at the end of the period	1,087	946	1,087	946
Allowance for loan losses
Allowance for impaired loans						19
Allowance for non-impaired loans					1,087	990
Total	1,033	906	1,009	863	1,087	1,009
Loan balances
Impaired loans					4,421	5,628
Non-impaired loans					268,551	237,757
Total Loans					272,972	243,385
Home equity loans and lines of credit
Changes in the allowance for loan losses
Allowance at beginning of the period	533	522	541	525
Provision (credit)	(11)	62	(20)	63
Loans charged-off		(62)		(67)
Recoveries	1	7	2	8
Allowance at the end of the period	523	529	523	529
Allowance for loan losses
Allowance for impaired loans					30	31
Allowance for non-impaired loans					493	510
Total	533	522	541	525	523	541
Loan balances
Impaired loans					1,960	1,349
Non-impaired loans					71,593	74,826
Total Loans					73,553	76,175
Commercial real estate
Changes in the allowance for loan losses
Allowance at beginning of the period	629	527	596	503
Provision (credit)	63	14	96	38
Allowance at the end of the period	692	541	692	541
Allowance for loan losses
Allowance for non-impaired loans					692	596
Total	629	527	596	503	692	596
Loan balances
Impaired loans					4,601	4,487
Non-impaired loans					141,651	134,459
Total Loans					146,252	138,946
Commercial business
Changes in the allowance for loan losses
Allowance at beginning of the period	64	51	60	39
Provision (credit)	5	14	9	26
Allowance at the end of the period	69	65	69	65
Allowance for loan losses
Allowance for non-impaired loans					69	60
Total	64	51	60	39	69	60
Loan balances
Non-impaired loans					14,511	13,308
Total Loans					14,511	13,308
Commercial construction
Changes in the allowance for loan losses
Allowance at beginning of the period	61	31	51	21
Provision (credit)	8	6	18	16
Allowance at the end of the period	69	37	69	37
Allowance for loan losses
Allowance for non-impaired loans					69	51
Total	61	31	51	21	69	51
Loan balances
Non-impaired loans					13,441	10,946
Total Loans					13,441	10,946
SBA
Changes in the allowance for loan losses
Allowance at beginning of the period	231	238	228	234
Provision (credit)	42	15	42	18
Loans charged-off		(12)		(12)
Recoveries		7	3	8
Allowance at the end of the period	273	248	273	248
Allowance for loan losses
Allowance for non-impaired loans					273	228
Total	231	238	228	234	273	228
Loan balances
Impaired loans					1,815	1,493
Non-impaired loans					37,687	38,455
Total Loans					39,502	39,948
Consumer
Changes in the allowance for loan losses
Allowance at beginning of the period	8	8	8	9
Provision (credit)	(8)	(6)	(10)	(10)
Recoveries	7	6	9	9
Allowance at the end of the period	7	8	7	8
Allowance for loan losses
Allowance for impaired loans					3	3
Allowance for non-impaired loans					4	5
Total	$ 8	$ 8	$ 8	$ 9	7	8
Loan balances
Impaired loans					56	13
Non-impaired loans					1,190	1,152
Total Loans					$ 1,246	$ 1,165

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Employee Benefits (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2017 USD ($) shares	Jun. 30, 2016 USD ($)	Jun. 30, 2017 USD ($) employee shares	Jun. 30, 2016 USD ($)	Dec. 31, 2016 USD ($) shares
Employee Stock Ownership Plan
Percentage of common stock outstanding, held in ESOP (as a percent)	9.00%		9.00%
Term of loan payable			25 years
Interest rate (as a percent)			3.50%
Shares held by the ESOP
Allocated (in shares) | shares	47,512		47,512
Distributions (in shares) | shares	(715)		(715)
Committed to be allocated (in shares) | shares	7,919		7,919
Unallocated (in shares) | shares	340,503		340,503
Total (in shares) | shares	395,219		395,219
Fair value of unallocated shares	$ 7,000,000		$ 7,000,000
Total expense	$ 78,000	$ 49,000	$ 145,000	$ 99,000
Deferred Compensation SERP
Deferred Compensation Supplemental Executive Plan
Shares held in the Rabbi Trust (in shares) | shares	8,900		8,900		8,900
Value of shares held in the Rabbi Trust	$ 100,000		$ 100,000		$ 100,000
Benefit obligation	100,000		100,000		100,000
Supplemental Employee Retirement Plan
Deferred Compensation Supplemental Executive Plan
SERP expense	241,000	192,000	482,000	384,000
Defined Benefit Pension Plan
Deferred Compensation Supplemental Executive Plan
SERP expense	8,000	$ 5,000	16,000	$ 11,000
Expected contribution for the current plan year			8,000
Other assets | Deferred Compensation SERP
Deferred Compensation Supplemental Executive Plan
Assets related to the Rabbi Trust	1,300,000		1,300,000		1,100,000
Accrued expenses and other liabilities | Deferred Compensation SERP
Deferred Compensation Supplemental Executive Plan
Liability for benefit obligation reported in accrued expenses and other liabilities	$ 1,300,000		$ 1,300,000		$ 1,100,000
Executive Officers | Supplemental Employee Retirement Plan
Deferred Compensation Supplemental Executive Plan
Number of employees with whom the entity entered into agreements (in employees) | employee			7
Executive Officers | Supplemental Employee Retirement Plan | Minimum
Deferred Compensation Supplemental Executive Plan
Retirement age for SERP			65 years
Executive Officers | Supplemental Employee Retirement Plan | Maximum
Deferred Compensation Supplemental Executive Plan
Retirement age for SERP			67 years

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Other Stock-Based Compensation (Details) - USD ($)		1 Months Ended		3 Months Ended		6 Months Ended
	May 21, 2015	Feb. 28, 2017	Feb. 29, 2016	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2015
Options
Other Stock-Based Compensation
Share-based compensation expense				$ 17,000	$ 12,000	$ 31,000	$ 18,000
Unrecognized salary and employee benefits cost, options				271,000	219,000	271,000	219,000
Options | Directors and certain key senior executives
Other Stock-Based Compensation
Vesting period (in years)		5 years	5 years
Number of stock options granted (in shares)		26,155	91,225
Options, strike price (in dollars per share)		$ 16.40	$ 12.41
Grant-date fair value of stock options (in dollars per share)		$ 4.11	$ 2.59
Restricted Stock
Other Stock-Based Compensation
Share-based compensation expense				33,000	24,000	62,000	36,000
Unrecognized salary and employee benefits cost, restricted stock				$ 522,000	$ 448,000	$ 522,000	$ 448,000
Restricted Stock | Directors and certain key senior executives
Other Stock-Based Compensation
Vesting period (in years)		5 years	5 years
Restricted stock (in shares)		11,228	39,045
Restricted Stock | Executive Officers
Other Stock-Based Compensation
Restricted shares forfeited for tax withholdings		2,683
Fair value of restricted shares forfeited for tax withholdings		$ 44,000
2015 Equity Incentive Plan
Other Stock-Based Compensation
Number of shares available for issuance under the EIP								692,885
Expiration period after grant date	10 years
2015 Equity Incentive Plan | Maximum
Other Stock-Based Compensation
Vesting rate per year (as a percent)	20.00%
2015 Equity Incentive Plan | Minimum
Other Stock-Based Compensation
Vesting period (in years)	1 year

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Other Stock-Based Compensation - Assumptions used to determine fair value of stock options (Details) - USD ($)	1 Months Ended
	Feb. 28, 2017	Feb. 29, 2016
Assumptions used to determine grant-date fair value of stock options
Volatility	15.04%	13.52%
Forfeiture rate	0.00%	0.00%
Dividend yield	$ 0.00	$ 0.00
Expected term	8 years	8 years
Risk free rate	2.25%	1.56%

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Earnings per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Nov. 30, 2016
Class of Stock
Net income applicable to common stock	$ 817	$ 946	$ 1,379	$ 1,585
Weighted average common shares outstanding	4,345,146	4,680,322	4,352,733	4,741,221
Less: Average unallocated ESOP shares	(342,489)	(358,326)	(344,452)	(360,289)
Average number of common shares outstanding used to calculate basic earnings per share	4,002,657	4,321,996	4,008,281	4,380,932
Plus: dilutive impact of stock options	15,993		12,680
Plus: dilutive effect unvested restricted stock awards	9,710	2,065	9,180	1,246
Weighted average number of common shares outstanding - diluted	4,028,360	4,324,061	4,030,141	4,382,178
Earnings per share - basic	$ 0.20	$ 0.22	$ 0.34	$ 0.36
Earnings per share - diluted	$ 0.20	$ 0.22	$ 0.34	$ 0.36
Share Repurchase Program, November 2016
Class of Stock
Common stock authorized to repurchased under repurchase program (in shares)					223,331
Common stock repurchased (in shares)	4,500		19,200
Remaining common stock to be repurchased (in shares)	101,548		101,548
Options
Class of Stock
Shares of common stock excluded from computing diluted earnings per share	26,155	91,225	26,155	91,225
Stock option exercise price per share	$ 16.40	$ 12.41	$ 16.40	$ 12.41

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Off-Balance Sheet Activities and Mortgage Banking - Loan Commitments (Details) - Credit Risk - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Commitments to originate loans for portfolio
Loan Commitments
Outstanding financial instruments whose contract amounts represent credit risk	$ 20,849	$ 18,461
Commitments to originate loans to be sold
Loan Commitments
Outstanding financial instruments whose contract amounts represent credit risk	32,411	24,307
Commitments to purchase loans from third parties
Loan Commitments
Outstanding financial instruments whose contract amounts represent credit risk	4,817	4,236
Unfunded commitments under home equity lines of credit
Loan Commitments
Outstanding financial instruments whose contract amounts represent credit risk	57,494	53,342
Unfunded commitments under commercial lines of credit
Loan Commitments
Outstanding financial instruments whose contract amounts represent credit risk	17,819	14,730
Unfunded commitments under SBA lines of credit
Loan Commitments
Outstanding financial instruments whose contract amounts represent credit risk	5,162	4,106
Unfunded commitments under overdraft lines of credit
Loan Commitments
Outstanding financial instruments whose contract amounts represent credit risk	176	180
Unadvanced funds on construction loans
Loan Commitments
Outstanding financial instruments whose contract amounts represent credit risk	$ 7,746	$ 5,735

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Off-Balance Sheet Activities and Mortgage Banking - Mortgage Banking (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Mortgage Banking
Loans held for sale	$ 13,228	$ 23,157
Closed hedge instruments not settled	4,000	8,500
Forward loan sale commitments
Mortgage Banking
Forward commitments	40,500	41,900
TBA securities
Mortgage Banking
Forward commitments	20,000	15,200
Mandatory delivery contracts
Mortgage Banking
Forward commitments	4,700	7,400
Best efforts contracts
Mortgage Banking
Forward commitments	15,800	19,300
Interest rate lock commitments
Mortgage Banking
Commitments to borrowers	$ 32,400	$ 24,300

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Off-Balance Sheet Activities and Mortgage Banking - Leases (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2017 USD ($) ft² agreement
Off-Balance Sheet Activities and Mortgage Banking
Number of agreements | agreement	2
Area of leased property (in square feet) | ft²	8,650
Term of initial lease	63 months
Number of renewal options | agreement	2
Term of renewal options	2 years
Future minimum rental payments
2018	$ 182
2019	182
2020	182
2021	182
Thereafter	197
Operating Leases, Future Minimum Payments Receivable, Total	$ 925

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Off-Balance Sheet Activities and Mortgage Banking - Derivatives Designated as Hedging Instruments (Details) - Designated as Hedging Instrument - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Mortgage Banking
Assets, Fair Value	$ 524	$ 643
Liabilities, Fair Value		219
Derivative loan commitments
Mortgage Banking
Assets, Fair Value	475	566
Commitments hedged with best efforts | Other assets
Mortgage Banking
Assets, Fair Value	164	255
Commitments hedged with TBA | Other assets
Mortgage Banking
Assets, Fair Value	311	311
Forward loan sale commitments
Mortgage Banking
Assets, Fair Value	49	77
Liabilities, Fair Value		219
Best efforts contracts
Mortgage Banking
Assets, Fair Value	15	77
Liabilities, Fair Value		125
Commitments | Other assets
Mortgage Banking
Assets, Fair Value	12
Commitments | Other liabilities.
Mortgage Banking
Liabilities, Fair Value		125
Loans held for sale | Other assets
Mortgage Banking
Assets, Fair Value	3	77
Mandatory delivery contracts | Other assets
Mortgage Banking
Assets, Fair Value	12
Mandatory delivery contracts | Other liabilities.
Mortgage Banking
Liabilities, Fair Value		37
TBA securities | Other assets
Mortgage Banking
Assets, Fair Value	$ 22
TBA securities | Other liabilities.
Mortgage Banking
Liabilities, Fair Value		$ 57

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Off-Balance Sheet Activities and Mortgage Banking - Derivatives not Designated as Hedging Instruments (Details) - Not Designated As Hedging Instruments - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Gains and losses on derivative instruments
Gains (losses) on derivative instruments	$ 10	$ (74)	$ 100	$ 169
Derivative loan commitments | Net gain (loss) on sales of loans and other mortgage banking income
Gains and losses on derivative instruments
Gains (losses) on derivative instruments	(133)	235	(91)	785
Best efforts contracts | Net gain (loss) on sales of loans and other mortgage banking income
Gains and losses on derivative instruments
Gains (losses) on derivative instruments	(12)	(141)	63	(379)
Mandatory delivery contracts | Net gain (loss) on sales of loans and other mortgage banking income
Gains and losses on derivative instruments
Gains (losses) on derivative instruments	12	(8)	49	(16)
TBA securities | Net gain (loss) on sales of loans and other mortgage banking income
Gains and losses on derivative instruments
Gains (losses) on derivative instruments	$ 143	$ (160)	$ 79	$ (221)

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Fair Value Measurements - Fair Value Option (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Fair Value Measurements
Aggregate fair value of loans held for sale	$ 13,200,000		$ 13,200,000		$ 23,200,000
Contractual balance	12,800,000		12,800,000		22,700,000
Gain (Loss)	404,000		404,000		$ 443,000
Change in fair value of loans held for sale	$ 240,000	$ 561,000	$ 65,000	$ 404,000

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Fair Value Measurements - Hierarchy (Details) - USD ($)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Fair Value Measurements
Foreclosed real estate	$ 0		$ 0
Losses on collateral dependent impaired loans	0		0
Provision for loan losses	153,000	$ 145,000	213,000	$ 254,000
Charge-offs, troubled debt restructurings	0	0	0	0
Losses on foreclosed real estate	0	0	0	0
Impaired loans
Fair Value Measurements
Provision for loan losses		$ 22,000		$ 23,000
Charge-offs, troubled debt restructurings					$ 0
Specific reserves					23,000
Carrying Amount | Impaired loans
Fair Value Measurements
Impaired loans (collateral dependent)	0		0		558,000
Recurring | Loans held for sale | Level 2
Fair Value Measurements
Fair Value, Assets	13,228,000		13,228,000		23,157,000
Recurring | Derivative loan commitments hedged with best efforts | Level 3
Fair Value Measurements
Fair Value, Assets	164,000		164,000		255,000
Recurring | Derivative loan commitments hedged with TBAs | Level 3
Fair Value Measurements
Fair Value, Assets	311,000		311,000		311,000
Recurring | Best efforts contracts hedging loans held for sale | Level 3
Fair Value Measurements
Fair Value, Assets	3,000		3,000		77,000
Recurring | Best efforts contracts - hedging commitments | Level 3
Fair Value Measurements
Fair Value, Assets	12,000		12,000
Fair Value, Liabilities					125,000
Recurring | TBA securities | Level 2
Fair Value Measurements
Fair Value, Assets	22,000		22,000
Fair Value, Liabilities					57,000
Recurring | Mandatory delivery contracts | Level 2
Fair Value Measurements
Fair Value, Assets	$ 12,000		$ 12,000
Fair Value, Liabilities					37,000
Non-recurring | Level 3
Fair Value Measurements
Impaired loans (collateral dependent)					558,000
Foreclosed real estate					$ 422,000

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Fair Value Measurements - Change in Level 3 Assets and Liabilities Measured on a Recurring Basis (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Change in Level 3 assets and liabilities measured on a recurring basis
Balance at beginning of period	$ 635	$ 354	$ 518	$ 42
Gains on new commitments during the period	501	466	490	841
Gain (losses) arising during the period	(17)	(18)	(12)	(18)
Reclassifications of realized (gains) losses on settled commitments	(629)	(354)	(506)	(417)
Balance at end of period	$ 490	$ 448	$ 490	$ 448

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Fair Value Measurements - Quantitative Information (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2017	Dec. 31, 2016
Additional quantitative information
Foreclosed real estate	$ 422	$ 422
Recurring | Level 3 | Derivative loan commitments | Investor pricing
Additional quantitative information
Fair Value, Assets	475	566
Recurring | Level 3 | Best efforts contracts hedging loans held for sale
Additional quantitative information
Fair Value, Assets	3	77
Recurring | Level 3 | Best efforts contracts hedging loans held for sale | Investor pricing
Additional quantitative information
Fair Value, Assets	3	77
Recurring | Level 3 | Best efforts contracts - hedging commitments
Additional quantitative information
Fair Value, Assets	12
Fair Value, Liabilities		125
Recurring | Level 3 | Best efforts contracts - hedging commitments | Investor pricing
Additional quantitative information
Fair Value, Assets	$ 12
Fair Value, Liabilities		125
Non-recurring | Level 3
Additional quantitative information
Impaired loans (collateral dependent)		558
Non-recurring | Level 3 | Discounted appraisal
Additional quantitative information
Impaired loans (collateral dependent)		558
Foreclosed real estate		$ 422
Minimum | Recurring | Level 3 | Derivative loan commitments | Investor pricing
Additional quantitative information
Pull-through rate (as a percent)	75.00%	75.10%
Minimum | Recurring | Level 3 | Best efforts contracts hedging loans held for sale | Investor pricing
Additional quantitative information
Pull-through rate (as a percent)	82.50%	82.50%
Minimum | Recurring | Level 3 | Best efforts contracts - hedging commitments | Investor pricing
Additional quantitative information
Pull-through rate (as a percent)	82.50%	82.50%
Minimum | Non-recurring | Level 3 | Discounted appraisal
Additional quantitative information
Collateral discounts (as a percent)		5.00%
Maximum | Recurring | Level 3 | Derivative loan commitments | Investor pricing
Additional quantitative information
Pull-through rate (as a percent)	100.00%	100.00%
Maximum | Recurring | Level 3 | Best efforts contracts hedging loans held for sale | Investor pricing
Additional quantitative information
Pull-through rate (as a percent)	100.00%	100.00%
Maximum | Recurring | Level 3 | Best efforts contracts - hedging commitments | Investor pricing
Additional quantitative information
Pull-through rate (as a percent)	100.00%	100.00%
Maximum | Non-recurring | Level 3 | Discounted appraisal
Additional quantitative information
Collateral discounts (as a percent)		30.00%

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Fair Value Measurements - Fair Value by Balance Sheet Grouping (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Carrying Amount
Financial assets:
Cash and cash equivalents	$ 46,500	$ 44,658
Loans, net	562,906	525,215
Loans held for sale	13,228	23,157
FHLB stock	6,172	6,184
Accrued interest receivable	1,716	1,598
Financial liabilities:
Non-certificate accounts	304,562	284,430
Certificate accounts	166,805	162,884
Borrowed funds	127,941	121,250
Accounts interest payable	42	40
Fair Value
Financial assets:
Cash and cash equivalents	46,500	44,658
Loans, net	567,120	525,822
Loans held for sale	13,228	23,157
Accrued interest receivable	1,716	1,598
Financial liabilities:
Non-certificate accounts	304,562	284,430
Certificate accounts	167,386	163,145
Borrowed funds	127,774	121,053
Accounts interest payable	42	40
Fair Value | Level 1
Financial assets:
Cash and cash equivalents	46,500	44,658
Financial liabilities:
Non-certificate accounts	304,562	284,430
Fair Value | Level 2
Financial assets:
Loans held for sale	13,228	23,157
Financial liabilities:
Certificate accounts	167,386	163,145
Borrowed funds	127,774	121,053
Accounts interest payable	42	40
Fair Value | Level 3
Financial assets:
Loans, net	567,120	525,822
Accrued interest receivable	$ 1,716	$ 1,598