10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended June 30, 2019

OR

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

For the transition period from ______________ to _____________

Commission file number: 001-35352

	WELLESLEY BANCORP, INC.
(Exact name of registrant as specified in its charter)

Maryland	45-3219901
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
100 Worcester Street, Suite 300, Wellesley, Massachusetts	02481
(Address of principal executive offices)	(Zip Code)

(781) 235-2550

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which Registered
Common Stock, par value $0.01 per share	WEBK	The NASDAQ Stock Market LLC

As of August 1, 2019, there were 2,560,065 shares of the registrant’s common stock outstanding.

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

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

Large accelerated filer  ¨	Accelerated filer  ¨
Non-accelerated filer x	Smaller reporting company x
	Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial standards provided pursuant to Section 7(a)(2)(B) of the Securities Act

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

Yes ¨ No x

WELLESLEY BANCORP, INC.

Table of Contents

		Page No.
Part I.   Financial Information
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018	1
	Consolidated Statements of Comprehensive Income for the Three  and Six Months Ended June 30, 2019 and 2018	2
	Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2019 and 2018	3
	Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2019 and 2018	4
	Notes to Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	34
Part II.   Other Information
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3.	Defaults Upon Senior Securities	35
Item 4.	Mine Safety Disclosures	35
Item 5.	Other Information	35
Item 6.	Exhibits	35
Signatures		37

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

CONSOLIDATED BALANCE SHEETS

	June 30, 2019			December 31, 2018
	(Dollars in thousands)
Assets
Cash and due from banks	$	5,747		$	7,678
Short-term investments		26,581			34,972
Total cash and cash equivalents		32,328			42,650
Certificates of deposit		100			100
Securities available for sale, at fair value		63,348			66,770
Federal Home Loan Bank of Boston stock, at cost		6,162			4,747
Loans held for sale		2,170			—
Loans		828,285			743,770
Less allowance for loan losses		(7,148	)		(6,738	)
Loans, net		821,137			737,032
Bank-owned life insurance		7,886			7,769
Operating lease,  right-of-use asset		7,229			—
Premises and equipment, net		3,778			3,924
Accrued interest receivable		2,815			2,288
Net deferred tax asset		2,498			2,804
Other assets		7,097			3,336
Total assets	$	956,548		$	871,420
Liabilities and Stockholders’ Equity
Deposits:
Non-interest-bearing	$	130,560		$	116,926
Interest-bearing		599,680			601,005
Total deposits		730,240			717,931
Short-term borrowings		54,000			15,000
Long-term borrowings		77,866			58,528
Subordinated debt		9,847			9,832
Lease liability		7,267			—
Accrued expenses and other liabilities		7,680			4,999
Total liabilities		886,900			806,290
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized, none issued		—			—
Common stock, $0.01 par value; 14,000,000 shares  authorized, 2,559,565 and 2,525,611 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively		26			25
Additional paid-in capital		27,201			26,462
Retained earnings		42,717			40,203
Accumulated other comprehensive income (loss)		667			(533	)
Unearned compensation – ESOP		(963	)		(1,027	)
Total stockholders' equity		69,648			65,130
Total liabilities and stockholders' equity	$	956,548		$	871,420

See accompanying notes to consolidated financial statements.

1

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
	(Dollars in thousands, except per share data)
Interest and dividend income:
Interest and fees on loans and loans held for sale	$	9,444		$	7,534		$	18,171		$	14,761
Debt securities:
Taxable		363			345			741			686
Tax-exempt		80			82			162			164
Short-term investments and certificates of deposit		143			120			307			233
FHLB stock		59			82			138			158
Total interest and dividend income		10,089			8,163			19,519			16,002
Interest expense:
Deposits		2,570			1,457			5,059			2,650
Short-term borrowings		255			75			365			198
Long-term debt		390			388			633			731
Subordinated debt		157			158			314			316
Total interest expense		3,372			2,078			6,371			3,895
Net interest income		6,717			6,085			13,148			12,107
Provision for loan losses		170			195			410			260
Net interest income, after provision for loan losses		6,547			5,890			12,738			11,847
Non-interest income:
Customer service fees		49			45			88			88
Mortgage banking activities		51			28			79			37
Income on bank-owned life insurance		59			58			117			115
Wealth management fees		392			417			826			801
Miscellaneous		331			98			454			183
Total non-interest income		882			646			1,564			1,224
Non-interest expense:
Salaries and employee benefits		3,122			2,693			6,162			5,414
Occupancy and equipment		820			701			1,624			1,419
Data processing		308			235			605			469
FDIC insurance		190			168			325			336
Professional fees		256			215			446			413
Other general and administrative		663			581			1,292			1,100
Total non-interest expense		5,359			4,593			10,454			9,151
Income before income taxes		2,070			1,943			3,848			3,920
Provision for income taxes		565			523			1,041			1,063
Net income		1,505			1,420			2,807			2,857
Other comprehensive income:
Net unrealized holding (loss) gains on available-for-sale securities		743			(204	)		1,601			(1,076	)
Income tax benefit (expense)		(186	)		55			(401	)		274
Total other comprehensive (loss) gain income		557			(149	)		1,200			(802	)
Comprehensive income	$	2,062		$	1,271		$	4,007		$	2,055
Earnings per common share:
Basic	$	0.61		$	0.59		$	1.15		$	1.19
Diluted	$	0.59		$	0.57		$	1.11		$	1.15
Weighted average shares outstanding:
Basic		2,454,617			2,395,635			2,444,897			2,394,113
Diluted		2,554,895			2,501,122			2,541,328			2,493,172

See accompanying notes to consolidated financial statements.

2

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Six Months Ended June 30, 2019 and 2018

	Common Stock					Additional Paid-in		Retained			Accumulated Other Comprehensive			Unearned Compensation-			Total Stockholders’
	Shares			Amount		Capital		Earnings			Income (Loss)			ESOP			Equity
	(Dollars in thousands)
Balance at December 31, 2017		2,506,532		$	25	$	25,601	$	34,736		$	39		$	(1,156	)	$	59,245
Comprehensive income		—			—		—		1,437			(653	)		—			784
Reclassification related to Tax Cuts and Jobs Act		—			—		—		(7)			7			—			—
Dividends paid to common stockholders ($0.05 per share)		—			—		—		(127	)		—			—			(127	)
Share-based compensation-equity incentive plan		—			—		107		—			—			—			107
ESOP shares committed to be allocated  (3,209)		—			—		61		—			—			33			94
Balance at March 31, 2018		2,506,532		$	25	$	25,769	$	36,039		$	(607	)	$	(1,123	)	$	60,103
Comprehensive income		—			—		—		1,420			(149	)		—			1,271
Dividends paid to common stockholders ($0.055 per share)		—			—		—		(137	)		—			—			(137	)
Restricted stock forfeitures		(400	)
Share-based compensation-equity incentive plan		—			—		100		—			—			—			100
ESOP shares committed to be allocated  (3,210)		—			—		72		—			—			31			103
Balance at June 30, 2018		2,506,132		$	25	$	25,941	$	37,322		$	(756	)	$	(1,092	)	$	61,440

	Common Stock					Additional Paid-in		Retained			Accumulated Other Comprehensive			Unearned Compensation-			Total Stockholders’
	Shares			Amount		Capital		Earnings			Income (Loss)			ESOP			Equity
	(Dollars in thousands)
Balance at December 31, 2018		2,525,611		$	25	$	26,462		40,203		$	(533	)	$	(1,027	)	$	65,130
Comprehensive income		—			—		—		1,302			643			—			1,945
Restricted stock awards grant		11,500			—		—		—			—			—			—
Stock options exercised		2,553			—		48		—			—			—			48
Restricted stock forfeitures		(2,000	)		—		—		—			—			—			—
Dividends paid to common stockholders ($0.055 per share)		—			—		—		(140	)		—			—			(140	)
Share-based compensation-equity incentive plan		—			—		102		—			—			—			102
ESOP shares committed to be allocated  (3,209)		—			—		64		—			—			32			96
Balance at March 31, 2019		2,537,664		$	25	$	26,676	$	41,365		$	110		$	(995	)	$	67,181
Comprehensive income		—			—		—		1,505			557			—			2,062
Stock options exercised		21,901			1		351		—			—			—			352
Dividends paid to common stockholders ($0.06 per share)		—			—		—		(153	)		—			—			(153	)
Share-based compensation-equity incentive plan		—			—		99		—			—			—			99
ESOP shares committed to be allocated  (3,210)		—			—		75		—			—			32			107
Balance at June 30, 2019		2,559,565		$	26	$	27,201	$	42,717		$	667		$	(963	)	$	69,648

See accompanying notes to consolidated financial statements.

3

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six Months Ended June 30,
	2019			2018
	(In thousands)
Cash flows from operating activities:
Net  income	$	2,807		$	2,857
Adjustments to reconcile net income to net cash provided  (used) by operating activities:
Provision for loan losses		410			260
Depreciation and amortization		391			392
Net amortization of securities		91			82
Principal balance of loans sold		6,259			2,532
Loans originated for sale		(8,429	)		(3,128	)
Accretion of net deferred loan fees		(335	)		(308	)
Amortization  of subordinated debt issuance costs		15			15
Income on bank-owned life insurance		(117	)		(115	)
Deferred income tax provision		(96	)		(55	)
ESOP expense		203			197
Share-based compensation		201			207
Net change in other assets and liabilities		(1,560	)		(1,346	)
Net cash  provided (used) by operating activities		(160	)		1,590
Cash flows from investing activities:
Activity in securities available for sale:
Maturities, prepayments and calls		4,933			5,557
Purchases		—			(7,480	)
Purchase of Federal Home Loan Bank stock		(1,415	)		(5	)
Net loan originations		(84,180	)		(18,141	)
Additions to premises and equipment		(260	)		(329	)
Proceeds on sale of premises and equipment		6			63
Net cash  used by investing activities		(80,916	)		(20,335	)
Cash flows from financing activities:
Net increase in deposits		12,309			26,444
Proceeds from issuance of long-term debt		33,000			36,000
Repayments of long-term debt		(13,662	)		(30,492	)
Increase (decrease)  in short-term borrowings		39,000			(8,000	)
Stock options exercised		399			—
Common stock repurchased		1			—
Cash dividends paid on common stock		(293	)		(264	)
Net cash provided by financing activities		70,754			23,688
Net change in cash and cash equivalents		(10,322	)		4,943
Cash and cash equivalents at beginning period		42,650			28,462
Cash and cash equivalents at end of period	$	32,328		$	33,405
Supplementary information:
Interest paid	$	5,853		$	3,756
Income taxes paid		1,677			1,954

See accompanying notes to consolidated financial statements.

4

WELLESLEY BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION AND CONSOLIDATION

The accompanying unaudited interim consolidated financial statements include the accounts of Wellesley Bancorp, Inc. (the “Company”) and its wholly-owned subsidiary, Wellesley Bank (the “Bank”), the principal operating entity, and its wholly-owned subsidiaries: Wellesley Securities Corporation, which engages in the business of buying, selling and dealing in securities exclusively on its own behalf; Wellesley Investment Partners, LLC, formed to provide investment management services for individuals, not-for-profit entities and businesses; and Central Linden, LLC, to hold, manage and sell foreclosed real estate. All significant intercompany balances and transactions have been eliminated in consolidation. Assets under management at Wellesley Investment Partners, LLC are not included in these consolidated financial statements because they are not assets of the Company. These financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information, and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements.

In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2018 Annual Report on Form 10-K. The results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019 or for any other period.

NOTE 2 – LOAN POLICIES

The loan portfolio consists of real estate, commercial and other loans to the Company’s customers in our primary market areas in eastern Massachusetts. The ability of the Company’s debtors to honor their contracts is dependent upon the economy in general and the state of real estate and construction sectors within our markets.

Loans that management has the intent and ability to hold for the foreseeable future, or until maturity or pay-off, are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred loan origination fees or costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

Interest is generally not accrued on loans that are identified as impaired or loans which are ninety days or more past due. Past due status is based on the contractual terms of the loan. Interest income previously accrued on such loans is reversed against current period interest income. Interest income on non-accrual loans is recognized only to the extent of interest payments received and is first applied to the outstanding principal balance when collectibility of principal is in doubt. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured through sustained payment performance for at least six months.

Allowance for loan losses

The allowance for loan losses is established through a provision for loan losses charged to earnings as losses are estimated to occur. Loan losses are charged against the allowance when management believes the uncollectibility of the loan balance is confirmed. Subsequent recoveries are credited to the allowance.

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, allocated and unallocated components.

5

General component

The general component is based on the following loan segments: residential real estate, commercial real estate, construction, commercial, home equity lines of credit and other consumer. Management considers a rolling average of historical losses for each segment based on a time frame appropriate to capture relevant loss data for each loan segment, generally three and 10 years. This historical loss factor is adjusted for the following qualitative factors: levels/trends in delinquencies; trends in volume, concentrations and terms of loans; level of collateral protection; effects of changes in risk selection and underwriting standards; experience/ability/depth of lending management and staff; and national and local economic trends and conditions. There were no significant changes to the Company’s policies or methodology pertaining to the general component of the allowance during 2019 or 2018.

The qualitative factor adjustments are determined based on the various risk characteristics of each loan segment. Risk characteristics relevant to each portfolio segment are as follows:

Residential real estate – The Company generally does not originate loans with a loan-to-value ratio greater than 80 percent and does not originate subprime loans. Most loans in this segment are collateralized by one-to-four family residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality of this segment.

Commercial real estate – Loans in this segment are primarily income-producing properties in the Company’s primary market areas in eastern Massachusetts. The underlying cash flows generated by the properties may be adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which, in turn, will have an effect on the credit quality in this segment. Management typically obtains rent rolls annually and continually monitors the cash flows of these loans.

Construction – Loans in this segment include speculative construction loans primarily on residential properties for which payment is derived from the sale of the property. Credit risk is affected by cost overruns, time to sell at an adequate price, and market conditions.    Residential construction loans in this segment also include loans to build one-to-four family owner-occupied properties which are subject to the same credit quality factors as residential real estate.

Commercial – Loans in this segment are made to businesses and are generally secured by assets of the business. Repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer spending, will have an effect on the credit quality in this segment.

Home equity lines of credit – Loans in this segment are collateralized by one-to-four family residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment.

Other consumer – Loans in this segment are generally unsecured and repayment is dependent on the credit quality of the individual borrower.

Allocated component

The allocated component relates to loans that are classified as impaired. Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the fair value of the loan or, if the loan is collateral dependent, by the fair value of the collateral less estimated costs to sell. An allowance is established when the discounted cash flows or collateral value of the impaired loan are lower than the carrying value of that loan. Large groups of smaller-balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify performing individual residential and consumer loans for impairment disclosures, unless such loans are subject to a troubled debt restructuring agreement.

6

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

The Company periodically may agree to modify the contractual terms of loans. When a loan is modified and a concession is made to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring ("TDR"). All TDRs are initially classified as impaired.

Unallocated component

An unallocated component is maintained to cover additional uncertainties in management’s estimation of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio.

NOTE 3 – COMPREHENSIVE INCOME

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

The components of accumulated other comprehensive income (loss) and related tax effects are as follows:

	June 30,			December 31,
	2019			2018
	(In thousands)
Unrealized holding  gains (losses)  on securities available for sale	$	869		$	(732	)
Tax effect		(202	)		199
Net-of tax amount	$	667		$	(533	)

NOTE 4 – RECENT ACCOUNTING AND REGULATORY PRONOUNCEMENTS

Effective January 1, 2019, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), which requires a lessee to record a right-of-use asset and liability representing the obligation to make lease payments for long-term leases. Upon adoption of the ASU, the Company recorded an increase in assets of $7.8 million and an increase in liabilities of $7.8 million on the Consolidated Balance Sheets as a result of recognizing the right-of-use assets and lease liabilities.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure expected credit losses based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount. Entities will now use forward-looking information to better form their credit loss estimates. Credit losses on available-for-sale debt securities should be measured in a manner similar to current GAAP; however, recognized credit losses will be presented as an allowance rather than as a write-down. This ASU will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company has implemented a committee led by the Company’s Chief Financial Officer, which includes the Chief Lending Officer, to assist in identifying, implementing and evaluating the impact of the required changes to the loan loss estimation model and processes. The Company has evaluated the portfolio segments and various methodologies and is currently evaluating potential loss modeling processes as well as related controls and procedures. Management will continue to closely monitor developments and additional guidance to determine the potential impact on the Company's consolidated financial statements.

7

NOTE 5 – SECURITIES AVAILABLE FOR SALE

The amortized cost and fair value of securities available for sale, with gross unrealized gains and losses, follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
June 30, 2019
Residential mortgage-backed securities:
Government National Mortgage Association	$	3,647	$	79	$	(18	)	$	3,708
Government-sponsored enterprises		10,656		132		(34	)		10,754
SBA and other asset-backed securities		10,684		242		(14	)		10,912
State and municipal bonds		12,348		465		(1	)		12,812
Government-sponsored enterprise obligations		8,000		—		(11	)		7,989
Corporate bonds		17,144		82		(53	)		17,173
	$	62,479	$	1,000	$	(131	)	$	63,348

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
December 31, 2018
Residential mortgage-backed securities:
Government National Mortgage Association	$	3,846	$	44	$	(43	)	$	3,847
Government-sponsored enterprises		11,382		29		(188	)		11,223
SBA and other asset-backed securities		11,720		64		(157	)		11,627
State and municipal bonds		12,908		111		(111	)		12,908
Government-sponsored enterprise obligations		8,000		—		(187	)		7,813
Corporate bonds		18,151		28		(322	)		17,857
U.S. Treasury bills		1,495		—		—			1,495
	$	67,502	$	276	$	(1,008	)	$	66,770

There were no sales of available-for-sale securities for the three and six months ended June 30, 2019 and 2018, respectively.

8

The amortized cost and fair value of debt securities by contractual maturity at June 30, 2019 are as follows:

	Amortized Cost		Fair Value
	(In thousands)
Within 1 year	$	5,248	$	5,255
After 1 year to 5 years		16,096		16,169
After 5 years to 10 years		6,565		6,616
After 10 years		9,583		9,934
		37,492		37,974
Mortgage- and asset-backed securities		24,987		25,374
	$	62,479	$	63,348

Expected maturities may differ from contractual maturities because the issuer, in certain instances, has the right to call or prepay obligations with or without call or prepayment penalties.

Information pertaining to securities with gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	Less Than Twelve Months					Over Twelve Months
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
	(In thousands)
June 30, 2019
Residential mortgage-backed securities:
Government National Mortgage Association	$	—		$	—	$	(18	)	$	1,596
Government-sponsored enterprises		—			—		(34	)		2,838
SBA and other asset-backed securities		(1	)		320		(13	)		2,062
State and municipal bonds		—			—		(1	)		330
Government-sponsored enterprise obligations		(3	)		997		(8	)		4,992
Corporate bonds		(11	)		3,988		(42	)		5,332
	$	(15	)	$	5,305	$	(116	)	$	17,150

	Less Than Twelve Months					Over Twelve Months
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
	(In thousands)
December 31, 2018
Residential mortgage-backed securities:
Government National Mortgage Association	$	—		$	—	$	(43	)	$	1,755
Government-sponsored enterprises		(1	)		103		(187	)		7,880
SBA and other asset-backed securities		—			—		(157	)		5,455
State and municipal bonds		(2	)		386		(109	)		6,257
Government-sponsored enterprise obligations		—			—		(187	)		7,813
Corporate bonds		(29	)		5,705		(293	)		11,124
	$	(32	)	$	6,194	$	(976	)	$	40,284

9

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market conditions warrant such evaluations. At June 30, 2019, various debt securities have unrealized losses with aggregate depreciation of 0.6% from their aggregate amortized cost basis. These unrealized losses relate principally to the effect of interest rate changes on the fair value of debt securities and not an increase in credit risk of the issuers. As the Company does not intend to sell the securities and it is more likely than not that the Company will not be required to sell the securities before recovery of their amortized cost, which may be maturity, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2019.

NOTE 6 – LOANS AND ALLOWANCE FOR LOAN LOSSES

A summary of the ending balances of loans is as follows:

	June 30,			December 31,
	2019			2018
	(In thousands)
Real estate loans:
Residential – fixed	$	74,748		$	64,218
Residential – variable		324,486			318,292
Commercial		170,554			148,006
Construction		132,945			106,723
		702,733			637,239
Commercial loans:
Secured		80,380			61,563
Unsecured		4,910			5,327
		85,290			66,890
Consumer loans:
Home equity lines of credit		40,304			39,486
Other		165			163
		40,469			39,649
Total loans		828,492			743,778
Less:
Allowance for loan losses		(7,148	)		(6,738	)
Net deferred origination costs		(207	)		(8	)
Loans, net	$	821,137		$	737,032

10

The following table summarizes the changes in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2019 and 2018:

	Residential Real Estate			Commercial Real Estate			Construction			Commercial			Home Equity		Other Consumer		Unallocated		Total
	(In thousands)
Three Months Ended June 30, 2019
Allowance at March 31, 2019	$	2,202			1,361		$	1,809		$	1,281		$	262	$	3	$	60	$	6,978
Provision (credit) for loan losses		(51	)		161			(183	)		71			—		—		172		170
Allowance at June 30, 2019	$	2,151		$	1,522		$	1,626		$	1,352		$	262	$	3	$	232	$	7,148
Three Months Ended June 30, 2018
Allowance at March 31, 2018	$	1,925		$	1,545		$	1,433		$	995		$	248	$	3	$	69	$	6,218
Provision (credit) for loan losses		74			70			26			(33	)		9		1		48		195
Allowance at June 30, 2018	$	1,999		$	1,615		$	1,459		$	962		$	257	$	4	$	117	$	6,413
Six  Months Ended June 30, 2019
Allowance at December 31, 2018	$	2,216			1,602		$	1,462		$	1,124		$	257	$	3	$	74	$	6,738
Provision (credit) for loan losses		(65	)		(80	)		164			228			5		—		158		410
Allowance at June 30, 2019	$	2,151		$	1,522		$	1,626		$	1,352		$	262	$	3	$	232	$	7,148
Six Months Ended June 30, 2018
Allowance at December 31, 2017	$	1,722		$	1,520		$	1,661		$	917		$	237	$	2	$	94	$	6,153
Provision (credit) for loan losses		277			95			(202	)		45			20		2		23		260
Allowance at June 30, 2018	$	1,999		$	1,615		$	1,459		$	962		$	257	$	4	$	117	$	6,413

Further information pertaining to the allowance for loan losses is as follows:

	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Home Equity		Other Consumer		Unallocated		Total
	(In thousands)
June 30, 2019
Allowance related to impaired loans	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Allowance related to non-impaired loans		2,151		1, 522		1,626		1,352		262		3		232		7,148
Total allowance	$	2,151	$	1,522	$	1,626	$	1,352	$	262	$	3	$	232	$	7,148
Impaired loan balances	$	734	$	2,703	$	—	$	—	$	—	$	—	$	—	$	3,437
Non-impaired loan balances		398,500		167,851		132,945		85,290		40,304		165		—		825,055
Total loans	$	399,234	$	170,554	$	132,945	$	85,290	$	40,304	$	165	$	—	$	828,492
December 31, 2018
Allowance related to impaired loans	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Allowance related to non-impaired loans		2,216		1,602		1,462		1,124		257		3		74		6,738
Total allowance	$	2,216	$	1,602	$	1,462	$	1,124	$	257	$	3	$	74	$	6,738
Impaired loan balances	$	746		2,846	$	—	$	—	$	—	$	—	$	—	$	3,592
Non-impaired loan balances		381,764		145,160		106,723		66,890		39,486		163		—		740,186
Total loans	$	382,510	$	148,006	$	106,723	$	66,890	$	39,486	$	163	$	—	$	743,778

11

The following is a summary of past due and non-accrual loans at June 30, 2019 and December 31, 2018:

	30-59 Days Past Due		60-89 Days Past Due		Past Due 90 Days or More		Total Past Due		Past Due 90 Days or More and Still Accruing		Non- accrual Loans
	(In thousands)
June 30, 2019
Residential real estate	$	572	$	—	$	—	$	572	$	—	$	572
Commercial real estate		—		—		548		548		—		548
Consumer loans		100		—		—		100		—		—
Total	$	672	$	—	$	548	$	1,220	$	—	$	1,120
December 31, 2018
Residential real estate	$	1,551	$	—	$	—	$	1,551	$	—	$	581
Commercial real estate		—		—		556		556		—		556
Total	$	1,551	$	—	$	556	$	2,107	$	—	$	1,137

The following is a summary of impaired loans:

	June 30, 2019				December 31, 2018
	Recorded Investment		Unpaid Principal Balance		Recorded Investment		Unpaid Principal Balance
	(In thousands)
Impaired loans without a valuation allowance:
Residential real estate	$	734	$	751	$	746	$	764
Commercial real estate		2,703		2,829		2,846		2,974
Total impaired loans	$	3,437	$	3,580	$	3,592	$	3,738

Further information pertaining to impaired loans follows:

	Three Months Ended June 30, 2019						Six Months Ended June 30, 2019
	Average Recorded Investment		Interest Income Recognized		Interest Income Recognized on Cash Basis		Average Recorded Investment		Interest Income Recognized		Interest Income Recognized on Cash Basis
	(In thousands)
Residential real estate	$	738	$	10	$	8	$	741	$	15	$	12
Commercial real estate		2,738		27		3		2,774		60		11
Total	$	3,476	$	37	$	11	$	3,515	$	75	$	23

12

	Three Months Ended June 30, 2018						Six Months Ended June 30, 2018
	Average Recorded Investment		Interest Income Recognized		Interest Income Recognized on Cash Basis		Average Recorded Investment		Interest Income Recognized		Interest Income Recognized on Cash Basis
	(In thousands)
Residential real estate	$	333	$	10	$	—	$	209	$	11	$	8
Commercial real estate		564		8		8		567		28		28
Total	$	897	$	18	$	8	$	776	$	39	$	36

No additional funds are committed to be advanced in connection with impaired loans.

There were no new troubled debt restructurings recorded during the three months ended June 30, 2019 and 2018.

There were no TDRs that defaulted, generally considered 90 days past due or longer, during the three and six months ended June 30, 2019 and 2018, and for which default was within one year of the restructure date. TDRs did not have a material impact on the allowance for loan losses for the three and six months ended June 30, 2019 and 2018.

Credit Quality Information

The Company utilizes an eleven-grade internal loan rating system for commercial real estate, construction and commercial loans.

Loans rated 1-4: Loans in these categories are considered “pass” rated loans with low to average risk.

Loans rated 5: Loans in this category are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management.

Loans rated 6: Loans in this category are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.

Loans rated 7: Loans in this category are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

Loans rated 8: Loans in this category are considered uncollectible “loss” and of such little value that their continuance as loans is not warranted.

Loans rated 9: Loans in this category only include commercial loans under $25 thousand with no other outstandings or relationships with the Company.

Loans rated 10: Loans in this category include loans which otherwise require rating but which have not been rated, or loans for which the Company’s loan policy does not require rating.

Loans rated 11: Loans in this category include credit commitments/relationships that cannot be rated due to a lack of financial information or inaccurate financial information. If within 60 days of the assignment of an 11 rating, information is still not available to allow a standard rating, the credit will be rated 6.

On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial real estate, construction and commercial loans. During each calendar year, the Company 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 process. On a monthly basis, the Company reviews the residential real estate and consumer loan portfolio for credit quality primarily through the use of delinquency reports.

13

The following table presents the Company’s loans by risk rating:

	June 30, 2019								December 31, 2018
	Commercial Real Estate		Construction		Commercial		Total		Commercial Real Estate		Construction		Commercial		Total
	(In thousands)
Loans rated 1-4	$	166,954	$	132,945	$	83,511	$	383,410	$	144,243	$	106,723	$	65,245	$	316,211
Loans rated 5		897		—		1,053		1,950		917		—		1,645		2,562
Loans rated 6		2,155		—		726		2,881		2,290		—		—		2,290
Loans rated 7		548		—		—		548		556		—		—		556
Total	$	170,554	$	132,945	$	85,290	$	388,789	$	148,006	$	106,723	$	66,890	$	321,619

NOTE 7 - DERIVATIVE INSTRUMENTS

Certain derivative instruments do not meet the requirements to be accounted for as hedging instruments. These undesignated derivative instruments are recognized on the consolidated balance sheet at fair value, with changes in the fair value recorded in miscellaneous income.

Derivative Loan Commitments

Mortgage loan commitments are referred to as derivative loan commitments if the loan that will result from exercise of the commitment will be held for sale upon funding. The Company enters into commitments to fund residential mortgage loans at specified rates and times in the future, with the intention that these loans will subsequently be sold in the secondary market.

Outstanding derivative loan commitments expose the Company to the potential for changes in the fair value of the underlying loans as interest rates change, along with the value of the loan commitment. If interest rates increase, the value of these loan commitments will decrease. Conversely, if interest rates decrease, the value of these loan commitments will increase. The notional amount of undesignated derivative loan commitments was $650 thousand at June 30, 2019. The fair value of these commitments was a liability of $3 thousand.

There were no outstanding derivative loan commitments at December 31, 2018.

Forward Loan Sale Commitments

To protect against the price risk inherent in derivative loan commitments, the Company utilizes “best efforts” forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments. With a “best efforts” contract, the Company commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor if the loan to the underlying borrower closes. Generally, the price the investor will pay the seller for an individual loan is specified prior to the loan being funded.

The Company expects that these forward loan sale commitments will experience changes in fair value opposite to the change in fair value of derivative loan commitments. The notional amount of undesignated forward loan sale commitments was $2.2 million at June 30, 2019. The fair value of these commitments was an asset of $1 thousand.

There were no undesignated forward loan sale commitments at December 31, 2018.

Interest Rate Swap Agreements

The Company has entered into derivative financial instruments in the normal course of business to manage exposure to fluctuations in interest rates for its commercial customers. Typically these agreements have generally been limited to loan level interest rate swap agreements, which are entered into with borrowers and a third party. Typically, the Company enters into a floating-rate loan and a fixed-rate swap directly with a loan customer. The Company offsets the fixed-rate interest rate risk with an identical offsetting swap with a swap dealer. This is referred to as a “back-to-back” swap structure. As this structure has equal and offsetting interest rate contracts, fair value gains and losses recorded each month are offsetting.

14

The notional amounts are amounts on which calculations, payments, and the value of the derivatives are based. Notional amounts do not represent direct credit exposures. The fair value of the derivative instruments is reflected on the Company’s consolidated balance sheet as other assets and other liabilities as appropriate. Changes in fair values are recorded in miscellaneous income in the consolidated statements of comprehensive income. A deposit account totaling $3.0 million is currently pledged to secure the Company’s liability for the offsetting interest rate swaps.

A summary of the interest rate swaps is as follows:

	With commercial						With  third-party
	loan borrowers						financial institutions
	June 30,			December 31,			June 30,			December 31,
	2019			2018			2019			2018
	(dollars in thousands)
Notional amount	$	50,401		$	28,320		$	50,401		$	28,320
Receive (pay) fixed rate weighted average		4.83	%		5.09	%		(4.83	)%		(5.09	)%
Receive (pay) variable rate weighted average		(4.58	)%		(5.06	)%		4.58	%		5.06	%
Weighted average remaining years		11.2 years			12.8 years			11.2 years			12.8 years
Unrealized fair value gain (loss)	$	3,064		$	264		$	(3,064	)	$	(264	)

NOTE 8 – FAIR VALUES OF FINANCIAL INSTRUMENTS

Fair value hierarchy

The Company groups its assets measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 – Valuation is based on quoted market prices in active exchange markets for identical assets and liabilities. Valuations are obtained from readily available pricing sources.

Level 2 – Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets and liabilities. Valuations are obtained from readily available pricing sources.

Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. Level 3 assets include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as those for which the determination of fair value requires significant management judgment or estimation.

Transfers between levels are recognized at the end of a reporting period, if applicable.

Determination of fair value

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances there are no quoted market prices for the Company’s various assets and liabilities. In cases where quoted market prices are not available, fair values are based on estimates using present value or other 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 assets and liabilities.

15

Assets and liabilities measured at fair value on a recurring basis

Assets and liabilities measured at fair value on a recurring basis at June 30, 2019 and December 31, 2018 are summarized below.

	Level 1		Level 2		Level 3		Total Fair Value
	(In thousands)
June 30, 2019
Assets
Securities available for sale	$	—	$	63,348	$	—	$	63,348
Interest rate swap agreements		—		3,064		—		3,064
Forward loan sale commitments		—		1		—		1
	$	—	$	66,434	$	—	$	66,434
Liabilities
Interest rate swap agreements	$	—	$	3,064	$	—	$	3,064
Derivative loan commitments		—		3		—		3
	$	—	$	3,067	$	—	$	3,067
December 31, 2018
Assets
Securities available for sale	$	—	$	66,770	$	—	$	66,770
Interest rate swap agreements		—		264		—		264
	$	—	$	67,034	$	—	$	67,034
Liabilities
Interest rate swap agreements	$	—	$	264	$	—	$	264

Fair value measurements for securities available for sale are obtained from a third-party pricing service and are not adjusted by management. All securities are measured at fair value in Level 2 based on valuation models that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data.

The fair values of interest rate swap agreements are based on a valuation model that uses primarily observable inputs, such as benchmark yield curves and interest rates and also the value associated with the counterparty risk. Credit risk adjustments consider factors such as the likelihood of default by the Company and its counterparties, its net exposure and remaining contractual life.

The fair value of forward loan sale commitments and derivative loan commitments are based on fair values of the underlying mortgage loans, including servicing values as applicable. The fair value of derivative loan commitments also considers the probability of such commitments being exercised.

16

Assets measured at fair value on a non-recurring basis

The Company may also be required, from time to time, to measure certain other financial assets at fair value on a non-recurring basis in accordance with generally accepted accounting principles. These adjustments to fair value usually result from application of lower-of-cost-or-market (“LOCOM”) accounting or write-downs of individual assets. Fair values for loans held for sale are based on commitments in effect from investors or prevailing market rates.

	June 30, 2019						December 31, 2018
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
	(In thousands)
Loans held for sale	$	—	$	—	$	2,170	$	—	$	—	$	—

There were no liabilities measured at fair value on a non-recurring basis at June 30, 2019 and December 31, 2018.

17

Summary of fair values of financial instruments

The estimated fair values and related carrying amounts of the Company’s financial instruments are outlined in the table below. Certain financial instruments and all nonfinancial instruments are excluded from disclosure requirements. Accordingly, the aggregate fair value amounts presented herein may not necessarily represent the underlying fair value of the Company.

			Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(In thousands)
June 30, 2019
Financial assets:
Cash and cash equivalents	$	32,328	$	32,328	$	—	$	—	$	32,328
Certificates of deposit		100		100		—		—		100
Securities available for sale		63,348		—		63,348		—		63,348
FHLB stock		6,162		—		—		6,162		6,162
Loans held for sale		2,170		—		—		2,170		2,170
Loans, net		821,137		—		—		830,413		830,413
Accrued interest receivable		2,815		—		—		2,815		2,815
Interest rate swap agreements		3,064		—		3,064		—		3,064
Forward loan sale commitments		1		—		1		—		1
Financial liabilities:
Deposits	$	730,240	$	—	$	—	$	730,275	$	730,275
Short-term borrowings		54,000		—		54,000		—		54,000
Long-term debt		77,866		—		78,008		—		78,008
Subordinated debt		9,847		—		—		9,741		9,741
Accrued interest payable		1,004		—		—		1,004		1,004
Interest rate swap agreements		3,064		—		3,064		—		3,064
Derivative loan commitments		3		—		3		—		3
December 31, 2018
Financial assets:
Cash and cash equivalents	$	42,650	$	42,650	$	—	$	—	$	42,650
Certificates of deposit		100		100		—		—		100
Securities available for sale		66,770		—		66,770		—		66,770
FHLB stock		4,747		—		—		4,747		4,747
Loans, net		737,032		—		—		732,427		732,427
Accrued interest receivable		2,288		—		—		2,288		2,288
Interest rate swap agreements		264		—		264		—		264
Financial liabilities:
Deposits	$	717,931	$	—	$	—	$	716,685	$	716,685
Short-term borrowings		15,000		—		15,000		—		15,000
Long-term debt		58,528		—		58,192		—		58,192
Subordinated debt		9,832		—		—		9,691		9,691
Accrued interest payable		487		—		—		487		487
Interest rate swap agreements		264		—		264		—		264

18

NOTE 9 – EMPLOYEE STOCK OWNERSHIP PLAN

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

The Company granted a loan to the ESOP to purchase shares of the Company’s common stock on the closing date of the Company’s mutual-to-stock conversion in 2012. As of June 30, 2019, the ESOP held 177,380 shares or 6.9% of the common stock outstanding on that date. The loan is payable annually over 15 years at the rate of 3.25% per annum. The loan can be prepaid without penalty. Loan payments are expected to be funded by cash contributions from the Bank. The loan is secured by the shares purchased, which are held in a suspense account for allocation among participants as the loan is repaid. Cash dividends paid on allocated shares are reinvested into shares to participants and cash dividends paid on unallocated shares will be used to repay the outstanding debt 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 at June 30, 2019 include the following:

Allocated	74,674
Committed to be allocated	6,419
Unallocated	96,287
	177,380

The fair value of unallocated shares was $3.1 million at June 30, 2019.

Total compensation expense recognized in connection with the ESOP for the three months ended June 30, 2019 and 2018 was $107 thousand and $103 thousand, respectively. ESOP-related compensation expense was $203 thousand and $197 thousand for the six months ended June 30, 2019 and 2018, respectively.

NOTE 10 – EQUITY INCENTIVE PLANS

Under the Company’s 2016 Equity Incentive Plan, the Company may grant restricted stock awards to its employees and directors for up to 75,000 shares of its common stock. A restricted stock award (the “award”) is a grant of shares of Company common stock for no consideration, subject to a vesting schedule or the satisfaction of market conditions or performance criteria. Awarded shares are held in reserve for each grantee by the Company’s transfer agent, and will be issued from previously authorized but unissued shares upon vesting. The fair value of the stock awards, based on the market price at the grant date, will be recognized over the five-year vesting period. At June 30, 2019, there remain 19,500 shares available to award under the Plan.

Under the Company’s 2012 Equity Incentive Plan the Company granted stock options to its employees and directors in the form of incentive stock options and non-qualified stock options totaling 231,894 shares of its common stock. The exercise price of each stock option was not less than the fair market value of the Company’s common stock on the date of grant, and the maximum term of each option is 10 years from the date of each award. The vesting period was five years from the date of grant, with vesting at 20% per year.

Under the 2012 Equity Incentive Plan, the Company also granted stock awards to management, employees and directors. Awarded shares are held in reserve for each grantee by the Company’s transfer agent, and were issued from previously authorized but unissued shares upon vesting. The fair value of the stock awards, based on the market price at the grant date, is recognized over the five-year vesting period.

The Company’s 2012 Equity Incentive Plan was terminated upon approval of the 2016 Equity Incentive Plan.

19

Stock Options

A summary of option activity under the 2012 Equity Incentive Plan for the six months ended June 30, 2019 is presented below:

	Outstanding									Non-vested
	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value		Shares			Weighted Average Grant Date Fair Value
	(In thousands)					(In years)		(In thousands)		(In thousands)
Balance at January 1, 2019		193		$	16.11						10		$	4.13
Forfeited		(3	)		19.07						(3	)		4.01
Exercised		(24	)		15.31						—			—
Balance at June 30, 2019		166		$	16.03		3.67	$	2,747		7		$	4.18
Exercisable at  June 30, 2019		159		$	15.33		3.63	$	2,584

For the three months ended June 30, 2019 and 2018, compensation expense applicable to the stock options was $6 thousand and $9 thousand, respectively. There was no recognized tax benefit related to this expense for the period ended June 30, 2019 and June 30, 2018, respectively.

For the six months ended June 30, 2019 and 2018, compensation expense applicable to the stock options was $13 thousand and $19 thousand, respectively. There was no recognized tax benefit related to this expense for the period ended June 30, 2019 and June 30, 2018, respectively.

Unrecognized compensation expense for non-vested stock options totaled $12 thousand as of June 30, 2019, which will be recognized over the remaining weighted average vesting period of 0.70 years.

Stock Awards

For the six months ended June 30, 2019, there were 11,500 restricted stock awards granted with a weighted average grant date fair value of $28.25.

The following table presents the activity in non-vested stock awards under the equity incentive plans for the six months ended June 30, 2019:

	Number of Shares			Grant-date Fair Value
	(In thousands)
Non-vested stock awards at beginning of year		27		$	23.97
Restricted shares granted		12			28.25
Restricted shares forfeited		(2	)		20.78
Non-vested stock awards at end of quarter		37		$	25.47

There was no activity in non-vested restricted stock awards under the 2016 or the 2012 Equity Incentive Plan for the three and six months ended June 30, 2018.

For the three months ended June 30, 2019 and 2018, compensation expense applicable to the stock awards was $93 thousand and $90 thousand, respectively, and the recognized tax benefit related to this expense was $26 thousand and $25 thousand, respectively.

20

For the six months ended June 30, 2019 and 2018, compensation expense applicable to the stock awards was $188 thousand and $188 thousand, respectively, and the recognized tax benefit related to this expense was $53 thousand, in each six month period 2019 and 2018.

Unrecognized compensation expense for non-vested restricted stock totaled $700 thousand as of June 30, 2019, which will be recognized over the remaining weighted average vesting period of 3.10 years.

NOTE 11 – EARNINGS PER COMMON SHARE

Basic earnings per share represents net income available to common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect 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. Under the Company’s 2012 and 2016 Equity Incentive Plans, stock awards contain non-forfeitable dividend rights. Accordingly, these shares are considered outstanding for computation of basic earnings per share. Potential common shares that may be issued by the Company relate to outstanding stock options and are determined using the treasury stock method.

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
	(In thousands, except earnings per share amounts)
Net income applicable to common stock	$	1,505		$	1,420		$	2,807		$	2,857
Average number of common shares issued		2,553			2,506			2,544			2,506
Less: Average unallocated ESOP shares		(98	)		(111	)		(99	)		(112	)
Average number of common shares outstanding used to calculate basic earnings per common share		2,455			2,396			2,445			2,394
Effect of  dilutive stock options		100			105			96			99
Average number of common shares outstanding used to calculate diluted earnings per share		2,555			2,501			2,541			2,493
Earnings per common share:
Basic	$	0.61		$	0.59		$	1.15		$	1.19
Diluted	$	0.59		$	0.57		$	1.11		$	1.15

There were no anti-dilutive options that would have been excluded from the computations of diluted earnings per share for the three and six months ended June 30, 2019 and 2018. Anti-dilutive shares are common stock equivalents with exercise prices in excess of the average market value of the Company’s stock for the periods presented.

NOTE 12 – LEASES

Effective January 1, 2019, operating leases are included in operating lease right-of-use (“ROU”) asset and liabilities in our consolidated balance sheet. These operating leases provide the physical facilities for our sales and service locations, administration and operations offices, and ATMs.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities were recognized at the adoption date based on the present value of lease payments over the remaining lease term. As our leases do not provide an implicit rate, we use the Federal Home Loan Bank borrowing rates that best align with the lease term in determining the present value of lease payments. Our lease terms may include options to extend or terminate the lease, which we include when it is reasonably certain that we will exercise that option. For operating leases, the lease expense is recognized on a straight-line basis over the lease term. The operating lease expense for the three and six months ended June 30, 2019 was $416 thousand and $832 thousand, respectively.

21

The table below summarizes other information related to our operating leases as of June 30, 2019:

Cash flows from operating leases, in thousands, year to date 2019	$	795
Weighted average remaining lease term, in years		5.6
Weighted average discount rate		3.12	%

The table below summarizes the maturity of the operating lease liabilities as of June 30, 2019:

	(In thousands)
2019	$	801
2020		1,632
2021		1,483
2022		1,182
2023		1,101
Thereafter		1,912
Total lease payments		8,111
Less imputed interest		(844	)
Present value of lease liabilities	$	7,267

The Bank is under agreement to take possession of an additional 4,431 square feet of office space in 2020 for a term of 74 months that is expected to increase the Bank’s ROU assets by $1.3 million.

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

Safe Harbor Statement for Forward-Looking Statements

This report may contain forward-looking statements within the meaning of the federal securities laws. These statements are not historical facts; rather they are statements based on the Company’s current expectations regarding its business strategies and their intended results and its future performance. Forward-looking statements are preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions.

Forward-looking statements are not guarantees of future performance. Numerous risks and uncertainties could cause or contribute to the Company’s actual results, performance and achievements being materially different from those expressed or implied by the forward-looking statements. Factors that may cause or contribute to these differences include, without limitation, general economic conditions, including changes in market interest rates and changes in monetary and fiscal policies of the federal government; legislative and regulatory changes; the changing quality and composition of the loan and investment securities portfolio; loan demand; deposit flows; competition; and, changes in accounting principles and guidelines. Additional factors that may affect our results are discussed in the Company’s 2018 Annual Report on Form 10-K under the section titled “Item 1A.–Risk Factors.” These factors should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company assumes no obligation and disclaims any obligation to update any forward-looking statements.

Critical Accounting Policies

We consider critical accounting policies to be accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies.

22

Allowance for Loan Losses. The allowance for loan losses is the amount estimated by management as necessary to cover losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses, which is charged to income. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are the following: the likelihood of loan default; the loss exposure at default; the amount and timing of future cash flows on impaired loans; the value of collateral; and, the determination of loss factors to be applied to the various qualitative elements of the portfolio. All of these estimates are susceptible to significant change.

Management reviews the level of the allowance at least quarterly and establishes the provision for loan losses based upon an evaluation of the portfolio, past loss experience, current economic conditions and other factors related to the collectibility of the loan portfolio. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic or other conditions differ substantially from the assumptions used in making the evaluation. In addition, the Federal Deposit Insurance Corporation and Massachusetts Commissioner of Banks, as an integral part of their examination processes, periodically review our allowance for loan losses and may require us to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examination. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would adversely affect earnings.

Comparison of Financial Condition at June 30, 2019 and December 31, 2018

General. Total assets increased $85.1 million, or 9.8%, from $871.4 million at December 31, 2018 to $956.5 million at June 30, 2019. Total asset growth was primarily related to an increase in the loan portfolio of $84.5 million or 11.4%, and the addition of an operating lease right-of-use asset of $7.2 million, partially offset by a decrease in cash and cash equivalents of $10.3 million, or 24.2%, and a decrease of $3.4 million in securities available for sale.

Loans. The loan portfolio increased $84.5 million. Construction loans increased $26.2 million, or 24.6%, primarily due to the addition of several projects during the period. Commercial real estate loans increased $22.5 million, or 15.2%, as we have had continued success in expanding our business development efforts. Commercial loans increased $18.4 million, or 27.5%. Residential real estate loans increased $16.7 million, or 4.4%, to $399.2 million, compared to $382.5 million at December 31, 2018.

At June 30, 2019, past due loans totaled $1.2 million as compared to $2.1 million at December 31, 2018. Substantially all delinquent loans are secured by real estate collateral with values exceeding outstanding loan principal. There were no charge-offs on delinquent loans during the six months ended June 30, 2019 and June 30, 2018.

Securities. Total securities decreased from $66.8 million at December 31, 2018 to $63.3 million at June 30, 2019.

Deposits. Total deposits increased $12.3 million, or 1.7%, from $717.9 million at December 31, 2018 to $730.2 million at June 30, 2019. Money market accounts increased $59.0 million, or 29.0%. Demand deposits and NOW accounts increased $17.6 million, or 11.4%, to $171.5 million as growth was realized in both retail and commercial accounts. Deposit growth was driven by our continued emphasis on primary relationships as well as targeted offers on interest-bearing accounts. Consequently, non-relationship based certificates of deposit decreased $52.1 million, or 18.7%, to $226.2 million. Savings account balances also decreased $12.2 million to $70.0 million at June 30, 2019.

Borrowings. We use borrowings, primarily from the FHLB, to supplement our supply of funds for loans and securities, and to support short-term liquidity needs of the institution. Long-term debt, consisting entirely of FHLB advances, increased $19.3 million, or 33.0%, for the six months ended June 30, 2019 to support loan funding. Short-term borrowings consist entirely of advances from the FHLB with initial maturities less than one year. Balances of short-term borrowings increased $39.0 million, or 260.0%, from December 31, 2018 to meet liquidity needs. Subordinated debt was $9.8 million at June 30, 2019 and December 31, 2018.

Stockholders’ Equity. Stockholders’ equity increased $4.5 million, or 6.9%, from $65.1 million at December 31, 2018 to $69.6 million at June 30, 2019. The increase was primarily a result of net income for the six month period of $2.8 million and an after-tax increase in the fair value of available for sale securities of $1.2 million, partially offset by dividends paid of $293 thousand.

23

Results of Operations for the Three Months Ended June 30, 2019 and 2018

Overview. Net income for the three months ended June 30, 2019 was $1.5 million, compared to net income of $1.4 million for the three months ended June 30, 2018, an increase of $85 thousand or 6.0%. The increase in net income was due to increases in net interest income and non-interest income along with a lower provision for loan losses, partially offset by an increase in non-interest expense. Net interest income increased $632 thousand to $6.7 million, non-interest income increased $236 thousand to $882 thousand and the provision for loan loss decreased $25 thousand to $170 thousand in the 2019 quarter. Non-interest expense increased $766 thousand and totaled $5.4 million for the three months ended June 30, 2019. Income tax expense increased $42 thousand to $565 thousand, as compared to the 2018 period.

Net Interest Income. Net interest income for the three months ended June 30, 2019 increased $632 thousand, or 10.4%, as compared to the three months ended June 30, 2018. The increase in interest income was due to increases in the average balances of loans and an increasing yield. Interest expense increased, driven by overall deposit growth, higher rates offered on certificates of deposit and money market accounts, and higher rates on borrowings.

Interest and dividend income increased $1.9 million, or 23.6%, from $8.2 million for the three months ended June 30, 2018 to $10.1 million for the three months ended June 30, 2019. The average balance of interest-earning assets increased 13.3%, while the average rate earned on these assets increased by 37 basis points (“bps”). Interest and fees on loans increased $1.9 million, or 25.4%, due, in part, to a 16.2% increase in the average balance of loans. The average rate earned on loans increased 34 bps to 4.66%. Interest income from investments increased $39 thousand, or 7.1%, due primarily to an increase in the average yields for the three months ended June 30, 2019 as compared to the prior year period.

Interest expense increased $1.3 million, or 62.3% primarily due to an increase in average balances of interest-bearing deposits and an increase in rates. Our funding costs have responded more quickly than loan income to the change in interest rates. Deposit expense increased $1.1 million, or 76.4%. The average balance of interest-bearing deposits increased $87.8 million, or 16.7%, in the three months ended June 30, 2019, compared to the same period in 2018 and the average rate paid on interest bearing deposits increased 57 bps. In the 2019 period, interest expense on money market accounts increased by $805 thousand to $1.1 million. The rate paid on money market accounts increased 93 bps primarily due to a higher tiered-rate structure for these accounts than in the prior year, along with the increase of the average balance of money market accounts of $119.4 million to $253.1 million, as compared to the prior year period. The cost of term certificates of deposit increased $345 thousand to $1.4 million as balances in our retail products increased. Rates paid on certificates of deposit balances increased to 2.21%, up from 1.63% in the same period last year.

Interest expense on short-term borrowings totaled $255 thousand in the three month period ended June 30, 2019, compared to $75 thousand in the three months ended June 30, 2018, primarily due to increases in average balances as well as increases in the rates paid by 87 bps.

Long-term debt expense totaled $390 thousand in the three month period ended June 30, 2019 compared to $388 thousand in the three months ended June 30, 2018. The average balance of long-term FHLB advances decreased from $89.7 million to $63.4 million, while rates paid on long-term FHLB advances increased from 1.73% to 2.47%.

24

Average Balances and Yields. The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. Average balances have been calculated using daily balances. Loan fees are included in interest income on loans and are insignificant. Yields are not presented on a tax-equivalent basis. Any adjustments necessary to present yields on a tax-equivalent basis are insignificant.

	For the Three Months Ended June 30,
	2019								2018
(Dollars in thousands)	Average Outstanding Balance			Interest Earned/ Paid		Average Yield/ Rate (1)			Average Outstanding Balance			Interest Earned/ Paid		Average Yield/ Rate (1)
Interest-earning assets:
Short-term investments	$	27,106		$	143		2.11	%	$	29,858		$	120		1.61	%
Debt securities:
Taxable		50,574			363		2.87			53,656			345		2.58
Tax-exempt		13,050			80		2.47			12,927			82		2.54
Total loans and loans held for sale		812,506			9,444		4.66			698,988			7,534		4.32
FHLB stock		4,944			59		4.83			5,874			82		5.57
Total interest-earning assets		908,180			10,089		4.46			801,303			8,163		4.09
Allowance for loan losses		(7,070	)							(6,285	)
Total interest-earning assets less allowance for loan losses		901,110								795,018
Non-interest-earning assets		33,956								23,098
Total assets	$	935,066							$	818,116
Interest-bearing liabilities:
Regular savings accounts	$	74,433			112		0.60		$	99,411			152		0.61
NOW checking accounts		37,130			34		0.37			39,102			31		0.32
Money market accounts		253,105			1,050		1.66			133,753			245		0.73
Certificates of deposit		249,288			1,374		2.21			253,926			1,029		1.63
Total interest-bearing deposits		613,956			2,570		1.68			526,192			1,457		1.11
Short-term borrowings		37,374			255		2.74			16,120			75		1.87
Long-term debt		63,364			390		2.47			89,841			388		1.73
Subordinated debt		9,842			157		6.41			9,812			158		6.45
Total interest-bearing liabilities		724,536			3,372		1.87			641,965			2,078		1.29
Non-interest-bearing demand deposits		128,083								111,698
Other non-interest-bearing liabilities		13,584								3,253
Total liabilities		866,203								756,916
Stockholders’ equity		68,863								61,200
Total liabilities and stockholders’ equity	$	935,066							$	818,116
Net interest income				$	6,717							$	6,085
Net interest rate spread (2)							2.59	%							2.79	%
Net interest-earning assets (3)	$	183,644							$	159,338
Net interest margin (4)							2.97	%							3.05	%
Average total interest-earning assets to average total interest-bearing liabilities		125.35	%							124.82	%

25

(1) Ratios for the three month period have been annualized.

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

(3) Represents total average interest-earning assets less total average interest-bearing liabilities.

(4) Represents net interest income as a percent of average interest-earning assets.

Rate/Volume Analysis. The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total increase (decrease) column represents the sum of the prior columns. For purposes of this table, changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionally based on the changes due to rate and the changes due to volume.

	Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018
	Increase (Decrease) Due to						Total Increase
(In thousands)	Volume			Rate			(Decrease)
Interest-earning assets:
Short-term investments	$	(9	)	$	32		$	23
Debt securities:
Taxable		(17	)		35			18
Tax-exempt		1			(3	)		(2	)
Total loans and loans held for sale		1,288			622			1,910
FHLB stock		(12	)		(11	)		(23	)
Total interest-earning assets		1,251			675			1,926
Interest-bearing liabilities:
Regular savings		(38	)		(2	)		(40	)
NOW checking		(1	)		5			4
Money market		333			472			805
Certificates of deposit		(19	)		363			344
Total interest-bearing deposits		275			838			1,113
Short-term borrowings		133			47			180
Long-term debt		(3	)		5			2
Subordinated debt		—			(1	)		(1	)
Total interest-bearing liabilities		405			889			1,294
Increase (decrease) in net interest income	$	846		$	(214	)	$	632

Provision for Loan Losses. The provision for loan losses was $170 thousand for the three months ended June 30, 2019, compared to $195 thousand for the three month period ended June 30, 2018. In the 2019 period, the provision reflects management’s estimate of loan losses based upon historical loan portfolio performance, growth of the portfolio, loan mix, as well as qualitative factors such as the strength of the regional economy and organizational knowledge and expertise.

26

Analysis of Loan Loss Experience. The following table sets forth an analysis of the allowance for loan losses for the periods indicated.

	Three Months Ended
	June 30,
(Dollars in thousands)	2019			2018
Allowance at beginning of period	$	6,978		$	6,218
Provision for loan losses		170			195
Charge-offs		—			—
Recoveries		—			—
Net charge-offs		—			—
Allowance at end of period	$	7,148		$	6,413
Allowance for loan losses to nonperforming loans at end of period		637.87	%		526.49	%
Allowance for loan losses to total loans at end of period		0.86	%		0.90	%
Net charge-offs to average loans outstanding during the period		0.00	%		0.00	%

Non-interest Income. Non-interest income totaled $882 thousand, an increase of $236 thousand or 36.5%. Wealth management fees decreased $25 thousand, or 6.0%, as compared to the prior year as total assets under management totaled $405.3 million as of June 30, 2019, compared to $413.9 million at June 30, 2018. Income from mortgage banking activities in 2019 increased $23 thousand as sales of residential mortgage loans were higher as compared to the prior year. Other miscellaneous income increased $233 thousand primarily due to increases in fees on customer loan interest rate swaps.

Non-interest Expense. Non-interest expense totaled $5.4 million for the three months ended June 30, 2019, compared to $4.6 million for the three months ended June 30, 2018, an increase of $766 thousand. Salaries and employee benefits increased $429 thousand due to annual merit and benefit cost increases along with increases to staff. Occupancy and equipment costs increased $119 thousand as a result of the consolidation and relocation of business operations to new office space and annual rent adjustments. Data processing costs increased $73 thousand as several data and information security projects contributed to an additional $36 thousand in 2019. Professional fees increased $41 thousand due mainly to higher legal expense. Advertising and other general administrative costs increased $82 thousand associated with increased business volumes. FDIC insurance expense increased $22 thousand due to higher assessment balances and quarterly assessment rates.

Income Taxes. An income tax provision of $565 thousand was recorded during the quarter ended June 30, 2019, compared to a provision of $523 thousand in the comparable 2018 quarter. The effective tax rate for the 2019 three month period was 27.3%, compared to 26.9% for the 2018 three month period.

Results of Operations for the Six Months Ended June 30, 2019 and 2018

Overview. Net income for the six months ended June 30, 2019 was $2.8 million, compared to net income of $2.9 million for the six months ended June 30, 2018. The slight decrease was primarily due to increased net interest income of $1.0 million and increased non-interest income of $340 thousand, more than offset by increased non-interest expense of $1.3 million and increased provision for loan losses of $150 thousand.

Net Interest Income. Net interest income for the six months ended June 30, 2019 increased $1.0 million, or 8.6%, as compared to the six months ended June 30, 2018. The increase in net interest income was primarily due to an increase in interest income of $3.5 million, or 22.0% partially offset by interest expenses that increased $2.5 million, or 63.6%, during the period.

27

Interest and dividend income increased $3.5 million, or 22.0%, from $16.0 million for the six months ended June 30, 2018 to $19.5 million for the six months ended June 30, 2019. The average balance of interest-earning assets increased 11.6%, while the average rate earned on these assets increased by 38 bps. Interest and fees on loans increased $3.4 million, or 23.1%, due to a 14.4% increase in the average balance of loans and an increase of 33 bps in the average rate earned on loans. Interest income from investments increased $127 thousand, or 11.7%, due to an increase in the average rate earned on these securities, due, in part, to Federal Reserve interest rate increases.

The increase in interest expense of $2.5 million was primarily due to an increase in average balances of interest-bearing deposits and an increase in the cost of funds. The average balance of interest-bearing deposits increased $98.1 million, or 18.3%, in the six months ended June 30, 2019, as compared to the same period in 2018, while the average rate paid on interest-bearing deposits increased 63 bps. Interest expense on money market accounts increased by $1.4 million from 2018 to 2019. The rate paid on money market accounts increased to 1.64% up from 0.70% in 2018, while the average balance of these accounts increased $98.7 million to $237.0 million, as compared to the prior year period. The cost of term certificates of deposit increased $986 thousand to $2.8 million as balances in our retail products have increased, as well as an increase of 63 bps in the rates paid to acquire these balances, as compared to the same period last year. The average balance of short-term FHLB advances increased from $23.0 million to $26.5 million, while rates paid on short-term FHLB advances increased from 1.74% to 2.78%. Rates on long-term FHLB advances increased 46 bps to 2.13% for the six months ending June 30, 2019. Interest expense on short-term and long-term borrowings totaled $998 thousand in the six months ended June 30, 2019, compared to $929 thousand in the six months ended June 30, 2018, an increase of $69 thousand.

28

Average Balances and Yields. The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. Average balances have been calculated using daily balances. Loan fees are included in interest income on loans and are insignificant. Yields are not presented on a tax-equivalent basis. Any adjustments necessary to present yields on a tax-equivalent basis are insignificant.

	For the Six Months Ended June 30,
	2019								2018
(Dollars in thousands)	Average Outstanding Balance			Interest Earned/ Paid		Average Yield/ Rate (1)			Average Outstanding Balance			Interest Earned/ Paid		Average Yield/ Rate (1)
Interest-earning assets:
Short-term investments	$	25,627		$	307		2.42	%	$	29,505		$	233		1.57	%
Debt securities:
Taxable		51,305			741		2.91			53,800			686		2.58
Tax-exempt		13,021			162		2.51			13,004			164		2.54
Total loans and loans held for sale		791,855			18,171		4.63			692,076			14,761		4.30
FHLB stock		4,416			138		6.33			5,968			158		5.32
Total interest-earning assets		886,224			19,519		4.44			794,353			16,002		4.06
Allowance for loan losses		(6,951	)							(6,241	)
Total interest-earning assets less allowance for loan losses		879,273								788,112
Non-interest-earning assets		32,310								22,975
Total assets	$	911,583							$	811,087
Interest-bearing liabilities:
Regular savings accounts	$	76,804			231		0.61		$	99,123			265		0.54
NOW checking accounts		35,361			63		0.36			37,486			53		0.29
Money market accounts		237,024			1,925		1.64			138,340			478		0.70
Certificates of deposit		264,680			2,840		2.16			243,835			1,854		1.53
Total interest-bearing deposits		613,869			5,059		1.66			518,784			2,650		1.03
Short-term borrowings		26,543			365		2.78			23,027			198		1.74
Long-term debt		59,817			633		2.13			88,445			731		1.67
Subordinated debt		9,839			314		6.45			9,808			316		6.49
Total interest-bearing liabilities		710,068			6,371		1.81			640,064			3,895		1.23
Non-interest-bearing demand deposits		121,891								107,055
Other non-interest-bearing liabilities		11,936								3,347
Total liabilities		843,895								750,466
Stockholders’ equity		67,688								60,621
Total liabilities and stockholders’ equity	$	911,583							$	811,087
Net interest income				$	13,148							$	12,107
Net interest rate spread (2)							2.63	%							2.84	%
Net interest-earning assets (3)	$	176,156							$	154,289
Net interest margin (4)							2.99	%							3.07	%
Average total interest-earning assets to average total interest-bearing liabilities		124.81	%							124.11	%

(1) Ratios for the six month periods have been annualized.

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

(3) Represents total average interest-earning assets less total average interest-bearing liabilities.

(4) Represents net interest income as a percent of average interest-earning assets.

29

Rate/Volume Analysis. The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total increase (decrease) column represents the sum of the prior columns. For purposes of this table, changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionally based on the changes due to rate and the changes due to volume.

	Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018
	Increase (Decrease) Due to						Total Increase
(In thousands)	Volume			Rate			(Decrease)
Interest-earning assets:
Short-term investments	$	(25	)	$	99		$	74
Debt securities:
Taxable		(29	)		84			55
Tax-exempt		—			(2	)		(2	)
Total loans and loans held for sale		2,234			1,176			3,410
FHLB stock		(71	)		51			(20	)
Total interest-earning assets		2,109			1,408			3,517
Interest-bearing liabilities:
Regular savings		(77	)		44			(33	)
NOW checking		(3	)		12			9
Money market		500			947			1,447
Certificates of deposit		170			816			986
Total interest-bearing deposits		590			1,819			2,409
Short-term borrowings		34			133			167
Long-term debt		(716	)		618			(98	)
Subordinated debt		—			(2	)		(2	)
Total interest-bearing liabilities		(92	)		2,568			2,476
Increase (decrease) in net interest income	$	2,201		$	(1,160	)	$	1,041

Provision for Loan Losses. The provision for loan losses was $410 thousand for the six months ended June 30, 2019, compared to $260 thousand for the six month period ended June 30, 2018. In the 2019 period, the provision reflects management’s estimate of loan losses based upon historical loan portfolio performance, growth of the portfolio, loan mix, as well as other considerations such as the strength of the regional economy and organizational knowledge and expertise.

30

Analysis of Loan Loss Experience. The following table sets forth an analysis of the allowance for loan losses for the periods indicated.

	Six Months Ended
	June 30,
(Dollars in thousands)	2019			2018
Allowance at beginning of period	$	6,738		$	6,153
Provision for loan losses		410			260
Charge-offs: Other consumer loans		—			—
Recoveries		—			—
Net charge- offs		—			—
Allowance at end of period	$	7,148		$	6,413
Allowance for loan losses to nonperforming loans at end of period		637.87	%		526.49	%
Allowance for loan losses to total loans at end of period		0.86	%		0.90	%
Net charge-offs to average loans outstanding during the period		0.00	%		0.00	%

Non-interest Income. Non-interest income totaled $1.6 million, an increase of $340 thousand, or 27.8%. Income from mortgage banking activities increased $42 thousand, primarily due to higher volume of sales of residential mortgage loans as compared to the prior year period. Income from wealth management fees in 2019 increased $25 thousand. All other non-interest income increased $273 thousand primarily due to an increase in fees on customer interest rate swaps due to increased volume.

Non-interest Expense. Non-interest expense increased $1.3 million to $10.5 million during the six months ended June 30, 2019, up from $9.2 million for the six months ended June 30, 2018. Factors that contributed to the increase in non-interest expense during the 2019 period were increased salaries and employee benefits of $748 thousand, or 13.8%, primarily attributable to annual salary and employee benefits increases and increases to staff. Occupancy and equipment expenses increased $205 thousand due to the relocation of business operations to a new home office location and increases in rent expense. Data processing expense increased $136 thousand and other general administrative costs increased $191 thousand due to expanding business volumes and operations. Professional fees increased $33 thousand mainly due to higher legal expense.

Income Taxes. An income tax provision of $1.0 million was recorded during the six months ended June 30, 2019 compared to a provision of $1.1 million in the comparable 2018 period. The effective tax rate for the 2019 six month period was 27.1%, identical to the rate for the 2018 six month period.

Liquidity and Capital Resources

Liquidity Management. Liquidity is the ability to meet current and future financial obligations of a short-term and long-term nature. The Bank’s primary sources of funds consist of deposit inflows, loan repayments, maturities and sales of securities, and borrowings from the FHLB. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows, calls of securities and prepayments on loans are greatly influenced by seasonal events, general interest rates, economic conditions and competition.

Management regularly adjusts our investments in liquid assets based upon an assessment of the following: expected loan demand; expected deposit flows; yields available on interest-earning deposits and securities; and, the objectives of our interest-rate risk and investment policies.

Our most liquid assets are cash and cash equivalents, interest-bearing deposits in other banks, and securities available for sale. The level of these assets depends on our operating, financing, lending and investing activities during any given period. At June 30, 2019, cash and cash equivalents, which include short-term investments, totaled $32.4 million. Securities classified as available-for-sale, whose aggregate fair value is $63.3 million, provide additional sources of liquidity.

31

At June 30, 2019, we had $54.0 million in short-term borrowings outstanding, represented entirely by FHLB advances, and $77.9 million in long-term debt, also consisting entirely of FHLB advances. At June 30, 2019, we had a total of $65.1 million in unused borrowing capacity from the FHLB. Short-term borrowings are generally used to fund temporary cash needs due to the timing of loan originations and deposit gathering activities. Long-term debt is generally used to provide for longer-term funding needs of the Company, including the match funding of loans originated for portfolio. At June 30, 2019, we also had the ability to borrow $5.0 million from the Co-operative Central Bank on an unsecured basis, a credit line of $5.0 million with a correspondent bank, and $7.1 million from the Federal Reserve Bank under a collateralized borrowing program, none of which was outstanding at that date.

At June 30, 2019, we had $195.4 million in loan commitments outstanding, which included $82.3 million in unadvanced funds on construction loans, $39.8 million in unadvanced home equity lines of credit, $28.2 million in unadvanced commercial lines of credit, and $42.6 million in new loan originations.

Term certificates of deposit due within one year of June 30, 2019 amounted to $174.5 million, or 77.2%, of total term certificates, a decrease of $54.0 million from $228.5 million at December 31, 2018. Balances of term certificates maturing in more than one year totaled $51.7 million at June 30, 2019, relatively unchanged as compared to balances at December 31, 2018. Balances of term certificates that mature within one year reflect customer preferences for greater liquidity of personal funds, while longer-dated certificates reflect a willingness among customers to accept current interest rates for extended time periods. If maturing deposits are not renewed, we will be required to seek other sources of funds, including new term certificates and other borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the existing funds. We have the ability to attract and retain deposits by adjusting the interest rates offered.

The Company is a separate legal entity from the Bank and will have to provide for its own liquidity to pay its operating expenses and other financial obligations. The Company’s primary source of income will be dividends received from the Bank. Massachusetts banking law and FDIC regulations limit distributions of capital. In addition, the Company is subject to the policy of the Board of Governors of the Federal Reserve System (“Federal Reserve Board”) that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the Company appears consistent with its capital needs, asset quality and overall financial condition. At June 30, 2019, the Company had $435 thousand of liquid assets as represented by cash and cash equivalents on an unconsolidated basis.

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

In order to be considered “adequately capitalized,” federal banking regulations require a minimum ratio of common equity Tier 1 capital to risk-weighted assets of 4.5%; a minimum ratio of Tier 1 capital to risk-weighted assets of 6%; a minimum ratio of total capital to risk-weighted assets of 8%; and, a minimum leverage ratio of 4% for all banking organizations. Additionally, community banking institutions must maintain a capital conservation buffer of common equity Tier 1 capital in an amount greater than 2.5% of total risk-weighted assets to be considered “well capitalized” and avoid being subject to limitations on capital distributions and discretionary bonuses. An institution is subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. At June 30, 2019, the Bank was well-capitalized under the current rules and we expect to remain well capitalized.

Off-Balance Sheet Arrangements

In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit. For information about our loan commitments and unused lines of credit see Liquidity Management herein.

32

For the six months ended June 30, 2019, the Company did not engage in any off-balance sheet transactions reasonably likely to have a material effect on the Company’s financial condition, results of operations or cash flows.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Qualitative Aspects of Market Risk

One significant risk affecting the financial condition and operating results of the Company and the Bank is interest rate risk. We manage the interest rate sensitivity of our interest-bearing liabilities and interest-earning assets in an effort to minimize the adverse effects of changes in the interest rate environment. Deposit accounts typically react more quickly to changes in market interest rates than mortgage loans because of the shorter maturities of deposits. As a result, sharp increases in interest rates may adversely affect our earnings while decreases in interest rates may beneficially affect our earnings. To reduce the potential volatility of our earnings, we have sought to improve the match between asset and liability maturities and rates, while maintaining an acceptable interest rate spread. Our strategy for managing interest rate risk emphasizes the following: originating adjustable-rate loans for retention in our loan portfolio; selling in the secondary market newly originated, conforming longer-term fixed rate residential mortgage loans; promoting core deposit products; adjusting the maturities of borrowings; and, adjusting the investment portfolio mix and duration.

We have an Asset/Liability Committee, which includes members of management, to communicate, coordinate and control all aspects involving asset-liability management. The committee establishes and monitors the volume, maturities, pricing and mix of assets and funding sources to provide results that are consistent with liquidity, growth, risk limits and profitability goals.

Quantitative Aspects of Market Risk

We analyze our interest rate sensitivity position to manage the risk associated with interest rate movements through the use of interest income and equity simulations. The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest sensitive.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period.

Our goal is to manage asset and liability positions to moderate the effects of interest rate fluctuations on net interest income and the present value of our equity. Interest income and equity simulations are completed quarterly and presented to the Asset/Liability Committee and the Board of Directors. The simulations provide an estimate of the impact of changes in interest rates on net interest income and the present value of our equity under a range of assumptions. The simulation incorporates assumptions regarding the potential timing in the repricing of certain assets and liabilities when market rates change and changes spreads between different market rates. The simulation analysis incorporates management’s current assessment of the risk that pricing margins will change adversely over time due to competition or other factors.

Simulation analysis is only an estimate of our interest rate risk exposure at a particular point in time. We continually review the potential effect changes in interest rates could have on the repayment of rate sensitive assets and funding requirements of rate sensitive liabilities.

The table below sets forth an approximation of our exposure as a percentage of estimated net interest income for the next 12 month period using interest income and equity simulations. The simulations use projected repricing of assets and liabilities at June 30, 2019 on the basis of contractual maturities, anticipated repayments and scheduled rate adjustments. Prepayment rates can have a significant impact on the simulations. Because of the large percentage of loans we hold, rising or falling interest rates have a significant impact on the prepayment speeds of our earning assets that, in turn, affect the rate sensitivity position. When interest rates rise, loan prepayments tend to slow. When interest rates fall, loan prepayments tend to rise. Our asset sensitivity would be reduced if prepayments slowed and would increase if prepayments accelerated. While we believe such assumptions to be reasonable, there can be no assurance that assumed prepayment rates will approximate actual future mortgage-backed security and loan repayment activity.

33

The following table reflects the estimated effects of changes in interest rates on the present value of our equity at June 30, 2019 and on our projected net interest income from June 30, 2019 through June 30, 2020. These estimates are in compliance with our internal policy limits.

	As of June 30, 2019								Over the Next 12 Months Ending June 30, 2020
	Present Value of Equity								Projected Net Interest Income
Basis Point (“bp”) Change in Rates	$ Amount		$ Change			% Change			$ Amount		$ Change			% Change
						(Dollars in thousands)
300 bp	$	91,570	$	(5,462	)		(5.63	)%	$	29,075	$	590			2.07	%
200		96,888		(144	)		(0.15	)		29,102		617			2.17
0		97,032		—			—			28,485		—			—
(100)		89,936		(7,096	)		(7.31	)		27,903		(582	)		(2.04	)

Item 4. Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. In addition, based on that evaluation, no change in the Company’s internal control over financial reporting occurred during the quarter ended June 30, 2019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

34

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business. The Company’s management believes that such routine legal proceedings, in the aggregate, are immaterial to the Company’s financial condition and results of operations.

Item 1A. Risk Factors

For information regarding the Company’s risk factors, see Part I, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on March 29, 2019. As of June 30, 2019, the risk factors of the Company have not changed materially from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2018.

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

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

3.1	Amended and Restated Articles of Incorporation of Wellesley Bancorp, Inc. (1)
3.2	Amended and Restated Bylaws of Wellesley Bancorp, Inc. (2)
4.1	Form of 6.00% Fixed to Floating Subordinated Note Due 2025 (3)
10.1	Amended Severance Compensation Agreement between Wellesley Bank and Ralph L. Letner *
10.2	Amended Severance Compensation Agreement between Wellesley Bank and Michael W. Dvorak*
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.0	Section 1350 Certification
101.1	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Statements of Changes in Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements.

* Management contract or compensatory agreement or arrangement.

35

(1) Incorporated herein by reference to the exhibits to Wellesley Bancorp, Inc.’s Pre-Effective Amendment No. 2 to the Registration Statement on Form S-1 (File No. 333-176764), filed with the Securities and Exchange Commission on November 7, 2011.

(2) Incorporated herein by reference to the exhibits to Wellesley Bancorp, Inc.’s Annual Report on Form 10-K (File No. 001-35352), filed with the Securities and Exchange Commission on March 29, 2018.

(3) Incorporated herein by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 17, 2015 (included as Exhibit A to the Purchase Agreement filed as Exhibit 10.1 thereto).

36

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.

		WELLESLEY BANCORP, INC.
Dated:	August 6, 2019	By:	/s/ Thomas J. Fontaine
			Thomas J. Fontaine
			President and Chief Executive Officer
			(Principal Executive Officer)
Dated:	August 6, 2019	By:	/s/ Michael W. Dvorak
			Michael W. Dvorak
			Chief Financial Officer and Treasurer
			(Principal Accounting and Financial Officer)

37

EX-10.1

Exhibit 10.1

Severance Compensation Agreement between Wellesley Bank and Ralph Letner

The purpose of this letter is to document the terms of the promotion at Wellesley Bank (The “Bank”) that have been discussed with you. These terms supersede any prior agreement with the Bank.

Effective May 1, 2016, your title will be Executive Vice President, Chief Lending Officer. In this position, you will be paid biweekly at an annual salary rate of $226,000.00. In addition, you are now eligible for the severance compensation agreement following these terms:

Termination without cause absent a change in control. The Bank will continue your base salary (at the rate then in effect) for twenty four (24) months and continue to pay the Bank’s share of your health insurance premiums if you elect COBRA health care continuation coverage.

Termination without cause or voluntary termination if you are not offered a comparable position within 12 months of a change in control. The Bank will continue your base salary (at the rate then in effect) for twenty four (24) months and continue to pay the Bank’s share of your health insurance premiums if you elect COBRA health care continuation coverage.

General Release. As a condition to your receipt of any severance benefit, you will be required to execute a release in a form satisfactory to the Bank.

For purposes of this letter agreement, the terms “cause”, “change in control” and “comparable position” shall have the same meaning as under the Wellesley Bank Employee Severance Compensation Plan dated January 25, 2012 (the “Plan). A copy of the Plan is attached for your reference. If you terminate employment in circumstances not expressly covered by this letter agreement, you will not be eligible for severance.

To confirm our agreement with the foregoing, please sign a copy of this letter and return it to my attention.

Should you have any questions, please call me at your convenience.

Date: May 23, 2016	/s/ Maureen Sullivan
	EVP, Chief Marketing and
	Human Resources Officer
	Accepted:
	/s/ Ralph Letner

EX-10.2

Exhibit 10.2

Severance Compensation Agreement between Wellesley Bank and Michael W. Dvorak

The purpose of this letter is to document the terms of the severance compensation agreement at Wellesley Bank (The “Bank”) that have been discussed with you. These terms supersede any prior agreement, whether oral or written, with the Bank.

Effective June 20, 2016, your title will be Executive Vice President, Chief Financial Officer. In this position, you are eligible for the severance compensation on the following terms:

Termination without cause absent a change in control. The Bank will continue your base salary (at the rate then in effect) for twenty four (24) months and continue to pay the Bank’s share of your health insurance premiums if you elect COBRA health care continuation coverage.

Termination without cause or voluntary termination if you are not offered a comparable position within 12 months of a change in control. The Bank will continue your base salary (at the rate then in effect) for twenty four (24) months and continue to pay the Bank’s share of your health insurance premiums if you elect COBRA health care continuation coverage.

General Release. As a condition to your receipt of any severance benefit, you will be required to execute a release in a form satisfactory to the Bank.

For purposes of this letter agreement, the terms “cause”, “change in control” and “comparable position” shall have the same meaning as under the Wellesley Bank Employee Severance Compensation Plan dated January 25, 2012 (the “Plan). A copy of the Plan is attached for your reference. If you terminate employment in circumstances not expressly covered by this letter agreement, you will not be eligible for severance.

To confirm our agreement with the foregoing, please sign a copy of this letter and return it to my attention.

Should you have any questions, please call me at your convenience.

Dated: May 23, 2016	/s/ Maureen Sullivan
	EVP, Chief Marketing and
	Human Resources Officer
	Accepted:
	/s/ Michael W. Dvorak

EX-31.1

Exhibit 31.1

Certification

I, Thomas J. Fontaine, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Wellesley 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 the 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 and cash flows of the registrant 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 Exchange Act Rules 13a-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 in 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.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 that are reasonably likely to adversely affect the registrant’s ability to record, 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 6, 2019	/s/ Thomas J. Fontaine
		Thomas J. Fontaine
		President and Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification

I, Michael W. Dvorak, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Wellesley 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 the 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 and cash flows of the registrant 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 Exchange Act Rules 13a-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 in 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.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 that are reasonably likely to adversely affect the registrant’s ability to record, 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 6, 2019	/s/ Michael W. Dvorak
		Michael W. Dvorak
		Chief Financial Officer and Treasurer
		(Principal Accounting and Financial Officer)

EX-32.0

Exhibit 32.0

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 on Form 10-Q of Wellesley Bancorp, Inc. (the “Company”) for the quarter ended June 30, 2019, as filed with the Securities and Exchange Commission (the “Report”), I hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

2. The information contained in the Report fairly presents, in all material respects, the consolidated financial condition and results of operations of the Company as of and for the period covered by the Report.

By:	/s/ Thomas J. Fontaine
	Thomas J. Fontaine
	President and Chief Executive Officer
	(Principal Executive Officer)
	August 6, 2019
By:	/s/ Michael W. Dvorak
	Michael W. Dvorak
	Chief Financial Officer and Treasurer
	(Principal Financial and Accounting Officer)
	August 6, 2019

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2019	Aug. 01, 2019
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q2
Entity Registrant Name	Wellesley Bancorp, Inc.
Entity Current Reporting Status	Yes
Entity Central Index Key	0001526952
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Shell Company	false
Trading Symbol	WEBK
Entity Common Stock, Shares Outstanding		2,560,065
Entity Emerging Growth Company	false
Entity Small Business	true

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CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Assets
Cash and due from banks	$ 5,747	$ 7,678
Short-term investments	26,581	34,972
Total cash and cash equivalents	32,328	42,650
Certificates of deposit	100	100
Securities available for sale, at fair value	63,348	66,770
Federal Home Loan Bank of Boston stock, at cost	6,162	4,747
Loans held for sale	2,170	0
Loans	828,285	743,770
Less allowance for loan losses	(7,148)	(6,738)
Loans, net	821,137	737,032
Bank-owned life insurance	7,886	7,769
Operating lease, right-of-use asset	7,229	0
Premises and equipment, net	3,778	3,924
Accrued interest receivable	2,815	2,288
Net deferred tax asset	2,498	2,804
Other assets	7,097	3,336
Total assets	956,548	871,420
Deposits:
Non-interest-bearing	130,560	116,926
Interest-bearing	599,680	601,005
Total deposits	730,240	717,931
Short-term borrowings	54,000	15,000
Long-term borrowings	77,866	58,528
Subordinated debt	9,847	9,832
Lease liability	7,267	0
Accrued expenses and other liabilities	7,680	4,999
Total liabilities	886,900	806,290
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized, none issued	0	0
Common stock, $0.01 par value; 14,000,000 shares authorized, 2,559,565 and 2,525,611 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively	26	25
Additional paid-in capital	27,201	26,462
Retained earnings	42,717	40,203
Accumulated other comprehensive income (loss)	667	(533)
Unearned compensation - ESOP	(963)	(1,027)
Total stockholders' equity	69,648	65,130
Total liabilities and stockholders' equity	$ 956,548	$ 871,420

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CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Jun. 30, 2019	Dec. 31, 2018
CONSOLIDATED BALANCE SHEETS
Preferred Stock, Par or Stated Value Per Share	$ 0.01	$ 0.01
Preferred Stock, Shares Authorized	1,000,000	1,000,000
Preferred Stock, Shares Issued	0	0
Common Stock, Par or Stated Value Per Share	$ 0.01	$ 0.01
Common Stock, Shares Authorized	14,000,000	14,000,000
Common Stock, Shares, Issued	2,559,565	2,525,611
Common Stock, Shares, Outstanding	2,559,565	2,525,611

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Interest and dividend income:
Interest and fees on loans and loans held for sale	$ 9,444	$ 7,534	$ 18,171	$ 14,761
Debt securities:
Taxable	363	345	741	686
Tax-exempt	80	82	162	164
Short-term investments and certificates of deposit	143	120	307	233
FHLB stock	59	82	138	158
Total interest and dividend income	10,089	8,163	19,519	16,002
Interest expense:
Deposits	2,570	1,457	5,059	2,650
Short-term borrowings	255	75	365	198
Long-term debt	390	388	633	731
Subordinated debt	157	158	314	316
Total interest expense	3,372	2,078	6,371	3,895
Net interest income	6,717	6,085	13,148	12,107
Provision for loan losses	170	195	410	260
Net interest income, after provision for loan losses	6,547	5,890	12,738	11,847
Non-interest income:
Customer service fees	49	45	88	88
Mortgage banking activities	51	28	79	37
Income on bank-owned life insurance	59	58	117	115
Wealth management fees	392	417	826	801
Miscellaneous	331	98	454	183
Total non-interest income	882	646	1,564	1,224
Non-interest expense:
Salaries and employee benefits	3,122	2,693	6,162	5,414
Occupancy and equipment	820	701	1,624	1,419
Data processing	308	235	605	469
FDIC insurance	190	168	325	336
Professional fees	256	215	446	413
Other general and administrative	663	581	1,292	1,100
Total non-interest expense	5,359	4,593	10,454	9,151
Income before income taxes	2,070	1,943	3,848	3,920
Provision for income taxes	565	523	1,041	1,063
Net income	1,505	1,420	2,807	2,857
Other comprehensive income:
Net unrealized holding (loss) gains on available-for-sale securities	743	(204)	1,601	(1,076)
Income tax benefit (expense)	(186)	55	(401)	274
Total other comprehensive (loss) gain income	557	(149)	1,200	(802)
Comprehensive income	$ 2,062	$ 1,271	$ 4,007	$ 2,055
Earnings per common share:
Basic	$ 0.61	$ 0.59	$ 1.15	$ 1.19
Diluted	$ 0.59	$ 0.57	$ 1.11	$ 1.15
Weighted average shares outstanding:
Basic	2,454,617	2,395,635	2,444,897	2,394,113
Diluted	2,554,895	2,501,122	2,541,328	2,493,172

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (loss) [Member]	Unearned Compensation - ESOP [Member]	Total
Balance at Dec. 31, 2017	$ 25	$ 25,601	$ 34,736	$ 39	$ (1,156)	$ 59,245
Balance (in shares) at Dec. 31, 2017	2,506,532
Comprehensive income			1,437	(653)		784
Reclassification related to Tax Cuts and Jobs Act			(7)	7
Dividends paid to common stockholders			(127)			(127)
Share-based compensation- equity incentive plan		107				107
ESOP shares committed to be allocated		61			33	94
Balance at Mar. 31, 2018	$ 25	25,769	36,039	(607)	(1,123)	60,103
Balance (in shares) at Mar. 31, 2018	2,506,532
Balance at Dec. 31, 2017	$ 25	25,601	34,736	39	(1,156)	59,245
Balance (in shares) at Dec. 31, 2017	2,506,532
Comprehensive income						2,055
Balance at Jun. 30, 2018	$ 25	25,941	37,322	(756)	(1,092)	61,440
Balance (in shares) at Jun. 30, 2018	2,506,132
Balance at Mar. 31, 2018	$ 25	25,769	36,039	(607)	(1,123)	60,103
Balance (in shares) at Mar. 31, 2018	2,506,532
Comprehensive income			1,420	(149)		1,271
Dividends paid to common stockholders			(137)			(137)
Restricted stock forfeitures (shares)	(400)
Share-based compensation- equity incentive plan		100				100
ESOP shares committed to be allocated		72			31	103
Balance at Jun. 30, 2018	$ 25	25,941	37,322	(756)	(1,092)	61,440
Balance (in shares) at Jun. 30, 2018	2,506,132
Balance at Dec. 31, 2018	$ 25	26,462	40,203	(533)	(1,027)	65,130
Balance (in shares) at Dec. 31, 2018	2,525,611
Comprehensive income			1,302	643		1,945
Dividends paid to common stockholders			(140)			(140)
Restricted stock forfeitures (shares)	(2,000)
Restricted stock awards grant (in shares)	11,500
Stock options exercised		48				48
Stock options exercised (shares)	2,553
Share-based compensation- equity incentive plan		102				102
ESOP shares committed to be allocated		64			32	96
Balance at Mar. 31, 2019	$ 25	26,676	41,365	110	(995)	67,181
Balance (in shares) at Mar. 31, 2019	2,537,664
Balance at Dec. 31, 2018	$ 25	26,462	40,203	(533)	(1,027)	65,130
Balance (in shares) at Dec. 31, 2018	2,525,611
Comprehensive income						4,007
Balance at Jun. 30, 2019	$ 26	27,201	42,717	667	(963)	69,648
Balance (in shares) at Jun. 30, 2019	2,559,565
Balance at Mar. 31, 2019	$ 25	26,676	41,365	110	(995)	67,181
Balance (in shares) at Mar. 31, 2019	2,537,664
Comprehensive income			1,505	557		2,062
Dividends paid to common stockholders			(153)			(153)
Stock options exercised	$ 1	351				352
Stock options exercised (shares)	21,901
Share-based compensation- equity incentive plan		99				99
ESOP shares committed to be allocated		75			32	107
Balance at Jun. 30, 2019	$ 26	$ 27,201	$ 42,717	$ 667	$ (963)	$ 69,648
Balance (in shares) at Jun. 30, 2019	2,559,565

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Parenthetical) - $ / shares	3 Months Ended
	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2018	Mar. 31, 2018
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Dividends paid to common stockholders, per share	$ 0.06	$ 0.055	$ 0.055	$ 0.05
ESOP shares committed to be allocated, Shares	3,210	3,209	3,210	3,209

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Cash flows from operating activities:
Net income	$ 2,807	$ 2,857
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Provision for loan losses	410	260
Depreciation and amortization	391	392
Net amortization of securities	91	82
Principal balance of loans sold	6,259	2,532
Loans originated for sale	(8,429)	(3,128)
Accretion of net deferred loan fees	(335)	(308)
Amortization of subordinated debt issuance costs	15	15
Income on bank-owned life insurance	(117)	(115)
Deferred income tax provision	(96)	(55)
ESOP expense	203	197
Share-based compensation	201	207
Net change in other assets and liabilities	(1,560)	(1,346)
Net cash provided (used) by operating activities	(160)	1,590
Cash flows from investing activities:
Maturities, prepayments and calls	4,933	5,557
Purchases		(7,480)
Redemption (purchase) of Federal Home Loan Bank stock	(1,415)	(5)
Net loan originations	(84,180)	(18,141)
Additions to premises and equipment	(260)	(329)
Proceeds on sale of premises and equipment	6	63
Net cash used by investing activities	(80,916)	(20,335)
Cash flows from financing activities:
Net increase in deposits	12,309	26,444
Proceeds from issuance of long-term debt	33,000	36,000
Repayments of long-term debt	(13,662)	(30,492)
Increase (decrease) in short-term borrowings	39,000	(8,000)
Stock options exercised	399
Common stock repurchased	1
Cash dividends paid on common stock	(293)	(264)
Net cash provided by financing activities	70,754	23,688
Net change in cash and cash equivalents	(10,322)	4,943
Cash and cash equivalents at beginning period	42,650	28,462
Cash and cash equivalents at end of period	32,328	33,405
Supplementary information:
Interest paid	5,853	3,756
Income taxes paid	$ 1,677	$ 1,954

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BASIS OF PRESENTATION AND CONSOLIDATION

6 Months Ended

Jun. 30, 2019

BASIS OF PRESENTATION AND CONSOLIDATION

BASIS OF PRESENTATION AND CONSOLIDATION

NOTE 1 – BASIS OF PRESENTATION AND CONSOLIDATION

The accompanying unaudited interim consolidated financial statements include the accounts of Wellesley Bancorp, Inc. (the “Company”) and its wholly-owned subsidiary, Wellesley Bank (the “Bank”), the principal operating entity, and its wholly-owned subsidiaries: Wellesley Securities Corporation, which engages in the business of buying, selling and dealing in securities exclusively on its own behalf; Wellesley Investment Partners, LLC, formed to provide investment management services for individuals, not-for-profit entities and businesses; and Central Linden, LLC, to hold, manage and sell foreclosed real estate. All significant intercompany balances and transactions have been eliminated in consolidation. Assets under management at Wellesley Investment Partners, LLC are not included in these consolidated financial statements because they are not assets of the Company. These financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information, and with the instructions to Form 10‑Q and Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements.

In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2018 Annual Report on Form 10‑K. The results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019 or for any other period.

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LOAN POLICIES

6 Months Ended

Jun. 30, 2019

LOAN POLICIES

LOAN POLICIES

NOTE 2 – LOAN POLICIES

The loan portfolio consists of real estate, commercial and other loans to the Company’s customers in our primary market areas in eastern Massachusetts. The ability of the Company’s debtors to honor their contracts is dependent upon the economy in general and the state of real estate and construction sectors within our markets.

Loans that management has the intent and ability to hold for the foreseeable future, or until maturity or pay-off, are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred loan origination fees or costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

Interest is generally not accrued on loans that are identified as impaired or loans which are ninety days or more past due. Past due status is based on the contractual terms of the loan. Interest income previously accrued on such loans is reversed against current period interest income. Interest income on non-accrual loans is recognized only to the extent of interest payments received and is first applied to the outstanding principal balance when collectibility of principal is in doubt. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured through sustained payment performance for at least six months.

Allowance for loan losses

The allowance for loan losses is established through a provision for loan losses charged to earnings as losses are estimated to occur. Loan losses are charged against the allowance when management believes the uncollectibility of the loan balance is confirmed. Subsequent recoveries are credited to the allowance.

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, allocated and unallocated components.

General component

The general component is based on the following loan segments: residential real estate, commercial real estate, construction, commercial, home equity lines of credit and other consumer. Management considers a rolling average of historical losses for each segment based on a time frame appropriate to capture relevant loss data for each loan segment, generally three and 10 years. This historical loss factor is adjusted for the following qualitative factors: levels/trends in delinquencies; trends in volume, concentrations and terms of loans; level of collateral protection; effects of changes in risk selection and underwriting standards; experience/ability/depth of lending management and staff; and national and local economic trends and conditions. There were no significant changes to the Company’s policies or methodology pertaining to the general component of the allowance during 2019 or 2018.

The qualitative factor adjustments are determined based on the various risk characteristics of each loan segment. Risk characteristics relevant to each portfolio segment are as follows:

Residential real estate – The Company generally does not originate loans with a loan-to-value ratio greater than 80 percent and does not originate subprime loans. Most loans in this segment are collateralized by one-to-four family residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality of this segment.

Commercial real estate – Loans in this segment are primarily income-producing properties in the Company’s primary market areas in eastern Massachusetts. The underlying cash flows generated by the properties may be adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which, in turn, will have an effect on the credit quality in this segment. Management typically obtains rent rolls annually and continually monitors the cash flows of these loans.

Construction – Loans in this segment include speculative construction loans primarily on residential properties for which payment is derived from the sale of the property. Credit risk is affected by cost overruns, time to sell at an adequate price, and market conditions.   Residential construction loans in this segment also include loans to build one-to-four family owner-occupied properties which are subject to the same credit quality factors as residential real estate.

Commercial – Loans in this segment are made to businesses and are generally secured by assets of the business. Repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer spending, will have an effect on the credit quality in this segment.

Home equity lines of credit – Loans in this segment are collateralized by one-to-four family residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment.

Other consumer – Loans in this segment are generally unsecured and repayment is dependent on the credit quality of the individual borrower.

Allocated component

The allocated component relates to loans that are classified as impaired.  Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the fair value of the loan or, if the loan is collateral dependent, by the fair value of the collateral less estimated costs to sell.  An allowance is established when the discounted cash flows or collateral value of the impaired loan are lower than the carrying value of that loan.  Large groups of smaller-balance homogeneous loans are collectively evaluated for impairment.  Accordingly, the Company does not separately identify performing individual residential and consumer loans for impairment disclosures, unless such loans are subject to a troubled debt restructuring agreement.

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

The Company periodically may agree to modify the contractual terms of loans. When a loan is modified and a concession is made to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring ("TDR"). All TDRs are initially classified as impaired.

Unallocated component

An unallocated component is maintained to cover additional uncertainties in management’s estimation of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio.

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COMPREHENSIVE INCOME

6 Months Ended

Jun. 30, 2019

COMPREHENSIVE INCOME

- COMPREHENSIVE INCOME

NOTE 3 – COMPREHENSIVE INCOME

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

The components of accumulated other comprehensive income (loss) and related tax effects are as follows:

	June 30,		December 31,
	2019		2018
	(In thousands)
Unrealized holding gains (losses) on securities available for sale	$	869	$	(732)
Tax effect		(202)		199
Net-of tax amount	$	667	$	(533)

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RECENT ACCOUNTING AND REGULATORY PRONOUNCEMENTS

6 Months Ended

Jun. 30, 2019

RECENT ACCOUNTING AND REGULATORY PRONOUNCEMENTS

RECENT ACCOUNTING AND REGULATORY PRONOUNCEMENTS

NOTE 4 – RECENT ACCOUNTING AND REGULATORY PRONOUNCEMENTS

Effective January 1, 2019, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”)  2016-02, Leases (Topic 842), which requires a lessee to record a right-of-use asset and liability representing the obligation to make lease payments for long-term leases. Upon adoption of the ASU, the Company recorded an increase in assets of $7.8 million and an increase in liabilities of $7.8 million on the Consolidated Balance Sheets as a result of recognizing the right-of-use assets and lease liabilities.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure expected credit losses based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount. Entities will now use forward-looking information to better form their credit loss estimates. Credit losses on available-for-sale debt securities should be measured in a manner similar to current GAAP; however, recognized credit losses will be presented as an allowance rather than as a write-down. This ASU will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.  The Company has implemented a committee led by the Company’s Chief Financial Officer, which includes the Chief Lending Officer, to assist in identifying, implementing and evaluating the impact of the required changes to the loan loss estimation model and processes. The Company has evaluated the portfolio segments and various methodologies and is currently evaluating potential loss modeling processes as well as related controls and procedures. Management will continue to closely monitor developments and additional guidance to determine the potential impact on the Company's consolidated financial statements.

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SECURITIES AVAILABLE FOR SALE

6 Months Ended

Jun. 30, 2019

SECURITIES AVAILABLE FOR SALE

SECURITIES AVAILABLE FOR SALE

NOTE 5 – SECURITIES AVAILABLE FOR SALE

The amortized cost and fair value of securities available for sale, with gross unrealized gains and losses, follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In thousands)
June 30, 2019
Residential mortgage-backed securities:
Government National Mortgage Association	$	3,647	$	79	$	(18)	$	3,708
Government-sponsored enterprises		10,656		132		(34)		10,754
SBA and other asset-backed securities		10,684		242		(14)		10,912
State and municipal bonds		12,348		465		(1)		12,812
Government-sponsored enterprise obligations		8,000		—		(11)		7,989
Corporate bonds		17,144		82		(53)		17,173
	$	62,479	$	1,000	$	(131)	$	63,348

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In thousands)
December 31, 2018
Residential mortgage-backed securities:
Government National Mortgage Association	$	3,846	$	44	$	(43)	$	3,847
Government-sponsored enterprises		11,382		29		(188)		11,223
SBA and other asset-backed securities		11,720		64		(157)		11,627
State and municipal bonds		12,908		111		(111)		12,908
Government-sponsored enterprise obligations		8,000		—		(187)		7,813
Corporate bonds		18,151		28		(322)		17,857
U.S. Treasury bills		1,495		—		—		1,495
	$	67,502	$	276	$	(1,008)	$	66,770

There were no sales of available-for-sale securities for the three and six months ended June 30, 2019 and 2018, respectively.

The amortized cost and fair value of debt securities by contractual maturity at June 30, 2019 are as follows:

	Amortized		Fair
	Cost		Value
	(In thousands)
Within 1 year	$	5,248	$	5,255
After 1 year to 5 years		16,096		16,169
After 5 years to 10 years		6,565		6,616
After 10 years		9,583		9,934
		37,492		37,974
Mortgage- and asset-backed securities		24,987		25,374
	$	62,479	$	63,348

Expected maturities may differ from contractual maturities because the issuer, in certain instances, has the right to call or prepay obligations with or without call or prepayment penalties.

Information pertaining to securities with gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	Less Than Twelve Months				Over Twelve Months
	Gross				Gross
	Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value
	(In thousands)
June 30, 2019
Residential mortgage-backed securities:
Government National Mortgage Association	$	—	$	—	$	(18)	$	1,596
Government-sponsored enterprises		—		—		(34)		2,838
SBA and other asset-backed securities		(1)		320		(13)		2,062
State and municipal bonds		—		—		(1)		330
Government-sponsored enterprise obligations		(3)		997		(8)		4,992
Corporate bonds		(11)		3,988		(42)		5,332
	$	(15)	$	5,305	$	(116)	$	17,150

	Less Than Twelve Months				Over Twelve Months
	Gross				Gross
	Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value
	(In thousands)
December 31, 2018
Residential mortgage-backed securities:
Government National Mortgage Association	$	—	$	—	$	(43)	$	1,755
Government-sponsored enterprises		(1)		103		(187)		7,880
SBA and other asset-backed securities		—		—		(157)		5,455
State and municipal bonds		(2)		386		(109)		6,257
Government-sponsored enterprise obligations		—		—		(187)		7,813
Corporate bonds		(29)		5,705		(293)		11,124
	$	(32)	$	6,194	$	(976)	$	40,284

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market conditions warrant such evaluations. At June 30, 2019, various debt securities have unrealized losses with aggregate depreciation of 0.6% from their aggregate amortized cost basis. These unrealized losses relate principally to the effect of interest rate changes on the fair value of debt securities and not an increase in credit risk of the issuers. As the Company does not intend to sell the securities and it is more likely than not that the Company will not be required to sell the securities before recovery of their amortized cost, which may be maturity, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2019.

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LOANS AND ALLOWANCE FOR LOAN LOSSES

6 Months Ended

Jun. 30, 2019

LOANS AND ALLOWANCE FOR LOAN LOSSES

LOANS AND ALLOWANCE FOR LOAN LOSSES

NOTE 6 – LOANS AND ALLOWANCE FOR LOAN LOSSES

A summary of the ending balances of loans is as follows:

	June 30,		December 31,
	2019		2018
	(In thousands)
Real estate loans:
Residential – fixed	$	74,748	$	64,218
Residential – variable		324,486		318,292
Commercial		170,554		148,006
Construction		132,945		106,723
		702,733		637,239
Commercial loans:
Secured		80,380		61,563
Unsecured		4,910		5,327
		85,290		66,890
Consumer loans:
Home equity lines of credit		40,304		39,486
Other		165		163
		40,469		39,649
Total loans		828,492		743,778
Less:
Allowance for loan losses		(7,148)		(6,738)
Net deferred origination costs		(207)		(8)
Loans, net	$	821,137	$	737,032

The following table summarizes the changes in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2019 and 2018:

	Residential		Commercial						Home		Other
	Real Estate		Real Estate		Construction		Commercial		Equity		Consumer		Unallocated		Total
	(In thousands)
Three Months Ended June 30, 2019
Allowance at March 31, 2019	$	2,202		1,361	$	1,809	$	1,281	$	262	$	3	$	60	$	6,978
Provision (credit) for loan losses		(51)		161		(183)		71		—		—		172		170
Allowance at June 30, 2019	$	2,151	$	1,522	$	1,626	$	1,352	$	262	$	3	$	232	$	7,148
Three Months Ended June 30, 2018
Allowance at March 31, 2018	$	1,925	$	1,545	$	1,433	$	995	$	248	$	3	$	69	$	6,218
Provision (credit) for loan losses		74		70		26		(33)		9		1		48		195
Allowance at June 30, 2018	$	1,999	$	1,615	$	1,459	$	962	$	257	$	4	$	117	$	6,413
Six Months Ended June 30, 2019
Allowance at December 31, 2018	$	2,216		1,602	$	1,462	$	1,124	$	257	$	3	$	74	$	6,738
Provision (credit) for loan losses		(65)		(80)		164		228		5		—		158		410
Allowance at June 30, 2019	$	2,151	$	1,522	$	1,626	$	1,352	$	262	$	3	$	232	$	7,148
Six Months Ended June 30, 2018
Allowance at December 31, 2017	$	1,722	$	1,520	$	1,661	$	917	$	237	$	2	$	94	$	6,153
Provision (credit) for loan losses		277		95		(202)		45		20		2		23		260
Allowance at June 30, 2018	$	1,999	$	1,615	$	1,459	$	962	$	257	$	4	$	117	$	6,413

Further information pertaining to the allowance for loan losses is as follows:

	Residential		Commercial						Home		Other
	Real Estate		Real Estate		Construction		Commercial		Equity		Consumer		Unallocated		Total
	(In thousands)
June 30, 2019
Allowance related to impaired loans	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Allowance related to non-impaired loans		2,151		1,522		1,626		1,352		262		3		232		7,148
Total allowance	$	2,151	$	1,522	$	1,626	$	1,352	$	262	$	3	$	232	$	7,148
Impaired loan balances	$	734	$	2,703	$	—	$	—	$	—	$	—	$	—	$	3,437
Non-impaired loan balances		398,500		167,851		132,945		85,290		40,304		165		—		825,055
Total loans	$	399,234	$	170,554	$	132,945	$	85,290	$	40,304	$	165	$	—	$	828,492
December 31, 2018
Allowance related to impaired loans	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Allowance related to non-impaired loans		2,216		1,602		1,462		1,124		257		3		74		6,738
Total allowance	$	2,216	$	1,602	$	1,462	$	1,124	$	257	$	3	$	74	$	6,738
Impaired loan balances	$	746		2,846	$	—	$	—	$	—	$	—	$	—	$	3,592
Non-impaired loan balances		381,764		145,160		106,723		66,890		39,486		163		—		740,186
Total loans	$	382,510	$	148,006	$	106,723	$	66,890	$	39,486	$	163	$	—	$	743,778

The following is a summary of past due and non-accrual loans at June 30, 2019 and December 31, 2018:

									Past Due 90
	30‑59				Past Due 90				Days or More
	Days		60‑89 Days		Days or		Total		and Still		Non-accrual
	Past Due		Past Due		More		Past Due		Accruing		Loans
	(In thousands)
June 30, 2019
Residential real estate	$	572	$	—	$	—	$	572	$	—	$	572
Commercial real estate		—		—		548		548		—		548
Consumer loans		100		—		—		100		—		—
Total	$	672	$	—	$	548	$	1,220	$	—	$	1,120
December 31, 2018
Residential real estate	$	1,551	$	—	$	—	$	1,551	$	—	$	581
Commercial real estate		—		—		556		556		—		556
Total	$	1,551	$	—	$	556	$	2,107	$	—	$	1,137

The following is a summary of impaired loans:

	June 30, 2019				December 31, 2018
			Unpaid				Unpaid
	Recorded		Principal		Recorded		Principal
	Investment		Balance		Investment		Balance
	(In thousands)
Impaired loans without a valuation allowance:
Residential real estate	$	734	$	751	$	746	$	764
Commercial real estate		2,703		2,829		2,846		2,974
Total impaired loans	$	3,437	$	3,580	$	3,592	$	3,738

Further information pertaining to impaired loans follows:

	Three Months Ended June 30, 2019						Six Months Ended June 30, 2019
					Interest						Interest
	Average		Interest		Income		Average		Interest		Income
	Recorded		Income		Recognized		Recorded		Income		Recognized
	Investment		Recognized		on Cash Basis		Investment		Recognized		on Cash Basis
	(In thousands)
Residential real estate	$	738	$	10	$	8	$	741	$	15	$	12
Commercial real estate		2,738		27		3		2,774		60		11
Total	$	3,476	$	37	$	11	$	3,515	$	75	$	23

	Three Months Ended June 30, 2018						Six Months Ended June 30, 2018
					Interest						Interest
	Average		Interest		Income		Average		Interest		Income
	Recorded		Income		Recognized		Recorded		Income		Recognized
	Investment		Recognized		on Cash Basis		Investment		Recognized		on Cash Basis
	(In thousands)
Residential real estate	$	333	$	10	$	—	$	209	$	11	$	8
Commercial real estate		564		8		8		567		28		28
Total	$	897	$	18	$	8	$	776	$	39	$	36

No additional funds are committed to be advanced in connection with impaired loans.

There were no new troubled debt restructurings recorded during the three months ended June 30, 2019 and 2018.

There were no TDRs that defaulted, generally considered 90 days past due or longer, during the three and six months ended June 30, 2019 and 2018, and for which default was within one year of the restructure date. TDRs did not have a material impact on the allowance for loan losses for the three and six months ended June 30, 2019 and 2018.

Credit Quality Information

The Company utilizes an eleven-grade internal loan rating system for commercial real estate, construction and commercial loans.

Loans rated 1‑4: Loans in these categories are considered “pass” rated loans with low to average risk.

Loans rated 5: Loans in this category are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management.

Loans rated 6: Loans in this category are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.

Loans rated 7: Loans in this category are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

Loans rated 8: Loans in this category are considered uncollectible “loss” and of such little value that their continuance as loans is not warranted.

Loans rated 9: Loans in this category only include commercial loans under $25 thousand with no other outstandings or relationships with the Company.

Loans rated 10: Loans in this category include loans which otherwise require rating but which have not been rated, or loans for which the Company’s loan policy does not require rating.

Loans rated 11: Loans in this category include credit commitments/relationships that cannot be rated due to a lack of financial information or inaccurate financial information. If within 60 days of the assignment of an 11 rating, information is still not available to allow a standard rating, the credit will be rated 6.

On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial real estate, construction and commercial loans. During each calendar year, the Company 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 process. On a monthly basis, the Company reviews the residential real estate and consumer loan portfolio for credit quality primarily through the use of delinquency reports.

The following table presents the Company’s loans by risk rating:

	June 30, 2019								December 31, 2018
	Commercial								Commercial
	Real Estate		Construction		Commercial		Total		Real Estate		Construction		Commercial		Total
	(In thousands)
Loans rated 1‑4	$	166,954	$	132,945	$	83,511	$	383,410	$	144,243	$	106,723	$	65,245	$	316,211
Loans rated 5		897		—		1,053		1,950		917		—		1,645		2,562
Loans rated 6		2,155		—		726		2,881		2,290		—		—		2,290
Loans rated 7		548		—		—		548		556		—		—		556
Total	$	170,554	$	132,945	$	85,290	$	388,789	$	148,006	$	106,723	$	66,890	$	321,619

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DERIVATIVE INSTRUMENTS

6 Months Ended

Jun. 30, 2019

DERIVATIVE INSTRUMENTS

DERIVATIVE INSTRUMENTS

NOTE 7 - DERIVATIVE INSTRUMENTS

Certain derivative instruments do not meet the requirements to be accounted for as hedging instruments.  These undesignated derivative instruments are recognized on the consolidated balance sheet at fair value, with changes in the fair value recorded in miscellaneous income.

Derivative Loan Commitments

Mortgage loan commitments are referred to as derivative loan commitments if the loan that will result from exercise of the commitment will be held for sale upon funding.  The Company enters into commitments to fund residential mortgage loans at specified rates and times in the future, with the intention that these loans will subsequently be sold in the secondary market.

Outstanding derivative loan commitments expose the Company to the potential for changes in the fair value of the underlying loans as interest rates change, along with the value of the loan commitment.  If interest rates increase, the value of these loan commitments will decrease.  Conversely, if interest rates decrease, the value of these loan commitments will increase.  The notional amount of undesignated derivative loan commitments was $650 thousand  at June 30, 2019.  The fair value of these commitments was a liability of $3 thousand.

There were no outstanding derivative loan commitments at December 31, 2018.

Forward Loan Sale Commitments

To protect against the price risk inherent in derivative loan commitments, the Company utilizes “best efforts” forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments. With a “best efforts” contract, the Company commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor if the loan to the underlying borrower closes.  Generally, the price the investor will pay the seller for an individual loan is specified prior to the loan being funded.

The Company expects that these forward loan sale commitments will experience changes in fair value opposite to the change in fair value of derivative loan commitments.  The notional amount of undesignated forward loan sale commitments was $2.2 million at June 30, 2019.  The fair value of these commitments was an asset of $1 thousand.

There were no undesignated forward loan sale commitments at December 31, 2018.

Interest Rate Swap Agreements

The Company has entered into derivative financial instruments in the normal course of business to manage exposure to fluctuations in interest rates for its commercial customers.  Typically these agreements have generally been limited to loan level interest rate swap agreements, which are entered into with borrowers and a third party.  Typically, the Company enters into a floating-rate loan and a fixed-rate swap directly with a loan customer. The Company offsets the fixed-rate interest rate risk with an identical offsetting swap with a swap dealer.  This is referred to as a “back-to-back” swap structure.  As this structure has equal and offsetting interest rate contracts, fair value gains and losses recorded each month are offsetting.

The notional amounts are amounts on which calculations, payments, and the value of the derivatives are based. Notional amounts do not represent direct credit exposures. The fair value of the derivative instruments is reflected on the Company’s consolidated balance sheet as other assets and other liabilities as appropriate.  Changes in fair values are recorded in miscellaneous income in the consolidated statements of comprehensive income. A deposit account totaling $3.0 million is currently pledged to secure the Company’s liability for the offsetting interest rate swaps.

A summary of the interest rate swaps is as follows:

	With commercial						With third-party
	loan borrowers						financial institutions
	June 30,			December 31,			June 30,			December 31,
	2019			2018			2019			2018
		(dollars in thousands)
Notional amount	$	50,401		$	28,320		$	50,401		$	28,320
Receive (pay) fixed rate weighted average		4.83	%		5.09	%		(4.83)	%		(5.09)	%
Receive (pay) variable rate weighted average		(4.58)	%		(5.06)	%		4.58	%		5.06	%
Weighted average remaining years		11.2	years		12.8	years		11.2	years		12.8	years
Unrealized fair value gain (loss)	$	3,064		$	264		$	(3,064)		$	(264)

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FAIR VALUES OF FINANCIAL INSTRUMENTS

6 Months Ended

Jun. 30, 2019

FAIR VALUES OF FINANCIAL INSTRUMENTS

FAIR VALUES OF FINANCIAL INSTRUMENTS

NOTE 8 – FAIR VALUES OF FINANCIAL INSTRUMENTS

Fair value hierarchy

The Company groups its assets measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 – Valuation is based on quoted market prices in active exchange markets for identical assets and liabilities.  Valuations are obtained from readily available pricing sources.

Level 2 – Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets and liabilities.  Valuations are obtained from readily available pricing sources.

Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.  Level 3 assets include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as those for which the determination of fair value requires significant management judgment or estimation. 

Transfers between levels are recognized at the end of a reporting period, if applicable.

Determination of fair value

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.  Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Fair value is best determined based upon quoted market prices.  However, in many instances there are no quoted market prices for the Company’s various assets and liabilities.  In cases where quoted market prices are not available, fair values are based on estimates using present value or other 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 assets and liabilities.

Assets and liabilities measured at fair value on a recurring basis

Assets and liabilities measured at fair value on a recurring basis at June 30, 2019 and December 31, 2018 are summarized below.

							Total
	Level 1		Level 2		Level 3		Fair Value
	(In thousands)
June 30, 2019
Assets
Securities available for sale	$	—	$	63,348	$	—	$	63,348
Interest rate swap agreements		—		3,064		—		3,064
Forward loan sale commitments		—		1		—		1
	$	—	$	66,434	$	—	$	66,434
Liabilities
Interest rate swap agreements	$	—	$	3,064	$	—	$	3,064
Derivative loan commitments		—		3		—		3
	$	—	$	3,067	$	—	$	3,067
December 31, 2018
Assets
Securities available for sale	$	—	$	66,770	$	—	$	66,770
Interest rate swap agreements		—		264		—		264
	$	—	$	67,034	$	—	$	67,034
Liabilities
Interest rate swap agreements	$	—	$	264	$	—	$	264

Fair value measurements for securities available for sale are obtained from a third-party pricing service and are not adjusted by management.  All securities are measured at fair value in Level 2 based on valuation models that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data. 

The fair values of interest rate swap agreements are based on a valuation model that uses primarily observable inputs, such as benchmark yield curves and interest rates and also the value associated with the counterparty risk.  Credit risk adjustments consider factors such as the likelihood of default by the Company and its counterparties, its net exposure and remaining contractual life.  

The fair value of forward loan sale commitments and derivative loan commitments are based on fair values of the underlying mortgage loans, including servicing values as applicable. The fair value of derivative loan commitments also considers the probability of such commitments being exercised.

Assets measured at fair value on a non-recurring basis

The Company may also be required, from time to time, to measure certain other financial assets at fair value on a non-recurring basis in accordance with generally accepted accounting principles.  These adjustments to fair value usually result from application of lower-of-cost-or-market (“LOCOM”) accounting or write-downs of individual assets.  Fair values for loans held for sale are based on commitments in effect from investors or prevailing market rates.

	June 30, 2019						December 31, 2018
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
	(In thousands)
Loans held for sale	$	—	$	—	$	2,170	$	—	$	—	$	—

There were no liabilities measured at fair value on a non-recurring basis at June 30, 2019 and December 31, 2018.

Summary of fair values of financial instruments

The estimated fair values and related carrying amounts of the Company’s financial instruments are outlined in the table below. Certain financial instruments and all nonfinancial instruments are excluded from disclosure requirements. Accordingly, the aggregate fair value amounts presented herein may not necessarily represent the underlying fair value of the Company.

			Fair Value
	Carrying
	Amount		Level 1		Level 2		Level 3		Total
	(In thousands)
June 30, 2019
Financial assets:
Cash and cash equivalents	$	32,328	$	32,328	$	—	$	—	$	32,328
Certificates of deposit		100		100		—		—		100
Securities available for sale		63,348		—		63,348		—		63,348
FHLB stock		6,162		—		—		6,162		6,162
Loans held for sale		2,170		—		—		2,170		2,170
Loans, net		821,137		—		—		830,413		830,413
Accrued interest receivable		2,815		—		—		2,815		2,815
Interest rate swap agreements		3,064		—		3,064		—		3,064
Forward loan sale commitments		1		—		1		—		1
Financial liabilities:
Deposits	$	730,240	$	—	$	—	$	730,275	$	730,275
Short-term borrowings		54,000		—		54,000		—		54,000
Long-term debt		77,866		—		78,008		—		78,008
Subordinated debt		9,847		—		—		9,741		9,741
Accrued interest payable		1,004		—		—		1,004		1,004
Interest rate swap agreements		3,064		—		3,064		—		3,064
Derivative loan commitments		3		—		3		—		3
December 31, 2018
Financial assets:
Cash and cash equivalents	$	42,650	$	42,650	$	—	$	—	$	42,650
Certificates of deposit		100		100		—		—		100
Securities available for sale		66,770		—		66,770		—		66,770
FHLB stock		4,747		—		—		4,747		4,747
Loans, net		737,032		—		—		732,427		732,427
Accrued interest receivable		2,288		—		—		2,288		2,288
Interest rate swap agreements		264		—		264		—		264
Financial liabilities:
Deposits	$	717,931	$	—	$	—	$	716,685	$	716,685
Short-term borrowings		15,000		—		15,000		—		15,000
Long-term debt		58,528		—		58,192		—		58,192
Subordinated debt		9,832		—		—		9,691		9,691
Accrued interest payable		487		—		—		487		487
Interest rate swap agreements		264		—		264		—		264

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EMPLOYEE STOCK OWNERSHIP PLAN

6 Months Ended

Jun. 30, 2019

EMPLOYEE STOCK OWNERSHIP PLAN

EMPLOYEE STOCK OWNERSHIP PLAN

NOTE 9 – EMPLOYEE STOCK OWNERSHIP PLAN

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

The Company granted a loan to the ESOP to purchase shares of the Company’s common stock on the closing date of the Company’s mutual-to-stock conversion in 2012. As of June 30, 2019, the ESOP held 177,380 shares or 6.9% of the common stock outstanding on that date. The loan is payable annually over 15 years at the rate of 3.25% per annum. The loan can be prepaid without penalty. Loan payments are expected to be funded by cash contributions from the Bank. The loan is secured by the shares purchased, which are held in a suspense account for allocation among participants as the loan is repaid. Cash dividends paid on allocated shares are reinvested into shares to participants and cash dividends paid on unallocated shares will be used to repay the outstanding debt 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 at June 30, 2019 include the following:

Allocated	74,674
Committed to be allocated	6,419
Unallocated	96,287
	177,380

The fair value of unallocated shares was $3.1 million at June 30, 2019.

Total compensation expense recognized in connection with the ESOP for the three months ended June 30, 2019 and 2018 was $107 thousand and $103 thousand, respectively.

ESOP-related compensation expense was $203 thousand and $197 thousand for the six months ended June 30, 2019 and 2018, respectively.

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EQUITY INCENTIVE PLANS

6 Months Ended

Jun. 30, 2019

EQUITY INCENTIVE PLANS

EQUITY INCENTIVE PLANS

NOTE 10 – EQUITY INCENTIVE PLANS

Under the Company’s 2016 Equity Incentive Plan, the Company may grant restricted stock awards to its employees and directors for up to 75,000 shares of its common stock. A restricted stock award (the “award”) is a grant of shares of Company common stock for no consideration, subject to a vesting schedule or the satisfaction of market conditions or performance criteria. Awarded shares are held in reserve for each grantee by the Company’s transfer agent, and will be issued from previously authorized but unissued shares upon vesting. The fair value of the stock awards, based on the market price at the grant date, will be recognized over the five-year vesting period. At June 30, 2019,there remain 19,500 shares available to award under the Plan.

Under the Company’s 2012 Equity Incentive Plan the Company granted stock options to its employees and directors in the form of incentive stock options and non-qualified stock options totaling 231,894 shares of its common stock. The exercise price of each stock option was not less than the fair market value of the Company’s common stock on the date of grant, and the maximum term of each option is 10 years from the date of each award. The vesting period was five years from the date of grant, with vesting at 20% per year.

Under the 2012 Equity Incentive Plan, the Company also granted stock awards to management, employees and directors. Awarded shares are held in reserve for each grantee by the Company’s transfer agent, and were issued from previously authorized but unissued shares upon vesting. The fair value of the stock awards, based on the market price at the grant date, is recognized over the five-year vesting period.

The Company’s 2012 Equity Incentive Plan was terminated upon approval of the 2016 Equity Incentive Plan.

Stock Options

A summary of option activity under the 2012 Equity Incentive Plan for the six months ended June 30, 2019 is presented below:

	Outstanding							Non-vested
				Weighted					Weighted
				Average					Average
		Weighted		Remaining		Aggregate			Grant
		Average		Contractual		Intrinsic			Date Fair
	Shares	Exercise Price		Term		Value		Shares	Value
	(In thousands)			(In years)		(In thousands)		(In thousands)
Balance at January 1, 2019	193	$	16.11					10	$	4.13
Forfeited	(3)		19.07					(3)		4.01
Exercised	(24)		15.31					—		—
Balance at June 30, 2019	166	$	16.03		3.67	$	2,747	7	$	4.18
Exercisable at June 30, 2019	159	$	15.33		3.63	$	2,584	—		—

For the three months ended June 30, 2019 and 2018, compensation expense applicable to the stock options was $6 thousand and $9 thousand, respectively. There was no recognized tax benefit related to this expense for the period ended June 30, 2019 and June 30, 2018, respectively.

For the six months ended June 30, 2019 and 2018, compensation expense applicable to the stock options was $13 thousand and $19 thousand, respectively. There was no recognized tax benefit related to this expense for the period ended June 30, 2019 and June 30, 2018, respectively.

Unrecognized compensation expense for non-vested stock options totaled $12 thousand as of June 30, 2019, which will be recognized over the remaining weighted average vesting period of 0.70 years.

Stock Awards

For the six months ended June 30, 2019, there were 11,500 restricted stock awards granted with a weighted average grant date fair value of $28.25.

The following table presents the activity in non-vested stock awards under the equity incentive plans for the six months ended June 30, 2019:

	Number of	Grant-date
	Shares	Fair Value
	(In thousands)
Non-vested stock awards at beginning of year	27	$	23.97
Restricted shares granted	12		28.25
Restricted shares forfeited	(2)		20.78
Non-vested stock awards at end of quarter	37	$	25.47

There was no activity in non-vested restricted stock awards under the 2016 or the 2012 Equity Incentive Plan for the three and six months ended June 30, 2018.

For the three months ended June 30, 2019 and 2018, compensation expense applicable to the stock awards was $93 thousand and $90 thousand, respectively, and the recognized tax benefit related to this expense was $26 thousand and $25 thousand, respectively.

For the six months ended June 30, 2019 and 2018, compensation expense applicable to the stock awards was $188 thousand and $188 thousand, respectively, and the recognized tax benefit related to this expense was $53 thousand, in each six month period 2019 and 2018.

Unrecognized compensation expense for non-vested restricted stock totaled $700 thousand as of June 30, 2019, which will be recognized over the remaining weighted average vesting period of 3.10 years.

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EARNINGS PER COMMON SHARE

6 Months Ended

Jun. 30, 2019

EARNINGS PER COMMON SHARE

EARNINGS PER COMMON SHARE

NOTE 11 – EARNINGS PER COMMON SHARE

Basic earnings per share represents net income available to common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect 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. Under the Company’s 2012 and 2016 Equity Incentive Plans, stock awards contain non-forfeitable dividend rights. Accordingly, these shares are considered outstanding for computation of basic earnings per share. Potential common shares that may be issued by the Company relate to outstanding stock options and are determined using the treasury stock method.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
	(In thousands, except earnings per share amounts)
Net income applicable to common stock	$	1,505	$	1,420	$	2,807	$	2,857
Average number of common shares issued		2,553		2,506		2,544		2,506
Less: Average unallocated ESOP shares		(98)		(111)		(99)		(112)
Average number of common shares outstanding used to calculate basic earnings per common share		2,455		2,396		2,445		2,394
Effect of dilutive stock options		100		105		96		99
Average number of common shares outstanding used to calculate diluted earnings per share		2,555		2,501		2,541		2,493
Earnings per common share:
Basic	$	0.61	$	0.59	$	1.15	$	1.19
Diluted	$	0.59	$	0.57	$	1.11	$	1.15

There were no anti-dilutive options that would have been excluded from the computations of diluted earnings per share for the three and six months ended June 30, 2019 and 2018.  Anti-dilutive shares are common stock equivalents with exercise prices in excess of the average market value of the Company’s stock for the periods presented.

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LEASES

6 Months Ended

Jun. 30, 2019

LEASES

LEASES

NOTE 12 – LEASES

Effective January 1, 2019, operating leases are included in operating lease right-of-use (“ROU”)  asset and  liabilities in our consolidated balance sheet.  These operating leases provide the physical facilities  for our sales and service locations, administration and operations offices, and ATMs.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities were recognized at the adoption date based on the present value of lease payments over the remaining lease term.   As our leases do not provide an implicit rate, we use the Federal Home Loan Bank borrowing rates that best align with the lease term in determining the present value of lease payments. Our lease terms may include options to extend or terminate the lease, which we include when it is reasonably certain that we will exercise that option. For operating leases, the lease expense is recognized on a straight-line basis over the lease term.  The operating lease expense for the three and six months ended June 30, 2019 was $416 thousand and $832 thousand, respectively.

The table below summarizes other information related to our operating leases as of June 30, 2019:

Cash flows from operating leases, in thousands, year to date 2019	$	795
Weighted average remaining lease term, in years		5.6
Weighted average discount rate		3.12	%

The table below summarizes the maturity of the operating lease liabilities as of June 30, 2019:

	(In thousands)
2019	$	801
2020		1,632
2021		1,483
2022		1,182
2023		1,101
Thereafter		1,912
Total lease payments		8,111
Less imputed interest		(844)
Present value of lease liabilities	$	7,267

The Bank is under agreement to take possession of an additional 4,431 square feet of office space in 2020 for a term of 74 months that is expected to increase the Bank’s ROU assets by $1.3 million.

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LOAN POLICIES (Policies)

6 Months Ended

Jun. 30, 2019

LOAN POLICIES

Allowance for loan losses

Allowance for loan losses

The allowance for loan losses is established through a provision for loan losses charged to earnings as losses are estimated to occur. Loan losses are charged against the allowance when management believes the uncollectibility of the loan balance is confirmed. Subsequent recoveries are credited to the allowance.

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, allocated and unallocated components.

General component

The general component is based on the following loan segments: residential real estate, commercial real estate, construction, commercial, home equity lines of credit and other consumer. Management considers a rolling average of historical losses for each segment based on a time frame appropriate to capture relevant loss data for each loan segment, generally three and 10 years. This historical loss factor is adjusted for the following qualitative factors: levels/trends in delinquencies; trends in volume, concentrations and terms of loans; level of collateral protection; effects of changes in risk selection and underwriting standards; experience/ability/depth of lending management and staff; and national and local economic trends and conditions. There were no significant changes to the Company’s policies or methodology pertaining to the general component of the allowance during 2019 or 2018.

The qualitative factor adjustments are determined based on the various risk characteristics of each loan segment. Risk characteristics relevant to each portfolio segment are as follows:

Residential real estate – The Company generally does not originate loans with a loan-to-value ratio greater than 80 percent and does not originate subprime loans. Most loans in this segment are collateralized by one-to-four family residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality of this segment.

Commercial real estate – Loans in this segment are primarily income-producing properties in the Company’s primary market areas in eastern Massachusetts. The underlying cash flows generated by the properties may be adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which, in turn, will have an effect on the credit quality in this segment. Management typically obtains rent rolls annually and continually monitors the cash flows of these loans.

Construction – Loans in this segment include speculative construction loans primarily on residential properties for which payment is derived from the sale of the property. Credit risk is affected by cost overruns, time to sell at an adequate price, and market conditions.   Residential construction loans in this segment also include loans to build one-to-four family owner-occupied properties which are subject to the same credit quality factors as residential real estate.

Commercial – Loans in this segment are made to businesses and are generally secured by assets of the business. Repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer spending, will have an effect on the credit quality in this segment.

Home equity lines of credit – Loans in this segment are collateralized by one-to-four family residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment.

Other consumer – Loans in this segment are generally unsecured and repayment is dependent on the credit quality of the individual borrower.

Allocated component

The allocated component relates to loans that are classified as impaired.  Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the fair value of the loan or, if the loan is collateral dependent, by the fair value of the collateral less estimated costs to sell.  An allowance is established when the discounted cash flows or collateral value of the impaired loan are lower than the carrying value of that loan.  Large groups of smaller-balance homogeneous loans are collectively evaluated for impairment.  Accordingly, the Company does not separately identify performing individual residential and consumer loans for impairment disclosures, unless such loans are subject to a troubled debt restructuring agreement.

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

The Company periodically may agree to modify the contractual terms of loans. When a loan is modified and a concession is made to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring ("TDR"). All TDRs are initially classified as impaired.

Unallocated component

An unallocated component is maintained to cover additional uncertainties in management’s estimation of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio.

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COMPREHENSIVE INCOME (Tables)

6 Months Ended

Jun. 30, 2019

COMPREHENSIVE INCOME

Schedule of accumulated other comprehensive income (loss)

The components of accumulated other comprehensive income (loss) and related tax effects are as follows:

	June 30,		December 31,
	2019		2018
	(In thousands)
Unrealized holding gains (losses) on securities available for sale	$	869	$	(732)
Tax effect		(202)		199
Net-of tax amount	$	667	$	(533)

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SECURITIES AVAILABLE FOR SALE (Tables)

6 Months Ended

Jun. 30, 2019

SECURITIES AVAILABLE FOR SALE

Available-for-sale securities

The amortized cost and fair value of securities available for sale, with gross unrealized gains and losses, follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In thousands)
June 30, 2019
Residential mortgage-backed securities:
Government National Mortgage Association	$	3,647	$	79	$	(18)	$	3,708
Government-sponsored enterprises		10,656		132		(34)		10,754
SBA and other asset-backed securities		10,684		242		(14)		10,912
State and municipal bonds		12,348		465		(1)		12,812
Government-sponsored enterprise obligations		8,000		—		(11)		7,989
Corporate bonds		17,144		82		(53)		17,173
	$	62,479	$	1,000	$	(131)	$	63,348

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In thousands)
December 31, 2018
Residential mortgage-backed securities:
Government National Mortgage Association	$	3,846	$	44	$	(43)	$	3,847
Government-sponsored enterprises		11,382		29		(188)		11,223
SBA and other asset-backed securities		11,720		64		(157)		11,627
State and municipal bonds		12,908		111		(111)		12,908
Government-sponsored enterprise obligations		8,000		—		(187)		7,813
Corporate bonds		18,151		28		(322)		17,857
U.S. Treasury bills		1,495		—		—		1,495
	$	67,502	$	276	$	(1,008)	$	66,770

Schedule of investments classified by contractual maturity date

The amortized cost and fair value of debt securities by contractual maturity at June 30, 2019 are as follows:

	Amortized		Fair
	Cost		Value
	(In thousands)
Within 1 year	$	5,248	$	5,255
After 1 year to 5 years		16,096		16,169
After 5 years to 10 years		6,565		6,616
After 10 years		9,583		9,934
		37,492		37,974
Mortgage- and asset-backed securities		24,987		25,374
	$	62,479	$	63,348

Available-for-sale securities, continuous unrealized loss position, fair value

Information pertaining to securities with gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	Less Than Twelve Months				Over Twelve Months
	Gross				Gross
	Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value
	(In thousands)
June 30, 2019
Residential mortgage-backed securities:
Government National Mortgage Association	$	—	$	—	$	(18)	$	1,596
Government-sponsored enterprises		—		—		(34)		2,838
SBA and other asset-backed securities		(1)		320		(13)		2,062
State and municipal bonds		—		—		(1)		330
Government-sponsored enterprise obligations		(3)		997		(8)		4,992
Corporate bonds		(11)		3,988		(42)		5,332
	$	(15)	$	5,305	$	(116)	$	17,150

	Less Than Twelve Months				Over Twelve Months
	Gross				Gross
	Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value
	(In thousands)
December 31, 2018
Residential mortgage-backed securities:
Government National Mortgage Association	$	—	$	—	$	(43)	$	1,755
Government-sponsored enterprises		(1)		103		(187)		7,880
SBA and other asset-backed securities		—		—		(157)		5,455
State and municipal bonds		(2)		386		(109)		6,257
Government-sponsored enterprise obligations		—		—		(187)		7,813
Corporate bonds		(29)		5,705		(293)		11,124
	$	(32)	$	6,194	$	(976)	$	40,284

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LOANS AND ALLOWANCE FOR LOAN LOSSES (Tables)

6 Months Ended

Jun. 30, 2019

LOANS AND ALLOWANCE FOR LOAN LOSSES

Schedule of summary of the ending balances

A summary of the ending balances of loans is as follows:

	June 30,		December 31,
	2019		2018
	(In thousands)
Real estate loans:
Residential – fixed	$	74,748	$	64,218
Residential – variable		324,486		318,292
Commercial		170,554		148,006
Construction		132,945		106,723
		702,733		637,239
Commercial loans:
Secured		80,380		61,563
Unsecured		4,910		5,327
		85,290		66,890
Consumer loans:
Home equity lines of credit		40,304		39,486
Other		165		163
		40,469		39,649
Total loans		828,492		743,778
Less:
Allowance for loan losses		(7,148)		(6,738)
Net deferred origination costs		(207)		(8)
Loans, net	$	821,137	$	737,032

Schedule of summarizes the changes in the allowance for loan losses by portfolio segment

The following table summarizes the changes in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2019 and 2018:

	Residential		Commercial						Home		Other
	Real Estate		Real Estate		Construction		Commercial		Equity		Consumer		Unallocated		Total
	(In thousands)
Three Months Ended June 30, 2019
Allowance at March 31, 2019	$	2,202		1,361	$	1,809	$	1,281	$	262	$	3	$	60	$	6,978
Provision (credit) for loan losses		(51)		161		(183)		71		—		—		172		170
Allowance at June 30, 2019	$	2,151	$	1,522	$	1,626	$	1,352	$	262	$	3	$	232	$	7,148
Three Months Ended June 30, 2018
Allowance at March 31, 2018	$	1,925	$	1,545	$	1,433	$	995	$	248	$	3	$	69	$	6,218
Provision (credit) for loan losses		74		70		26		(33)		9		1		48		195
Allowance at June 30, 2018	$	1,999	$	1,615	$	1,459	$	962	$	257	$	4	$	117	$	6,413
Six Months Ended June 30, 2019
Allowance at December 31, 2018	$	2,216		1,602	$	1,462	$	1,124	$	257	$	3	$	74	$	6,738
Provision (credit) for loan losses		(65)		(80)		164		228		5		—		158		410
Allowance at June 30, 2019	$	2,151	$	1,522	$	1,626	$	1,352	$	262	$	3	$	232	$	7,148
Six Months Ended June 30, 2018
Allowance at December 31, 2017	$	1,722	$	1,520	$	1,661	$	917	$	237	$	2	$	94	$	6,153
Provision (credit) for loan losses		277		95		(202)		45		20		2		23		260
Allowance at June 30, 2018	$	1,999	$	1,615	$	1,459	$	962	$	257	$	4	$	117	$	6,413

Schedule of information pertaining to the allowance for loan losses

Further information pertaining to the allowance for loan losses is as follows:

	Residential		Commercial						Home		Other
	Real Estate		Real Estate		Construction		Commercial		Equity		Consumer		Unallocated		Total
	(In thousands)
June 30, 2019
Allowance related to impaired loans	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Allowance related to non-impaired loans		2,151		1,522		1,626		1,352		262		3		232		7,148
Total allowance	$	2,151	$	1,522	$	1,626	$	1,352	$	262	$	3	$	232	$	7,148
Impaired loan balances	$	734	$	2,703	$	—	$	—	$	—	$	—	$	—	$	3,437
Non-impaired loan balances		398,500		167,851		132,945		85,290		40,304		165		—		825,055
Total loans	$	399,234	$	170,554	$	132,945	$	85,290	$	40,304	$	165	$	—	$	828,492
December 31, 2018
Allowance related to impaired loans	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Allowance related to non-impaired loans		2,216		1,602		1,462		1,124		257		3		74		6,738
Total allowance	$	2,216	$	1,602	$	1,462	$	1,124	$	257	$	3	$	74	$	6,738
Impaired loan balances	$	746		2,846	$	—	$	—	$	—	$	—	$	—	$	3,592
Non-impaired loan balances		381,764		145,160		106,723		66,890		39,486		163		—		740,186
Total loans	$	382,510	$	148,006	$	106,723	$	66,890	$	39,486	$	163	$	—	$	743,778

Schedule of summary of past due and non-accrual loans

The following is a summary of past due and non-accrual loans at June 30, 2019 and December 31, 2018:

									Past Due 90
	30‑59				Past Due 90				Days or More
	Days		60‑89 Days		Days or		Total		and Still		Non-accrual
	Past Due		Past Due		More		Past Due		Accruing		Loans
	(In thousands)
June 30, 2019
Residential real estate	$	572	$	—	$	—	$	572	$	—	$	572
Commercial real estate		—		—		548		548		—		548
Consumer loans		100		—		—		100		—		—
Total	$	672	$	—	$	548	$	1,220	$	—	$	1,120
December 31, 2018
Residential real estate	$	1,551	$	—	$	—	$	1,551	$	—	$	581
Commercial real estate		—		—		556		556		—		556
Total	$	1,551	$	—	$	556	$	2,107	$	—	$	1,137

Schedule of summary of impaired loans

The following is a summary of impaired loans:

	June 30, 2019				December 31, 2018
			Unpaid				Unpaid
	Recorded		Principal		Recorded		Principal
	Investment		Balance		Investment		Balance
	(In thousands)
Impaired loans without a valuation allowance:
Residential real estate	$	734	$	751	$	746	$	764
Commercial real estate		2,703		2,829		2,846		2,974
Total impaired loans	$	3,437	$	3,580	$	3,592	$	3,738

Schedule of information pertaining to impaired loans

Further information pertaining to impaired loans follows:

	Three Months Ended June 30, 2019						Six Months Ended June 30, 2019
					Interest						Interest
	Average		Interest		Income		Average		Interest		Income
	Recorded		Income		Recognized		Recorded		Income		Recognized
	Investment		Recognized		on Cash Basis		Investment		Recognized		on Cash Basis
	(In thousands)
Residential real estate	$	738	$	10	$	8	$	741	$	15	$	12
Commercial real estate		2,738		27		3		2,774		60		11
Total	$	3,476	$	37	$	11	$	3,515	$	75	$	23

	Three Months Ended June 30, 2018						Six Months Ended June 30, 2018
					Interest						Interest
	Average		Interest		Income		Average		Interest		Income
	Recorded		Income		Recognized		Recorded		Income		Recognized
	Investment		Recognized		on Cash Basis		Investment		Recognized		on Cash Basis
	(In thousands)
Residential real estate	$	333	$	10	$	—	$	209	$	11	$	8
Commercial real estate		564		8		8		567		28		28
Total	$	897	$	18	$	8	$	776	$	39	$	36

Schedule of company loans by risk rating

The following table presents the Company’s loans by risk rating:

	June 30, 2019								December 31, 2018
	Commercial								Commercial
	Real Estate		Construction		Commercial		Total		Real Estate		Construction		Commercial		Total
	(In thousands)
Loans rated 1‑4	$	166,954	$	132,945	$	83,511	$	383,410	$	144,243	$	106,723	$	65,245	$	316,211
Loans rated 5		897		—		1,053		1,950		917		—		1,645		2,562
Loans rated 6		2,155		—		726		2,881		2,290		—		—		2,290
Loans rated 7		548		—		—		548		556		—		—		556
Total	$	170,554	$	132,945	$	85,290	$	388,789	$	148,006	$	106,723	$	66,890	$	321,619

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DERIVATIVE INSTRUMENTS (Tables)

6 Months Ended

Jun. 30, 2019

DERIVATIVE INSTRUMENTS

Schedule of summary of the interest rate swaps

A summary of the interest rate swaps is as follows:

	With commercial						With third-party
	loan borrowers						financial institutions
	June 30,			December 31,			June 30,			December 31,
	2019			2018			2019			2018
		(dollars in thousands)
Notional amount	$	50,401		$	28,320		$	50,401		$	28,320
Receive (pay) fixed rate weighted average		4.83	%		5.09	%		(4.83)	%		(5.09)	%
Receive (pay) variable rate weighted average		(4.58)	%		(5.06)	%		4.58	%		5.06	%
Weighted average remaining years		11.2	years		12.8	years		11.2	years		12.8	years
Unrealized fair value gain (loss)	$	3,064		$	264		$	(3,064)		$	(264)

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FAIR VALUES OF FINANCIAL INSTRUMENTS (Tables)

6 Months Ended

Jun. 30, 2019

FAIR VALUES OF FINANCIAL INSTRUMENTS

Schedule of fair value, assets and liabilities measured on recurring basis

Assets and liabilities measured at fair value on a recurring basis at June 30, 2019 and December 31, 2018 are summarized below.

							Total
	Level 1		Level 2		Level 3		Fair Value
	(In thousands)
June 30, 2019
Assets
Securities available for sale	$	—	$	63,348	$	—	$	63,348
Interest rate swap agreements		—		3,064		—		3,064
Forward loan sale commitments		—		1		—		1
	$	—	$	66,434	$	—	$	66,434
Liabilities
Interest rate swap agreements	$	—	$	3,064	$	—	$	3,064
Derivative loan commitments		—		3		—		3
	$	—	$	3,067	$	—	$	3,067
December 31, 2018
Assets
Securities available for sale	$	—	$	66,770	$	—	$	66,770
Interest rate swap agreements		—		264		—		264
	$	—	$	67,034	$	—	$	67,034
Liabilities
Interest rate swap agreements	$	—	$	264	$	—	$	264

Schedule of fair value measurements, nonrecurring

	June 30, 2019						December 31, 2018
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
	(In thousands)
Loans held for sale	$	—	$	—	$	2,170	$	—	$	—	$	—

Schedule of fair value, by balance sheet grouping

The estimated fair values and related carrying amounts of the Company’s financial instruments are outlined in the table below. Certain financial instruments and all nonfinancial instruments are excluded from disclosure requirements. Accordingly, the aggregate fair value amounts presented herein may not necessarily represent the underlying fair value of the Company.

			Fair Value
	Carrying
	Amount		Level 1		Level 2		Level 3		Total
	(In thousands)
June 30, 2019
Financial assets:
Cash and cash equivalents	$	32,328	$	32,328	$	—	$	—	$	32,328
Certificates of deposit		100		100		—		—		100
Securities available for sale		63,348		—		63,348		—		63,348
FHLB stock		6,162		—		—		6,162		6,162
Loans held for sale		2,170		—		—		2,170		2,170
Loans, net		821,137		—		—		830,413		830,413
Accrued interest receivable		2,815		—		—		2,815		2,815
Interest rate swap agreements		3,064		—		3,064		—		3,064
Forward loan sale commitments		1		—		1		—		1
Financial liabilities:
Deposits	$	730,240	$	—	$	—	$	730,275	$	730,275
Short-term borrowings		54,000		—		54,000		—		54,000
Long-term debt		77,866		—		78,008		—		78,008
Subordinated debt		9,847		—		—		9,741		9,741
Accrued interest payable		1,004		—		—		1,004		1,004
Interest rate swap agreements		3,064		—		3,064		—		3,064
Derivative loan commitments		3		—		3		—		3
December 31, 2018
Financial assets:
Cash and cash equivalents	$	42,650	$	42,650	$	—	$	—	$	42,650
Certificates of deposit		100		100		—		—		100
Securities available for sale		66,770		—		66,770		—		66,770
FHLB stock		4,747		—		—		4,747		4,747
Loans, net		737,032		—		—		732,427		732,427
Accrued interest receivable		2,288		—		—		2,288		2,288
Interest rate swap agreements		264		—		264		—		264
Financial liabilities:
Deposits	$	717,931	$	—	$	—	$	716,685	$	716,685
Short-term borrowings		15,000		—		15,000		—		15,000
Long-term debt		58,528		—		58,192		—		58,192
Subordinated debt		9,832		—		—		9,691		9,691
Accrued interest payable		487		—		—		487		487
Interest rate swap agreements		264		—		264		—		264

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EMPLOYEE STOCK OWNERSHIP PLAN (Tables)

6 Months Ended

Jun. 30, 2019

EMPLOYEE STOCK OWNERSHIP PLAN

Schedule of shares held by ESOP

Shares held by the ESOP at June 30, 2019 include the following:

Allocated	74,674
Committed to be allocated	6,419
Unallocated	96,287
	177,380

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EQUITY INCENTIVE PLANS (Tables)

6 Months Ended

Jun. 30, 2019

EQUITY INCENTIVE PLANS

Summary of stock option activity

A summary of option activity under the 2012 Equity Incentive Plan for the six months ended June 30, 2019 is presented below:

	Outstanding							Non-vested
				Weighted					Weighted
				Average					Average
		Weighted		Remaining		Aggregate			Grant
		Average		Contractual		Intrinsic			Date Fair
	Shares	Exercise Price		Term		Value		Shares	Value
	(In thousands)			(In years)		(In thousands)		(In thousands)
Balance at January 1, 2019	193	$	16.11					10	$	4.13
Forfeited	(3)		19.07					(3)		4.01
Exercised	(24)		15.31					—		—
Balance at June 30, 2019	166	$	16.03		3.67	$	2,747	7	$	4.18
Exercisable at June 30, 2019	159	$	15.33		3.63	$	2,584	—		—

Schedule of non-vested stock awards

The following table presents the activity in non-vested stock awards under the equity incentive plans for the six months ended June 30, 2019:

	Number of	Grant-date
	Shares	Fair Value
	(In thousands)
Non-vested stock awards at beginning of year	27	$	23.97
Restricted shares granted	12		28.25
Restricted shares forfeited	(2)		20.78
Non-vested stock awards at end of quarter	37	$	25.47

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EARNINGS PER COMMON SHARE (Tables)

6 Months Ended

Jun. 30, 2019

EARNINGS PER COMMON SHARE

Schedule of earnings per share, basic and diluted

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
	(In thousands, except earnings per share amounts)
Net income applicable to common stock	$	1,505	$	1,420	$	2,807	$	2,857
Average number of common shares issued		2,553		2,506		2,544		2,506
Less: Average unallocated ESOP shares		(98)		(111)		(99)		(112)
Average number of common shares outstanding used to calculate basic earnings per common share		2,455		2,396		2,445		2,394
Effect of dilutive stock options		100		105		96		99
Average number of common shares outstanding used to calculate diluted earnings per share		2,555		2,501		2,541		2,493
Earnings per common share:
Basic	$	0.61	$	0.59	$	1.15	$	1.19
Diluted	$	0.59	$	0.57	$	1.11	$	1.15

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LEASES (Tables)

6 Months Ended

Jun. 30, 2019

LEASES

Summary of other information related to our operating leases

The table below summarizes other information related to our operating leases as of June 30, 2019:

Cash flows from operating leases, in thousands, year to date 2019	$	795
Weighted average remaining lease term, in years		5.6
Weighted average discount rate		3.12	%

Summary of maturity of the operating lease liabilities

The table below summarizes the maturity of the operating lease liabilities as of June 30, 2019:

	(In thousands)
2019	$	801
2020		1,632
2021		1,483
2022		1,182
2023		1,101
Thereafter		1,912
Total lease payments		8,111
Less imputed interest		(844)
Present value of lease liabilities	$	7,267

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LOAN POLICIES (Details)	6 Months Ended
	Jun. 30, 2019
Maximum [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Time Period To Capture Relevant Loan Loss Data	10 years
Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loan To Value Ratio	80.00%

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COMPREHENSIVE INCOME (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
COMPREHENSIVE INCOME
Unrealized holding gains (losses) on securities available for sale	$ 869	$ (732)
Tax effect	(202)	199
Net-of tax amount	$ 667	$ (533)

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RECENT ACCOUNTING AND REGULATORY PRONOUNCEMENTS (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Operating Lease, Right-of-Use Asset	$ 7,229	$ 0
Operating Lease, Liability	7,267	$ 0
Accounting Standards Update 2018-02 [Member]
Operating Lease, Right-of-Use Asset	7,800
Operating Lease, Liability	$ 7,800

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SECURITIES AVAILABLE FOR SALE (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 62,479	$ 67,502
Gross Unrealized Gains	1,000	276
Gross Unrealized Losses	(131)	(1,008)
Fair Value	63,348	66,770
SBA and other asset-backed securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	10,684	11,720
Gross Unrealized Gains	242	64
Gross Unrealized Losses	(14)	(157)
Fair Value	10,912	11,627
State and municipal bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	12,348	12,908
Gross Unrealized Gains	465	111
Gross Unrealized Losses	(1)	(111)
Fair Value	12,812	12,908
Government-sponsored enterprise obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	8,000	8,000
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(11)	(187)
Fair Value	7,989	7,813
Corporate bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	17,144	18,151
Gross Unrealized Gains	82	28
Gross Unrealized Losses	(53)	(322)
Fair Value	17,173	17,857
US Treasury Bill Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost		1,495
Gross Unrealized Gains		0
Gross Unrealized Losses		0
Fair Value		1,495
Residential mortgage-backed securities [Member] | Government National Mortgage Association [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	3,647	3,846
Gross Unrealized Gains	79	44
Gross Unrealized Losses	(18)	(43)
Fair Value	3,708	3,847
Residential mortgage-backed securities [Member] | Government-sponsored enterprises [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	10,656	11,382
Gross Unrealized Gains	132	29
Gross Unrealized Losses	(34)	(188)
Fair Value	$ 10,754	$ 11,223

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SECURITIES AVAILABLE FOR SALE - Schedule of debt securities by contractual maturity (Details) $ in Thousands	Jun. 30, 2019 USD ($)
Available-for-sale Securities, Debt Maturities, Amortized Cost
Within 1 year	$ 5,248
After 1 year to 5 years	16,096
After 5 years to 10 years	6,565
After 10 years	9,583
Available-for-sale Securities, Debt Maturities, Single Maturity Date, Amortized Cost Basis, Total	37,492
Mortgage- and asset-backed securities	24,987
Available-for-sale Debt Securities, Amortized Cost Basis, Total	62,479
Available-for-sale Securities, Debt Maturities, Fair Value
Within 1 year	5,255
After 1 year to 5 years	16,169
After 5 years to 10 years	6,616
After 10 years	9,934
Available-for-sale Securities, Debt Maturities, Single Maturity Date, Fair Value Total	37,974
Mortgage- and asset-backed securities	25,374
Available-for-sale Securities, Debt Securities, Fair Value Total	$ 63,348

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SECURITIES AVAILABLE FOR SALE - Information pertaining to investment category (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Schedule of Available-for-sale Securities [Line Items]
Less Than Twelve Months Gross Unrealized Losses	$ (15)	$ (32)
Less Than Twelve Months Fair Value	5,305	6,194
Over Twelve Months Gross Unrealized Losses	(116)	(976)
Over Twelve Months Fair Value	17,150	40,284
SBA and other asset-backed securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less Than Twelve Months Gross Unrealized Losses	(1)	0
Less Than Twelve Months Fair Value	320	0
Over Twelve Months Gross Unrealized Losses	(13)	(157)
Over Twelve Months Fair Value	2,062	5,455
State and municipal bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Less Than Twelve Months Gross Unrealized Losses	0	(2)
Less Than Twelve Months Fair Value	0	386
Over Twelve Months Gross Unrealized Losses	(1)	(109)
Over Twelve Months Fair Value	330	6,257
Government-sponsored enterprise obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Less Than Twelve Months Gross Unrealized Losses	(3)	0
Less Than Twelve Months Fair Value	997	0
Over Twelve Months Gross Unrealized Losses	(8)	(187)
Over Twelve Months Fair Value	4,992	7,813
Corporate bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Less Than Twelve Months Gross Unrealized Losses	(11)	(29)
Less Than Twelve Months Fair Value	3,988	5,705
Over Twelve Months Gross Unrealized Losses	(42)	(293)
Over Twelve Months Fair Value	5,332	11,124
Residential mortgage-backed securities [Member] | Government National Mortgage Association [Member]
Schedule of Available-for-sale Securities [Line Items]
Less Than Twelve Months Gross Unrealized Losses	0	0
Less Than Twelve Months Fair Value	0	0
Over Twelve Months Gross Unrealized Losses	(18)	(43)
Over Twelve Months Fair Value	1,596	1,755
Residential mortgage-backed securities [Member] | Government-sponsored enterprises [Member]
Schedule of Available-for-sale Securities [Line Items]
Less Than Twelve Months Gross Unrealized Losses	0	(1)
Less Than Twelve Months Fair Value	0	103
Over Twelve Months Gross Unrealized Losses	(34)	(187)
Over Twelve Months Fair Value	$ 2,838	$ 7,880

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SECURITIES AVAILABLE FOR SALE - Additional information (Details)	Jun. 30, 2019
SECURITIES AVAILABLE FOR SALE
Unrealized Losses Debt Securities Aggregate Depreciation Percentage	0.60%

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LOANS AND ALLOWANCE FOR LOAN LOSSES (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Total loans	$ 828,492	$ 743,778
Less: Allowance for loan losses	(7,148)	(6,738)
Net deferred origination costs	(207)	(8)
Loans, net	821,137	737,032
Commercial loans [Member]
Total loans	85,290	66,890
Consumer loans [Member]
Total loans	40,469	39,649
Commercial Real Estate [Member]
Total loans	170,554	148,006
Construction [Member]
Total loans	132,945	106,723
Secured [Member] | Commercial loans [Member]
Total loans	80,380	61,563
Unsecured [Member] | Commercial loans [Member]
Total loans	4,910	5,327
Home equity lines of credit [Member]
Total loans	40,304	39,486
Home equity lines of credit [Member] | Consumer loans [Member]
Total loans	40,304	39,486
Other Consumer [Member]
Total loans	165	163
Other Consumer [Member] | Consumer loans [Member]
Total loans	165	163
Real estate loans [Member]
Total loans	702,733	637,239
Real estate loans [Member] | Residential - fixed [Member]
Total loans	74,748	64,218
Real estate loans [Member] | Residential - variable [Member]
Total loans	324,486	318,292
Real estate loans [Member] | Commercial Real Estate [Member]
Total loans	170,554	148,006
Real estate loans [Member] | Construction [Member]
Total loans	$ 132,945	$ 106,723

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Changes in the allowance for loan losses (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Allowance Beginning Balance	$ 6,978	$ 6,218	$ 6,738	$ 6,153
Provision (credit) for loan losses	170	195	410	260
Allowance Ending Balance	7,148	6,413	7,148	6,413
Commercial loans [Member]
Allowance Beginning Balance	1,281	995	1,124	917
Provision (credit) for loan losses	71	(33)	228	45
Allowance Ending Balance	1,352	962	1,352	962
Residential Real Estate [Member]
Allowance Beginning Balance	2,202	1,925	2,216	1,722
Provision (credit) for loan losses	(51)	74	(65)	277
Allowance Ending Balance	2,151	1,999	2,151	1,999
Commercial Real Estate [Member]
Allowance Beginning Balance	1,361	1,545	1,602	1,520
Provision (credit) for loan losses	161	70	(80)	95
Allowance Ending Balance	1,522	1,615	1,522	1,615
Construction [Member]
Allowance Beginning Balance	1,809	1,433	1,462	1,661
Provision (credit) for loan losses	(183)	26	164	(202)
Allowance Ending Balance	1,626	1,459	1,626	1,459
Home equity lines of credit [Member]
Allowance Beginning Balance	262	248	257	237
Provision (credit) for loan losses		9	5	20
Allowance Ending Balance	262	257	262	257
Other Consumer [Member]
Allowance Beginning Balance	3	3	3	2
Provision (credit) for loan losses		1		2
Allowance Ending Balance	3	4	3	4
Unallocated [Member]
Allowance Beginning Balance	60	69	74	94
Provision (credit) for loan losses	172	48	158	23
Allowance Ending Balance	$ 232	$ 117	$ 232	$ 117

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Allowance for Credit Losses on Financing Receivables (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017
Allowance related to non-impaired loans	$ 7,148		$ 6,738
Total allowance	7,148	$ 6,978	6,738	$ 6,413	$ 6,218	$ 6,153
Impaired loan balances	3,437		3,592
Non-impaired loan balances	825,055		740,186
Total loans	828,492		743,778
Commercial loans [Member]
Allowance related to non-impaired loans	1,352		1,124
Total allowance	1,352	1,281	1,124	962	995	917
Non-impaired loan balances	85,290		66,890
Total loans	85,290		66,890
Residential Real Estate [Member]
Allowance related to non-impaired loans	2,151		2,216
Total allowance	2,151	2,202	2,216	1,999	1,925	1,722
Impaired loan balances	734		746
Non-impaired loan balances	398,500		381,764
Total loans	399,234		382,510
Commercial Real Estate [Member]
Allowance related to non-impaired loans	1,522		1,602
Total allowance	1,522	1,361	1,602	1,615	1,545	1,520
Impaired loan balances	2,703		2,846
Non-impaired loan balances	167,851		145,160
Total loans	170,554		148,006
Construction [Member]
Allowance related to non-impaired loans	1,626		1,462
Total allowance	1,626	1,809	1,462	1,459	1,433	1,661
Non-impaired loan balances	132,945		106,723
Total loans	132,945		106,723
Home equity lines of credit [Member]
Allowance related to non-impaired loans	262		257
Total allowance	262	262	257	257	248	237
Non-impaired loan balances	40,304		39,486
Total loans	40,304		39,486
Other Consumer [Member]
Allowance related to non-impaired loans	3		3
Total allowance	3	3	3	4	3	2
Non-impaired loan balances	165		163
Total loans	165		163
Unallocated [Member]
Allowance related to non-impaired loans	232		74
Total allowance	$ 232	$ 60	$ 74	$ 117	$ 69	$ 94

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Summary of past due and non-accrual loans (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Total Past Due	$ 1,220	$ 2,107
Non-accrual Loans	1,120	1,137
Consumer loans [Member]
Total Past Due	100
Financing Receivables, 30 to 59 Days Past Due [Member]
Total Past Due	672	1,551
Financing Receivables, 30 to 59 Days Past Due [Member] | Consumer loans [Member]
Total Past Due	100
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Total Past Due	548	556
Residential Real Estate [Member]
Total Past Due	572	1,551
Non-accrual Loans	572	581
Residential Real Estate [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Total Past Due	572	1,551
Commercial Real Estate [Member]
Total Past Due	548	556
Non-accrual Loans	548	556
Commercial Real Estate [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Total Past Due	$ 548	$ 556

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Impaired financing receivables (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Total impaired loans Recorded Investment	$ 3,437	$ 3,592
Total impaired loans Unpaid Principal Balance	3,580	3,738
Residential Real Estate [Member]
Impaired loans Recorded Investment, Without a Valuation Allowance	734	746
Impaired loans Unpaid Principal Balance, Without a Valuation Allowance	751	764
Commercial Real Estate [Member]
Impaired loans Recorded Investment, Without a Valuation Allowance	2,703	2,846
Impaired loans Unpaid Principal Balance, Without a Valuation Allowance	$ 2,829	$ 2,974

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Impaired financing receivables by class of loans (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Average Recorded Investment	$ 3,476	$ 897	$ 3,515	$ 776
Interest Income Recognized	37	18	75	39
Interest Income Recognized on Cash Basis	11	8	23	36
Residential Real Estate [Member]
Average Recorded Investment	738	333	741	209
Interest Income Recognized	10	10	15	11
Interest Income Recognized on Cash Basis	8		12	8
Commercial Real Estate [Member]
Average Recorded Investment	2,738	564	2,774	567
Interest Income Recognized	27	8	60	28
Interest Income Recognized on Cash Basis	$ 3	$ 8	$ 11	$ 28

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Credit quality information (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Loans	$ 388,789	$ 321,619
Loans rated 1-4 [Member]
Loans	383,410	316,211
Loans rated 5 [Member]
Loans	1,950	2,562
Loans rated 6 [Member]
Loans	2,881	2,290
Loans rated 7 [Member]
Loans	548	556
Commercial Real Estate [Member]
Loans	170,554	148,006
Commercial Real Estate [Member] | Loans rated 1-4 [Member]
Loans	166,954	144,243
Commercial Real Estate [Member] | Loans rated 5 [Member]
Loans	897	917
Commercial Real Estate [Member] | Loans rated 6 [Member]
Loans	2,155	2,290
Commercial Real Estate [Member] | Loans rated 7 [Member]
Loans	548	556
Construction [Member]
Loans	132,945	106,723
Construction [Member] | Loans rated 1-4 [Member]
Loans	132,945	106,723
Commercial loans [Member]
Loans	85,290	66,890
Commercial loans [Member] | Loans rated 1-4 [Member]
Loans	83,511	65,245
Commercial loans [Member] | Loans rated 5 [Member]
Loans	1,053	$ 1,645
Commercial loans [Member] | Loans rated 6 [Member]
Loans	$ 726

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Additional information (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Loans and Leases Receivable, Gross	$ 828,492	$ 743,778
Commercial loans [Member]
Loans and Leases Receivable, Gross	85,290	$ 66,890
Loan rated 9 [Member] | Maximum [Member] | Commercial loans [Member]
Loans and Leases Receivable, Gross	$ 25
Credit Rating Eleven [Member] | Maximum [Member]
Period After Credit Rating Assignment	60 days

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DERIVATIVE INSTRUMENTS - Summary of the interest rate swaps (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Commercial Borrower [Member]
Derivative, Notional Amount	$ 50,401	$ 28,320
Receive(pay) fixed rate (weighted average)	4.83%	5.09%
Receive (pay) variable rate (weighted average)	(4.58%)	(5.06%)
Weighted average remaining years	11 years 2 months 12 days	12 years 9 months 18 days
Unrealized fair value gain (loss)	$ 3,064	$ 264
Third Party Financial Institutions [Member]
Derivative, Notional Amount	$ 50,401	$ 28,320
Receive(pay) fixed rate (weighted average)	(4.83%)	(5.09%)
Receive (pay) variable rate (weighted average)	4.58%	5.06%
Weighted average remaining years	11 years 2 months 12 days	12 years 9 months 18 days
Unrealized fair value gain (loss)	$ (3,064)	$ (264)

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DERIVATIVE INSTRUMENTS - Additional information (Details) $ in Thousands	Jun. 30, 2019 USD ($)
Derivative [Line Items]
Derivative Asset, Fair Value, Gross Asset	$ 1
Interest Rate Swap [Member]
Derivative [Line Items]
Derivative Liability, Fair Value of Collateral	3,000
Not Designated as Hedging Instrument [Member]
Derivative [Line Items]
Derivative Asset, Fair Value, Gross Asset	1
Not Designated as Hedging Instrument [Member] | Other Liabilities [Member]
Derivative [Line Items]
Derivative Liability, Notional Amount	650
Derivative Asset, Notional Amount	3
Not Designated as Hedging Instrument [Member] | Other Assets [Member]
Derivative [Line Items]
Derivative Asset, Notional Amount	$ 2,200

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FAIR VALUES OF FINANCIAL INSTRUMENTS (Details) - Fair Value, Measurements, Recurring [Member] - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	$ 66,434	$ 67,034
Total liabilities	3,067
Interest Rate Swap [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	3,064	264
Total liabilities	3,064
Forward loan sale commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	1
Securities available for sale
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	63,348	66,770
Total liabilities		264
Derivative loan commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total liabilities	3
Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	66,434	67,034
Total liabilities	3,067
Fair Value, Inputs, Level 2 [Member] | Interest Rate Swap [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	3,064	264
Total liabilities	3,064
Fair Value, Inputs, Level 2 [Member] | Forward loan sale commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	1
Fair Value, Inputs, Level 2 [Member] | Securities available for sale
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	63,348	66,770
Total liabilities		$ 264
Fair Value, Inputs, Level 2 [Member] | Derivative loan commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total liabilities	$ 3

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FAIR VALUES OF FINANCIAL INSTRUMENTS - Fair value on a non-recurring basis (Details) $ in Thousands	Jun. 30, 2019 USD ($)
Loans held for sale	$ 2,170
Fair Value, Inputs, Level 3 [Member]
Loans held for sale	$ 2,170

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FAIR VALUES OF FINANCIAL INSTRUMENTS - Fair values of financial instruments (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Financial assets:
Cash and cash equivalents	$ 32,328	$ 42,650
Certificates of deposit	100	100
Securities available for sale	63,348	66,770
FHLB stock	6,162	4,747
Loans held for sale	2,170
Loans, net	830,413	732,427
Accrued interest receivable	2,815	2,288
Interest rate swap agreements	3,064	264
Forward loan sale	1
Financial liabilities:
Deposits	730,275	716,685
Short-term borrowings	54,000	15,000
Long-term debt	78,008	58,192
Subordinated debt	9,741	9,691
Accrued interest payable	1,004	487
Interest rate swap agreements	3,064	264
Derivative loan commitments	3
Fair Value, Inputs, Level 1 [Member]
Financial assets:
Cash and cash equivalents	32,328	42,650
Certificates of deposit	100	100
Fair Value, Inputs, Level 2 [Member]
Financial assets:
Securities available for sale	63,348	66,770
Interest rate swap agreements	3,064	264
Forward loan sale	1
Financial liabilities:
Short-term borrowings	54,000	15,000
Long-term debt	78,008	58,192
Interest rate swap agreements	3,064	264
Derivative loan commitments	3
Fair Value, Inputs, Level 3 [Member]
Financial assets:
FHLB stock	6,162	4,747
Loans held for sale	2,170
Loans, net	830,413	732,427
Accrued interest receivable	2,815	2,288
Financial liabilities:
Deposits	730,275	716,685
Subordinated debt	9,741	9,691
Accrued interest payable	1,004	487
Reported Value Measurement [Member]
Financial assets:
Cash and cash equivalents	32,328	42,650
Certificates of deposit	100	100
Securities available for sale	63,348	66,770
FHLB stock	6,162	4,747
Loans held for sale	2,170
Loans, net	821,137	737,032
Accrued interest receivable	2,815	2,288
Interest rate swap agreements	3,064	264
Forward loan sale	1
Financial liabilities:
Deposits	730,240	717,931
Short-term borrowings	54,000	15,000
Long-term debt	77,866	58,528
Subordinated debt	9,847	9,832
Accrued interest payable	1,004	487
Interest rate swap agreements	3,064	$ 264
Derivative loan commitments	$ 3

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EMPLOYEE STOCK OWNERSHIP PLAN - Shares held by ESOP (Details)	Jun. 30, 2019 shares
EMPLOYEE STOCK OWNERSHIP PLAN
Allocated	74,674
Committed to be allocated	6,419
Unallocated	96,287
Total	177,380

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EMPLOYEE STOCK OWNERSHIP PLAN - Additional information (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
EMPLOYEE STOCK OWNERSHIP PLAN
Employee Stock Ownership Plan ESOP Percent Of Shares Authorized To Be Purchased			6.90%
Employee Stock Ownership Plan ESOP Debt Structure Direct Loan Term			15 years
Employee Stock Ownership Plan ESOP Debt Structure Direct Loan Interest Rate			3.25%
Employee Stock Ownership Plan ESOP Cost Of Committed To Be Released Shares			$ 3,100
Employee Stock Ownership Plan (ESOP), Shares in ESOP	177,380		177,380
Employee Stock Ownership Plan (ESOP), Compensation Expense	$ 107	$ 103	$ 203	$ 197

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EQUITY INCENTIVE PLANS - Summary of option activity (Details) - Employee Stock Option [Member] - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	6 Months Ended
	Jun. 30, 2019
Shares
Outstanding at beginning of period	193
Forfeited	(3)
Exercised	(24)
Outstanding at end of period	166
Options exercisable at end of period	159
Weighted Average Exercise Price
Outstanding at beginning of period	$ 16.11
Forfeited	19.07
Exercised	15.31
Outstanding at end of period	16.03
Options exercisable at end of period	$ 15.33
Weighted Average Remaining Contractual Term
Outstanding at end of period	3 years 8 months 1 day
Options exercisable at end of period	3 years 7 months 17 days
Aggregate intrinsic value
Outstanding	$ 2,747
Options exercisable at end of period	$ 2,584
Shares, Non-vested
Outstanding at beginning of period	10
Forfeited	(3)
Outstanding at end of period	7
Weighted Average Grant Date Fair value, Non-vested
Outstanding at beginning of period	$ 4.13
Forfeited	4.01
Outstanding at end of period	$ 4.18

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EQUITY INCENTIVE PLANS - Non-vested awards (Details) - Restricted Stock [Member] shares in Thousands	6 Months Ended
	Jun. 30, 2019 $ / shares shares
Number of Shares
Outstanding at beginning of period | shares	27
Restricted shares granted | shares	12
Restricted shares forfeited | shares	(2)
Outstanding at end of period | shares	37
Grant-date Fair Value
Outstanding at beginning of period | $ / shares	$ 23.97
Restricted shares granted | $ / shares	28.25
Restricted shares forfeited | $ / shares	20.78
Outstanding at end of period | $ / shares	$ 25.47

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EQUITY INCENTIVE PLANS - Additional information (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation expense for non-vested stock options	$ 700		$ 700
Unrecognized compensation expense, recognition period			3 years 1 month 6 days
Stock Issued During Period, Shares, Restricted Stock Award, Gross			11,500
Compensation expense for stock award plan	93	$ 90	$ 188	$ 188
Recognize tax Benefit	26	25	53	53
Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation expense for non-vested stock options	12		$ 12
Unrecognized compensation expense, recognition period			8 months 12 days
Recognize tax Benefit	0	0	$ 0	0
Share base compensation expenses applicable to stock option plan	$ 6	$ 9	$ 13	$ 19
2012 Equity Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Equity Incentive Plan, options granted	231,894		231,894
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period			10 years
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage			20.00%
2016 Equity Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Equity Incentive Plan, options granted	75,000		75,000
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	19,500		19,500

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EARNINGS PER COMMON SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
EARNINGS PER COMMON SHARE
Net income applicable to common stock	$ 1,505	$ 1,420	$ 2,807	$ 2,857
Average number of common shares issued	2,553,000	2,506,000	2,544,000	2,506,000
Less: Average unallocated ESOP shares	(98,000)	(111,000)	(99,000)	(112,000)
Average number of common shares outstanding used to calculate basic earnings per common share	2,454,617	2,395,635	2,444,897	2,394,113
Effect of dilutive stock options	100,000	105,000	96,000	99,000
Average number of common shares outstanding used to calculate diluted earnings per share	2,554,895	2,501,122	2,541,328	2,493,172
Earnings per common share:
Basic	$ 0.61	$ 0.59	$ 1.15	$ 1.19
Diluted	$ 0.59	$ 0.57	$ 1.11	$ 1.15

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LEASES - Other information related to our operating leases (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2019 USD ($)
LEASES
Operating cash flows from operating leases, in thousands	$ 795
Weighted average remaining lease term -operating leases, in years	5 years 7 months 6 days
Weighted average discount rate-operating leases	3.12%

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LEASES - Maturity of the operating lease liabilities (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
LEASES
2019	$ 801
2020	1,632
2021	1,483
2022	1,182
2023	1,101
Thereafter	1,912
Total lease payments	8,111
Less imputed interest	(844)
Present value of lease liabilities	$ 7,267	$ 0

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LEASES - Additional information (Details) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2019 USD ($) ft²	Jun. 30, 2019 USD ($) ft²
LEASES
Operating Lease, Expense	$ 416	$ 832
Land Subject to Ground Leases | ft²	4,431	4,431
Lessee, Operating Lease, Term of Contract	74 months	74 months
Increase in bank's ROU		$ 1,300