Coastway Bancorp, Inc. - FORM 10-Q

Attached files

file	filename
EX-32 - EX-32 - Coastway Bancorp, Inc.	a15-12129_1ex32.htm
EX-31.2 - EX-31.2 - Coastway Bancorp, Inc.	a15-12129_1ex31d2.htm
EX-31.1 - EX-31.1 - Coastway Bancorp, Inc.	a15-12129_1ex31d1.htm

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

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

FOR THE TRANSITION PERIOD FROM TO .

For the quarterly period ended June 30, 2015

Commission File Number: 001-36263

Coastway Bancorp, Inc.

(Exact name of registrant as specified in its charter)

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

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

(401) 330-1600

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) x Yes o No

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

Large accelerated filer o		Accelerated filer o
Non-accelerated filer o		Smaller reporting company x

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

As of August 3, 2015 there were 4,897,879 shares of the issuer’s common stock outstanding- par value $0.01 per share

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COASTWAY BANCORP, INC. AND SUBSIDIARY

Index

		Page Number

	PART I - FINANCIAL INFORMATION
Item 1	Financial Statements	1
	Consolidated Balance Sheets — June 30, 2015 and December 31, 2014 (unaudited)	1
	Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss) —Three and six months ended June 30, 2015 and 2014 (unaudited)	2
	Consolidated Statement of Changes in Stockholders’ Equity - Six months ended June 30, 2015 (unaudited)	3
	Consolidated Statements of Cash Flows - Six months ended June 30, 2015 and 2014 (unaudited)	4
	Notes to Unaudited Consolidated Financial Statements	5
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4	Controls and Procedures	41

	PART II - OTHER INFORMATION

Item 1	Legal Proceedings	41
Item 1A	Risk Factors	42
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3	Defaults Upon Senior Securities	42
Item 4	Mine Safety Disclosures	42
Item 5	Other Information	42
Item 6	Exhibits	43
	Signature page	44

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PART I-FINANCIAL INFORMATION

Item 1 - Financial Statements

COASTWAY BANCORP, INC. and SUBSIDIARY

Consolidated Balance Sheets

(Unaudited)

(Dollars in thousands except per share amounts)	June 30, 2015			December 31, 2014
Assets
Cash and cash equivalents:
Cash and due from banks	$	2,049		$	2,936
Interest-earning deposits	9,822			11,646
Total cash and cash equivalents	11,871			14,582
Certificates of deposit	6,054			3,016
Federal Home Loan Bank stock, at cost	3,207			3,207
Loans, net of allowance for loan losses of $2,023 and $1,942, respectively	410,711			383,909
Loans held for sale	16,895			10,995
Premises and equipment, net	31,706			31,938
Accrued interest receivable	1,259			1,253
Real estate held for sale	3,636			3,831
Foreclosed real estate	333			1,285
Bank-owned life insurance	4,259			4,191
Net deferred tax asset	958			1,114
Other assets	7,961			6,505
Total assets	$	498,850		$	465,826

Liabilities and Stockholders’ Equity
Deposits:
Interest-bearing	$	283,040		$	270,041
Non-interest-bearing	83,644			73,503
Total deposits	366,684			343,544
Borrowed funds	57,000			47,800
Accrued expenses and other liabilities	4,431			3,978
Total liabilities	428,115			395,322

Commitments and contingencies (Note 6)
Stockholders’ equity:
Preferred stock, $0.01 par value; 20,000,000 shares authorized, none issued or outstanding	—			—
Common stock, $0.01 par value; 50,000,000 shares authorized; and 4,901,579 and 4,949,179 issued and outstanding at June 30, 2015 and December 31, 2014, respectively	49			49
Additional paid-in capital	47,004			47,527
Retained earnings	27,744			27,069
Unearned compensation - Employee Stock Ownership Plan (ESOP)	(3,722		)	(3,801		)
Accumulated other comprehensive loss	(340		)	(340		)
Total stockholders’ equity	70,735			70,504
	$	498,850		$	465,826

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

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COASTWAY BANCORP, INC. and SUBSIDIARY

Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss)

(Unaudited)

	Three months ended June 30,					Six months ended June 30,
(Dollars in thousands except per share amounts)	2015		2014			2015		2014
Interest income:
Interest and fees on loans	$	4,281	$	3,749		8,372		$	7,419
Other interest income	39		39			76		71
Total interest income	4,320		3,788			8,448		7,490
Interest expense:
Interest on deposits	529		579			1,073		1,163
Interest on borrowed funds	28		14			63		36
Total interest expense	557		593			1,136		1,199
Net interest income	3,763		3,195			7,312		6,291
Provision for loan losses	72		114			171		281
Net interest income after provision for loan losses	3,691		3,081			7,141		6,010
Non-interest income:
Customer service fees	763		774			1,500		1,504
Net gain on sales of loans and other mortgage banking income	461		639			1,316		998
Bank-owned life insurance income	34		32			68		63
Other income	32		43			51		74
Total non-interest income	1,290		1,488			2,935		2,639
Non-interest expenses:
Salary and employee benefits	2,257		2,221			4,464		4,403
Occupancy and equipment	673		603			1,589		1,229
Data processing	363		384			744		779
Deposit servicing	188		194			368		371
Professional fees	167		155			348		357
Foreclosed real estate	24		119			103		170
Impairment loss on real estate held for sale	195		393			195		393
FDIC insurance assessment	95		75			188		163
Advertising	84		55			143		98
Contribution to Coastway Cares Charitable Foundation II	—		—			—		1,521
Other general and administrative	429		535			813		863
Total non-interest expenses	4,475		4,734			8,955		10,347
Income (loss) before income taxes	506		(165		)	1,121		(1,698		)
Income tax expense (benefit)	204		19			446		(632		)
Net income (loss) and comprehensive income (loss)	302		$	(184	)	675		$	(1,066	)
Weighted average common shares outstanding (basic and diluted)	4,544,925		4,559,017			4,557,588		N/A
Earnings (loss) per common share (basic and diluted)	$	0.07	$	(0.04	)	$	0.15	N/A

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

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COASTWAY BANCORP, INC. and SUBSIDIARY

Consolidated Statement of Changes in Stockholders’ Equity

Six months ended June 30, 2015

(Unaudited)

					Additional					Unearned			Accumulated Other			Total
	Common Stock				Paid-in			Retained		Compensation-			Comprehensive			Stockholders’
	Shares		Amount		Capital			Earnings		ESOP			Loss			Equity
	(Dollars in thousands)
Balance at December 31, 2014	4,949,179		$	49	$	47,527		$	27,069	$	(3,801	)	$	(340	)	$	70,504
Net income and comprehensive income	—		—		—			675		—			—			675
Common stock repurchased	(47,600	)	—		(532		)	—		—			—			(532		)
ESOP shares committed to be allocated (7,919 shares)	—		—		9			—		79			—			88
Balance at June 30, 2015	4,901,579		$	49	$	47,004		$	27,744	$	(3,722	)	$	(340	)	$	70,735

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

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COASTWAY BANCORP, INC. and SUBSIDIARY

Consolidated Statements of Cash Flows

(Unaudited)

	Six months ended June 30,
(Dollars in thousands)	2015			2014
Cash flows from operating activities:
Net income (loss)	$	675		$	(1,066	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Provision for loan losses	171			281
Loans originated for sale	(84,514		)	(58,693		)
Loans sold	78,614			54,157
Gain on sale of portfolio loans, net	(328		)	—
Amortization of deferred loan costs	355			327
Loss on foreclosed real estate	69			129
Impairment loss on real estate held for sale	195			393
Depreciation and amortization expense	646			503
Bank-owned life insurance income	(68		)	(63		)
Deferred income tax expense (benefit)	156			(732		)
Issuance of common stock to Coastway Cares Charitable Foundation II	—			1,221
ESOP expense	88			81
Net change in:
Accrued interest receivable	(6		)	(28		)
Other, net	(1,003		)	2,004
Net cash used in operating activities	(4,950		)	(1,486		)
Cash flows from investing activities:
Purchase of certificates of deposit	(3,038		)	(3,000		)
Proceeds from redemption of FHLB stock	—			331
Loan originations and purchases, net of principal payments	(31,544		)	(29,561		)
Proceeds from portfolio loans sold	4,554			—
Proceeds from sale of foreclosed real estate	873			—
Purchases of premises and equipment	(414		)	(1,075		)
Net cash used by investing activities	(29,569		)	(33,305		)
Cash flows from financing activities:
Net increase in deposits	23,140			16,774
Net change in short-term borrowed funds	10,500			(18,000		)
Repayments of long-term borrowed funds	(1,300		)	(700		)
Repurchase of common stock	(532		)	—
Issuance of common stock for initial public offering	—			46,345
Conversion of stock subscriptions to common stock	—			(43,398		)
Purchase of common stock by ESOP	—			(3,959		)
Net cash provided (used) by financing activities	31,808			(2,938		)

Net change in cash and cash equivalents	(2,711		)	(37,729		)
Cash and cash equivalents at beginning of period	14,582			51,519
Cash and cash equivalents at end of period	$	11,871		$	13,790

Supplemental cash flow information:
Interest paid on deposits	$	1,070		$	1,166
Interest paid on borrowed funds	65			39
Income taxes paid	180			202

Supplemental non-cash information:
Loans transferred to foreclosed real estate	—			414
Loans held for sale transferred to portfolio loans	—			—

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

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COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements

(1) Basis of Presentation and Consolidation

General information

Coastway Bancorp, Inc., a Maryland chartered stock corporation (“Company” or “Corporation”), was formed to serve as the holding company for Coastway Community Bank. Coastway Community Bank (the “Bank”) is a Rhode Island-chartered savings bank. The Bank provides a variety of financial services to individuals and small businesses throughout Rhode Island. Its primary deposit products are savings, demand, money market and term certificate accounts and its primary lending products are one-to four-family residential mortgage loans, home equity loans and lines of credit, commercial real estate and SBA loans. Prior to January 14, 2014, the Bank was 100% owned by Coastway Bancorp, LLC (the “LLC”) and the LLC was 100% owned by Coastway Bancorp, MHC (“MHC”).

Stock Conversion

On August 22, 2013, the Board of Directors of the MHC, LLC and the Bank adopted the Plan of Conversion and Reorganization (“Conversion”) to convert the MHC from the mutual holding company form of organization to a stock holding company form of organization with a new Maryland-chartered stock corporation, Coastway Bancorp, Inc.

On January 14, 2014, the Conversion was completed and Coastway Bancorp, Inc. became the parent holding company for Coastway Community Bank. A total of 4,827,125 shares of Corporation common stock were sold to depositors and to the general public, including those issued to the Corporation’s tax-qualified employee benefit plans, at $10.00 per share through which the Corporation received net offering proceeds of approximately $46.3 million. Also, on January 14, 2014, the Corporation contributed $300,000 in cash and 122,054 shares of common stock to Coastway Cares Charitable Foundation II which together totaled 3.15% of the gross proceeds of the offering totaling $1.5 million which was recorded as a component of non-interest expense during the three months ended March 31, 2014. The total number of shares of common stock outstanding upon completion of the Conversion was 4,949,179 shares.

Earnings (loss) per share is not presented herein for the six months ended June 30, 2014 as common stock had not been outstanding during the entire six months ended June 30, 2014. At June 30, 2015 and 2014, there are no common stock equivalents.

Basis of Presentation

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

The unaudited consolidated financial statements of the Corporation presented herein have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and pursuant to the rules of the SEC for quarterly reports on Form 10-Q and Article 8 of Regulation S-X and do not include all of the information and note disclosures required by GAAP for a complete set of financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures necessary for the fair presentation of the accompanying consolidated financial statements have been included. Interim results are not necessarily reflective of the results of the entire year or any other period. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2014, included in the Corporation’s annual report on Form 10-K.

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of deferred tax assets and the valuation of real estate held for sale.

Recent Accounting Pronouncements

As an “emerging growth company” as defined in Title 1 of the Jumpstart Our Business Startups (JOBS) Act, the Corporation has elected to use the extended transition period to delay the adoption of new or reissued accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. As of June 30, 2015, there is no significant difference in the comparability of the financial statements as a result of this extended transition period.

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COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

In January 2014, the FASB issued ASU 2014-04, Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40) which is intended to reduce diversity by clarifying when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. The ASU also provides guidance on disclosures of the amount of foreclosed residential real estate properties and of the recorded investment in consumer mortgage loans that are in process of foreclosure. Under the extended transition period for an emerging growth company, the Corporation will adopt this standard for annual periods beginning after December 15, 2014 and interim periods within annual periods beginning after December 15, 2015. Management believes that the adoption of this standard will not have a material impact on the Company’s results of operations or financial condition.

(2) Certificates of Deposit

At June 30, 2015, certificates of deposit totaling $3.0 million with an interest rate of 0.65% mature on September 13, 2015, and $3.0 million with an interest rate of 0.65% mature in April 2016. Certificates of deposit are carried at cost which approximates fair value.

(3) Loans

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

(Dollars in thousands)	June 30, 2015			December 31, 2014
Residential real estate mortgage loans:
1-4 family	$	162,166		$	134,084
Home equity loans and lines of credit	76,564			79,771
Total residential real estate mortgage loans	238,730			213,855

Commercial:
Commercial real estate	119,597			108,025
Commercial business	6,203			7,698
Commercial construction	5,500			8,181
SBA	38,378			44,032
Total commercial loans	169,678			167,936
Consumer	1,225			1,372
Total loans	409,633			383,163

Allowance for loan losses	(2,023		)	(1,942		)
Net deferred loan costs	3,101			2,688
Loans, net	$	410,711		$	383,909

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COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

Loan Segments

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

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

SBA — Loans in this segment include commercial loans underwritten using SBA guidelines for the SBA’s 7(a) program and include both guaranteed and unguaranteed portions of the same loans. Currently, under the SBA 7(a) program, loans may qualify for guarantees up to 85% of principal and accrued interest up to a maximum SBA guarantee of $3.75 million per borrower and related entities. The Bank does not treat the SBA guarantee as a substitute for a borrower meeting reasonable credit standards. SBA guarantees are generally sought on loans that exhibit minimum capital levels, a short time in business, lower collateral coverage or maximum loan terms beyond the Bank’s normal underwriting criteria. For a number of SBA loans, the Bank has sold portions of certain loans and retains the unguaranteed portion while continuing to service the entire loan. The guaranteed portion of SBA loans in the Bank’s portfolio is not allocated a general reserve because the Bank has not experienced losses on such loans and management expects the guarantees will be effective, if necessary. Guaranteed portions of SBA loans total $24.2 million and $29.2 million at June 30, 2015 and December 31, 2014.

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

Allowance for Loan Losses

Allowance for Loan Loss Methodology

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. For impaired loans that are deemed collateral dependent, the recorded balance of the loan is reduced by a charge-off to fair value of the collateral net of estimated selling costs.

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

The general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by loan segments. Management uses a ten year historical loss period to capture relevant loss data for each loan segment. This historical loss factor is adjusted for the following qualitative factors: levels/trends in delinquencies; charge-off trends over the past three year period; weighted average risk ratings; loan concentrations; management’s assessment of internal factors; and management’s assessment of external factors such as interest rates, real estate markets and local and national economic factors. There were no changes in the Bank’s policies or methodology pertaining to the general component of the allowance for loan losses during the six months ended June 30, 2015 and the year ended December 31, 2014.

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COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

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

Credit Quality Indicators

Commercial and SBA loans are risk rated based on key factors such as management ability, financial condition, debt repayment ability, collateral, industry conditions and loan structure. Risk ratings 1 through 5 are considered “pass” rated, risk rating 5.5 is considered “watch list”, risk rating 6 is considered “special mention”, while risk ratings 7, 8 and 9 are considered “classified” ratings.

Risk Ratings 1-5: Loans in this category are pass rated loans with low to average risk.

Risk rating 5.5 — Watch List: loans in this category exhibit the characteristics associated with 5 risk-rated loans, but possess negative factors that warrant increased oversight yet do not warrant a negative risk rating. Factors may include short-term negative operating trends, temporary liquidity shortfalls, modest delinquency, missing or incomplete financial information, or negative balance sheet trends.

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

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

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

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

On an annual basis, or more often if needed, the Bank formally reviews the ratings on commercial and SBA loans. On an annual basis, the Bank engages an independent third-party to review a significant portion of loans within these segments. Management uses the results of these reviews as part of its annual review process. Credit quality for residential real estate mortgage and consumer loans is determined by monitoring loan payment history and on-going communications with borrowers. Loans that are 90 days or more past due are considered non-performing loans. Non-performing homogenous loans are individually evaluated for impairment.

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COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

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

	June 30, 2015
	Commercial		Commercial		Commercial
(Dollars in thousands)	Real Estate		Business		Construction		SBA		Total
Loans rated 1-5	116,126		6,203		4,852		33,693		160,874
Loans rated 5.5	1,456		—		—		1,632		3,088
Loans rated 6	830		—		—		1,276		2,106
Loans rated 7	1,185		—		648		1,777		3,610
Loans rated 8	—		—		—		—		—
	$	119,597	$	6,203	$	5,500	$	38,378	$	169,678

	December 31, 2014
	Commercial		Commercial		Commercial
(Dollars in thousands)	Real Estate		Business		Construction		SBA		Total
Loans rated 1-5	$	102,261	$	7,698	$	7,879	$	38,778	$	156,616
Loans rated 5.5	3,964		—		—		1,159		5,123
Loans rated 6	708		—		—		1,443		2,151
Loans rated 7	1,092		—		302		2,652		4,046
Loans rated 8	—		—		—		—		—
	$	108,025	$	7,698	$	8,181	$	44,032	$	167,936

Past Due and Non-Accrual Loans

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

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COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

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

June 30, 2015
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Past Due > 90 Days and Still Accruing		Loans on Non-accrual
Residential real estate:
Residential 1-4 family	$	—	$	—	$	1,589	$	1,589	$	—	$	4,557
Home equity loans and lines of credit	286		303		289		878		—		621
Commercial real estate	—		131		—		131		—		115
Commercial business	—		—		—		—		—		—
Commercial construction	—		—		—		—		—		—
SBA	—		—		75		75		—		89
Consumer	—		—		—		—		—		—
Total gross loans	$	286	$	434	$	1,953	$	2,673	$	—	$	5,382

December 31, 2014
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Past Due > 90 Days and Still Accruing		Loans on Non-accrual
Residential real estate:
Residential 1-4 family	$	—	$	580	$	2,195	$	2,775	$	—	$	5,870
Home equity loans and lines of credit	301		8		153		462		—		370
Commercial real estate	—		—		—		—		—		—
Commercial business	—		84		—		84		—		—
Commercial construction	—		—		—		—		—		—
SBA	—		20		189		209		—		204
Consumer	—		8		—		8		—		—
Total gross loans	$	301	$	700	$	2,537	$	3,538	$	—	$	6,444

Impaired Loans

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

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

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COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

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

June 30, 2015
(Dollars in thousands)	Unpaid contractual principal balance		Total recorded investment in impaired loans		Recorded investment with no allowance		Recorded investment with allowance		Related Allowance
Residential real estate:
Residential 1-4 family	$	5,959	$	5,732	$	2,749	$	2,982	$	155
Home equity loans & lines of credit	1,201		1,181		1,059		122		17
Commercial real estate	115		115		115		—		—
SBA	1,667		1,665		1,665		—		—
Consumer	15		15		—		15		3
Total	$	8,957	$	8,708	$	5,588	$	3,119	$	175

December 31, 2014
(Dollars in thousands)	Unpaid contractual principal balance		Total recorded investment in impaired loans		Recorded investment with no allowance		Recorded investment with allowance		Related Allowance
Residential real estate:
Residential 1-4 family	$	6,849	$	6,664	$	3,658	$	3,006	$	144
Home equity loans & lines of credit	889		800		693		107		68
SBA	1,808		1,806		1,671		135		13
Consumer	25		25		9		16		4
Total	$	9,571	$	9,295	$	6,031	$	3,264	$	229

Of the $1.7 million and $1.8 million of impaired SBA loans at June 30, 2015 and at December 31, 2014, guaranteed portions of such loans amounted to $1.3 million and $1.4 million respectively, at June 30, 2015 and December 31, 2014.

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

	Three Months Ended June 30, 2015				Three Months Ended June 30, 2014
(Dollars in thousands)	Average recorded investment		Interest income recognized		Average recorded investment		Interest income Recognized
Residential real estate:
Residential 1-4 family	$	5,868	105		$	6,948	$	97
Home equity loans & lines of credit	1,044		6		411		6
Commercial real estate	117		3		—		—
SBA	1,671		70		2,147		21
Consumer	15		—		28		—
Total	$	8,715	$	184	$	9,534	$	124

	Six Months Ended June 30, 2015				Six Months Ended June 30, 2014
(Dollars in thousands)	Average recorded investment		Interest income recognized		Average recorded investment		Interest income Recognized
Residential real estate:
Residential 1-4 family	$	6,172	60		$	6,820	$	133
Home equity loans & lines of credit	948		3		382		9
Commercial real estate	84		2		—		—
SBA	1,709		36		2,329		109
Consumer	19		—		29		1
Total	$	8,932	$	101	$	9,560	$	252

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COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

Troubled Debt Restructurings (TDRs)

Loans are designated as a TDR when, as part of an agreement to modify the original contractual terms of the loan, the Bank grants a concession on the terms, that would not otherwise be considered, as a result of financial difficulties of the borrower. Typically, such concessions may consist of a reduction in interest rate to a below market rate, taking into account the credit quality of the note, or a deferment or reduction of payments, principal or interest, which materially alters the Bank’s position or significantly extends the note’s maturity date, such that the present value of cash flows to be received is materially less than those contractually established at the loan’s origination. All loans that are modified are reviewed by the Bank to identify if a TDR has occurred. TDRs are included in the impaired loan category and as such, these loans are individually evaluated for impairment and a specific reserve is assigned for the amount of the estimated credit loss. Total TDR loans, included in impaired loans as of June 30, 2015 and December 31, 2014 were $6.9 million and $7.2 million, respectively. No additional funds are committed to be advanced in connection with TDR loans. TDR loans on accrual status amounted to $3.3 million and $2.9 million at June 30, 2015 and December 31, 2014, respectively.

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

	Three Months Ended June 30, 2015					Six Months Ended June 30, 2015
(Dollars in thousands)	Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Residential 1-4 family	1	$	200	$	200	2	$	488	$	488
Home equity	2	28		28		5	141		141
Commercial real estate	—	—		—		1	119		119
SBA	1	434		434		1	434		434
Total	4	$	662	$	662	9	$	1,182	$	1,182

The troubled debt restructurings described above had a $0 and $4,000 impact to the allowance for loan losses and resulted in no charge-offs during the three and six months ended June 30 2015, respectively.

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

	Three Months Ended June 30, 2015			Six Months Ended June 30, 2015
(Dollars in thousands)	Number of TDRs that defaulted	Post-modification outstanding recorded investment		Number of TDRs that defaulted	Post-modification outstanding recorded investment
Residential 1-4 family	—	$	—	2	$	470
Home equity	2	47		2	$	47
SBA	—	$	—	1	$	9
Total	2	$	47	5	$	526

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

	Three Months Ended June 30, 2014					Six Months Ended June 30, 2014
(Dollars in thousands)	Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Residential 1-4 family	2	$	818	$	818	5	$	1,651	$	1,651
SBA	2	34		34		2	34		34
Total	4	$	852	$	852	7	$	1,685	$	1,685

The troubled debt restructurings described above had a $5,000 and $20,000 impact to the allowance for loan losses and resulted in no charge-offs during the three and six months ended June 30, 2014, respectively.

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COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

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

	Three Months Ended June 30, 2014			Six Months Ended June 30, 2014
(Dollars in thousands)	Number of TDRs that defaulted	Post-modification outstanding recorded investment		Number of TDRs that defaulted	Post-modification outstanding recorded investment
Residential 1-4 family	—	$	—	4	$	878
Total	—	$	—	4	$	878

Allowance for loan loss activity

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

Three Months Ended June 30, 2015

(Dollars in thousands)	Residential 1-4 family			Home Equity			Commercial Real Estate		Commercial Business		Commercial Construction			SBA			Consumer			Total
Allowance at March 31, 2015	$	765		$	519		$	425	$	24	$	26		$	207		$	9		$	1,975
Provision (credit)	49			(5		)	35		1		(4		)	(2		)	(2		)	72
Loans charged-off	(38		)	—			—		—		—			—			—			(38		)
Recoveries	11			1			—		—		—			1			1			14
Allowance at June 30, 2015	$	787		$	515		$	460	$	25	$	22		$	206		$	8		$	2,023

Three Months Ended June 30, 2014

(Dollars in thousands)	Residential 1-4 family			Home Equity			Commercial Real Estate		Commercial Business		Commercial Construction		SBA			Consumer			Total
Allowance at March 31, 2014	$	552		$	600		$	334	$	26	$	33	$	261		$	15		$	1,821
Provision (credit)	41			40			19		4		12		2			(4		)	114
Loans charged-off	(52		)	(34		)	—		—		—		(14		)	—			(100		)
Recoveries	51			1			—		—		—		1			3			56
Allowance at June 30, 2014	$	592		$	607		$	353	$	30	$	45	$	250		$	14		$	1,891

Six Months Ended June 30, 2015

(Dollars in thousands)	Residential 1-4 family			Home Equity			Commercial Real Estate		Commercial Business			Commercial Construction			SBA			Consumer			Total
Allowance at December 31, 2014	$	654		$	584		$	400	$	28		$	30		$	236		$	10		$	1,942
Provision (credit)	160			6			60		(4		)	(8		)	(37		)	(6		)	171
Loans charged-off	(38		)	(76		)	—		—			—			(9		)	—			(123		)
Recoveries	11			1			—		—			—			16			5			33
Allowance at June 30, 2015	$	787		$	515		$	460	$	24		$	22		$	206		$	9		$	2,023

Six Months Ended June 30, 2014

(Dollars in thousands)	Residential 1-4 family			Home Equity			Commercial Real Estate		Commercial Business		Commercial Construction		SBA			Consumer			Total
Allowance at December 31, 2013	$	462		$	605		$	321	$	29	$	24	$	197		$	18		$	1,656
Provision (credit)	127			46			32		1		21		64			(10		)	281
Loans charged-off	(52		)	(56		)	—		—		—		(14		)	—			(122		)
Recoveries	55			12			—		—		—		3			6			76
Allowance at June 30, 2014	$	592		$	607		$	353	$	30	$	45	$	250		$	14		$	1,891

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COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

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

June 30, 2015

(Dollars in thousands)	Residential 1-4 family		Home Equity		Commercial Real Estate		Commercial Business		Commercial Construction		SBA		Consumer		Total
Allowance for impaired loans	$	155	$	17	$	—	$	—	$	—	$	—	$	3	$	175
Allowance for non-impaired loans	632		498		460		25		22		206		5		1,848
Total	$	787	$	515	$	460	$	25	$	22	$	206	$	8	$	2,023

Impaired loans	$	5,732	$	1,181	$	115	$	—	$	—	$	1,665	$	15	$	8,708
Non-impaired loans	156,434		75,383		119,482		6,203		5,500		36,713		1,210		400,925

Total loans	$	162,166	$	76,564	$	119,597	$	6,203	$	5,500	$	38,378	$	1,225	$	409,633

December 31, 2014

(Dollars in thousands)	Residential 1-4 family		Home Equity		Commercial Real Estate		Commercial Business		Commercial Construction		SBA		Consumer		Total
Allowance for impaired loans	$	144	$	68	$	—	$	—	$	—	$	13	$	4	$	229
Allowance for non-impaired loans	510		516		400		28		30		223		6		1,713
Total	$	654	$	584	$	400	$	28	$	30	$	236	$	10	$	1,942
Impaired loans	$	6,664	$	800	$	—	$	—	$	—	$	1,806	$	25	$	9,295
Non-impaired loans	$	127,420	78,971		108,025		7,698		8,181		42,226		1,347		373,868

Total loans	$	134,084	$	79,771	$	108,025	$	7,698	$	8,181	$	44,032	$	1,372	$	383,163

(4) Employee Benefits

Deferred Compensation Supplemental Executive Plan

The Bank maintains a non-qualified deferred compensation supplemental executive retirement plan (“DCSERP”) with a senior executive which was amended and restated as of January 1, 2011 and January 1, 2013. Effective during the first quarter of 2015, the DCSERP was amended to allow the executive to invest all or a portion of the deferred compensation in Corporation stock, provided that such stock will only be settled in Corporation stock. The Rabbi Trust which holds the assets invested on behalf of the deferred compensation DCSERP, was also similarly amended and effective during the first quarter of 2015. The assets invested in bonds related to this Plan total $990,000 at June 30, 2015 and $989,000 at December 31, 2014, and are included in other assets at fair value in the consolidated balance sheet. The liability for the benefit obligation reported in accrued expenses and other liabilities totaled $990,000 at June 30, 2015 and $989,000 at December 31, 2014. Additionally, the Rabbi Trust holds 8,900 shares of Corporation stock at June 30, 2015 which is accounted for at its cost basis of $100,000, which is offset in stockholders’ equity by the compensation obligation of $100,000.

Supplemental Retirement Agreements

Effective July 1, 2013, the Bank entered into supplemental retirement agreements (“SERP”) with six executive officers, which provide for payments upon attaining the retirement age specified in the agreements, generally ages 65-67. The present value of these future payments is accrued over the remaining service or vesting term. Supplemental retirement benefits generally accrue as they are vested; however a termination of employment subsequent to a change in control will result in the vesting of all benefits that would have accrued to the officer’s normal retirement date. An additional officer was added to the plan effective January 1, 2015. During the three and six months ended June 30, 2015 and 2014, SERP expense totaled $151,000 and $102,000 and $302,000 and $205,000, respectively.

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COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

Defined Benefit Pension Plan

Pension expense (income) totaled $6,000 and ($6,600) and $11,000 and ($13,000), respectively for the three months and six months ended June 30, 2015 and 2014, respectively. The Bank does not expect to contribute to the plan year ending December 31, 2015.

Employee Stock Ownership Plan

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

The Corporation granted a loan to the ESOP for the purchase of shares of the Corporation’s common stock at the Conversion date. As of June 30, 2015, the ESOP holds 395,934 shares, or 8% of the common stock outstanding on that date. The loan obtained by the ESOP from the Corporation to purchase common stock is payable annually over 25 years at the rate of the prime rate, as published in The Wall Street Journal, which is currently 3.25% per annum. The loan is secured by the shares purchased, which are held in a suspense account for allocation among participants as the loan is repaid. Any cash dividends paid on allocated shares will, at the direction of the Corporation, be credited to the participant accounts and invested in the Investment Fund; be distributed to the participants in proportion with the participants’ stock fund account balance; be distributed to the participants within 90 days of the calendar year in which paid in proportion with the participants’ stock fund account balance; or be used to make payments on the outstanding debt of the ESOP. Cash dividends paid on unallocated shares will be used to repay the outstanding debt of the ESOP then due. If the amount of dividends exceeds the outstanding debt of the ESOP, then, in the sole discretion of the Corporation, cash dividends may be allocated to active participants on a non-discriminatory basis, or be deemed to be general earnings of the ESOP. Shares used as collateral to secure the loan are released and available for allocation to eligible employees as the principal and interest on the loan is paid.

Shares held by the ESOP include the following:

		June 30, 2015

Allocated		15,837
Committed to be allocated		7,919
Unallocated		372,178
		395,934

The fair value of unallocated shares was approximately $4.2 million at June 30, 2015.

Total compensation expense recognized in connection with the ESOP for the three and six month periods ended June 30, 2015 and 2014 was $44,000 and $41,000 and $88,000 and $82,000, respectively.

Change in Control Severance Plan

The Corporation entered into an Executive Change in Control Severance Plan (“Severance Plan”) effective upon the closing of the conversion and stock offering in January 2014 (see note 1), with certain officers. The participants in the Severance Plan will be paid two times the participants’ base salaries plus their highest bonus in the two calendar years immediately prior to termination, upon a change in control, if the participant is not offered a comparable employment position in a similar geographic location.

Equity Incentive Plan

On May 21, 2015, the Coastway Bancorp, Inc. stockholders approved the 2015 Equity Incentive Plan (“EIP”). Types of awards permitted by the EIP include stock options, restricted stock awards, restricted stock units, and performance awards. Stock options under the EIP will generally expire after ten years after the date of grant. Unless otherwise determined by the Compensation Committee, awards under the EIP (other than Performance Awards) shall be granted with a vesting rate not exceeding twenty percent per year, with the first installment vesting no earlier than one year after the date of grant. Upon an involuntary termination following a change of control, all stock options, restricted stock awards and units will become fully vested and performance awards will be deemed earned. There were no awards granted under the EIP during the three months ended June 30, 2015.

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COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

(5) Earnings per Common Share

Basic earnings per share represents income available to common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. There were no potentially dilutive common stock equivalents as of June 30, 2015 and 2014. Earnings (loss) per share is not presented for the six months ended June 30, 2014 as common shares had not been outstanding during the entire period. Unallocated ESOP shares are not deemed outstanding for earnings per share calculations.

Earnings (loss) per common share have been computed as follows in the three months ended June 30, 2015 and 2014 and the six months ended June 30, 2015:

	Three months ended						Six Months Ended
	June 30,						June 30, 2015
(Dollars in thousands)	2015			2014
Net income (loss) applicable to common stock	$	302		$	(184	)	$	675

Average number of common shares outstanding	4,919,088			4,949,179			4,933,714
Less: Average unallocated ESOP shares	(374,163		)	(390,162		)	(376,126		)

Average number of common shares outstanding used to calculate basic and fully diluted earnings per common share	4,544,925			4,559,017			4,557,588

Earnings (loss) per share — basic and diluted	$	0.07		$	(0.04	)	$	0.15

On January 30, 2015, the Corporation authorized a program to repurchase, from time to time and as market and business conditions warrant, up to 247,499 shares of the Corporation’s common stock. During the six months ended June 30, 2015, 47,600 shares were repurchased for a cost of $532,000.

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COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

(6) Off-Balance Sheets Activities and Derivatives

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

Loan Commitments

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

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

	June 30,		December 31,
	2015		2014
	(In thousands)

Commitments to grant loans	$	16,982	$	8,583
Commitments to originate loans to be sold	24,203		10,751
Commitments to purchase loans from third parties	19,724		4,644
Unfunded commitments under home equity lines of credit	50,184		47,106
Unfunded commitments under commercial lines of credit	13,760		11,922
Unfunded commitments under SBA lines of credit	4,637		3,668
Unadvanced funds on construction loans	5,582		2,793

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

Sale of Real Estate Held For Sale

During the third quarter of 2015, the Bank accepted an offer of $1.1 million to sell land in Coventry classified as real estate held for sale and recorded impairment of $195,000 during the three months ended June 30, 2015 in connection with the acceptance of the offer.

Interest Rate Risk Management — Derivative Instruments Not Designated As Hedging Instruments

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

Derivative Loan Commitments

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

Outstanding derivative loan commitments expose the Bank to the risk that the price of the loans arising from exercise of the loan commitment might decline from inception of the rate lock to funding of the loan due to increases in mortgage interest rates. If interest rates increase, the value of these loan commitments decreases. Conversely, if interest rates decrease, the value of these loan commitments increases. Forward Loan Sale Commitments

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COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

To protect against the price risk inherent in derivative loan commitments, the Bank 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. Best efforts forward loan sale commitments are accounted for at fair value.

With a best efforts contract, the Bank 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 (e.g., on the same day the lender commits to lend funds to a potential borrower). Forward commitments to sell loans totaled $37.7 million and $21.5 million at June 30, 2015 and December 31, 2014, respectively.

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

	Assets			Liabilities
	Balance			Balance
	Sheet	Fair		Sheet	Fair
(In thousands)	Location	Value		Location	Value

June 30, 2015

Derivative loan commitments	Other assets	$	64	N/A	$	—
Forward loan sale commitments	Other assets	354		N/A	—

Total derivatives not designated as hedging instruments		$	418		$	—

December 31, 2014

Derivative loan commitments	Other assets	$	98	N/A	$	—
Forward loan sale commitments	N/A	—		Other liabilities	96

Total derivatives not designated as hedging instruments		$	98		$	96

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

	Location of	Three Months Ended June 30,					Six Months Ended June 30,
	Gain/(Loss)	2015		2014			2015		2014
		(In thousands)					(In thousands)
Derivative loan commitments	Net gain on sales of loans and other mortgage banking income	$	100	$	653		$	161	$	640

Forward loan sale commitments	Net gain on sales of loans and other mortgage banking income	196		(444		)	256		(442		)
		$	296	$	209		$	417	$	198

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COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

(7) Fair Value Measurements

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

Effective January 1, 2015, the Bank elected the fair value option pursuant to Accounting Standards Codification (“ASC”) 825, “Financial Instruments” for certain closed mortgage loans intended for sale and transferred the placement of loans held for sale to Level 2 in the fair value hierarchy. ASC 825 allows for the irrevocable option to elect fair value accounting for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis that may otherwise not be required to be measured at fair value under other accounting standards. The Bank elected the fair value option for certain residential real estate mortgage loans held for sale pursuant to forward sale commitments in order to better match changes in fair values for the loans with changes in the fair value of the forward loan sale contracts used to economically hedge them. The aggregate fair value of loans held for sale, the contractual balance of loans held for sale and the gain on loans held for sale totaled $16.9 million, $16.8 million and $89,000 at June 30, 2015. The change in fair value of loans held for sale reported as a component of net gains on sale of loans and other mortgage banking income was $(189,000) and $(129,000) for the three and six months ended June 30, 2015, respectively.

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

	June 30, 2015
(Dollars in thousands)	(Level 1)		(Level 2)		(Level 3)
Assets measured on a recurring basis:
Loans held for sale	$	—	$	16,895	$	—
Derivative loan commitments	—		—		64
Forward loan sale commitments	—		—		354
Assets measured on a non-recurring basis:
Impaired loans (collateral dependent)	—		—		636
Real estate held for sale	—		1,040		—

	December 31, 2014
(Dollars in thousands)	(Level 1)		(Level 2)		(Level 3)
Assets measured on a recurring basis:
Derivative loan commitments	$	—	$	—	$	98
Liabilities measured on a recurring basis:
Forward loan sale commitments	—		—		96
Assets measured on a non-recurring basis:
Impaired loans (collateral dependent)	—		—		2,075
Foreclosed real estate	—		—		1,285
Real estate held for sale	—		—		3,831

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COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

The Bank did not have cause to transfer any assets between the fair value measurement levels during the three and six months ended June 30, 2015 or the year ended December 31, 2014.

Impaired loan balances in the table above represent those collateral dependent impaired loans where management has estimated the credit loss by comparing the loan’s carrying value against the expected realizable fair value of the collateral (appraised value or internal analysis less estimated cost to sell, adjusted as necessary for changes in relevant valuation factors subsequent to the measurement date). Certain inputs used in these assessments, and possible subsequent adjustments, are not always observable, and therefore, collateral dependent impaired loans are categorized as Level 3 within the fair value hierarchy. A specific allowance or partial charge-off is recorded to the collateral dependent impaired loan for the amount of management’s estimated credit loss. The provision (credit) to the allowance for loan losses on collateral dependent impaired loans for the three and six months ended June 30, 2015 and 2014, totaled $(8,000) and $92,000 and $100,000 and $138,000, respectively.

Real estate acquired by the Bank through foreclosure proceedings or the acceptance of a deed in lieu of foreclosure is classified as foreclosed real estate. When property is acquired, it is generally recorded at the lesser of the loan’s remaining principal balance, net of unamortized deferred fees, or the estimated fair value of the property acquired, less estimated costs to sell. The estimated fair value is based on market appraisals and the Bank’s internal analysis. Certain inputs used in appraisals or the Bank’s internal analysis, are not always observable, and therefore, foreclosed real estate may be categorized as Level 3 within the fair value hierarchy. There were no properties acquired through foreclosure during the six months ended June 30, 2015 and there were no provisions for losses on foreclosed real estate held at period end for the three and six months ended June 30, 2015. Losses on foreclosed real estate held at period end for the three and six months ended June 30, 2014 totaled $91,000 and $129,000, respectively.

When real estate is determined to be held for sale, it is recorded at the lower of estimated fair value less estimated cost to sell. The fair value less costs to sell is determined based on current appraisals that utilize prices in observed transactions involving similar assets adjusted for certain inputs that are not always observable (categorized as Level 3 within the fair value hierarchy) or the selling price in an accepted offer less costs to sell (categorized as Level 2 within the fair value hierarchy). There were $195,000 of write-downs on real estate held for sale during the three and six months ended June 30, 2015. Write-downs on real estate held for sale during the three and six months ended June 30, 2014 totaled $393,000.

Derivatives fair value methodology

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

The table below presents for the three months ended June 30, 2015 and 2014, the change in Level 3 assets and liabilities that are measured on a recurring basis:

	Derivative Loan Commitments and Forward Loan Sale Commitments
	Three months ended June 30,
(Dollars in thousands)	2015			2014

Balance at beginning of period	$	122		$	305
Total realized and unrealized gains included in net income	406			209
Settlements and closed loans	(110		)	(418		)
Balance at end of period	418			96
Total unrealized gains relating to instruments still held at period end	$	296		$	209

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COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

	Derivative Loan Commitments and Forward Loan Sale Commitments
	Six months ended June 30,
(Dollars in thousands)	2015			2014

Balance at beginning of period	$	2		$	244
Total realized and unrealized gains (losses) included in net income	417			198
Settlements and closed loans	(1		)	(346		)
Balance at end of period	418			96
Total unrealized gains (losses) relating to instruments still held at period end	$	417		$	198

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

June 30, 2015

(Dollars in thousands)	Fair Value		Valuation Technique	Unobservable Input	Unobservable Input Value or Range
Assets measured on a recurring basis:
Derivative loan commitments	$	64	Investor pricing	Pull-through rate	82.5-100%
Forward loan sale commitments	354		Investor pricing	Pull-through rate	82.5-100%
Assets measured on a non-recurring basis:
Impaired loans (collateral dependent)	636		Appraisal of collateral	Collateral discounts	5% - 30%

December 31, 2014

Assets measured on a recurring basis:
Derivative commitments	$	98		Investor pricing	Pull-through rate	82.5-100%
Liabilities measured on a recurring basis:
Forward loan sale commitments	(96		)	Investor pricing	Pull-through rate	82.5-100%
Assets measured on a non-recurring basis:
Impaired loans (collateral dependent)	2,075			Appraisal of collateral	Collateral discounts	5% - 30%
Foreclosed real estate	1,285			Appraisal of collateral	Collateral discounts	5% - 30%
Real estate held for sale	3,831			Appraisal of collateral	Collateral discounts	5% - 6%

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COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

Estimated Fair Values of Assets and Liabilities

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

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

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

Certificates of deposit — The carrying value of certificates of deposit is deemed to approximate fair value, based on both the current interest rate and the maturity date.

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

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

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

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

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

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

Off-balance sheet credit-related instruments — Fair values for off-balance-sheet, credit related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing.

The estimates of fair value of financial instruments were based on information available at June 30, 2015 and December 31, 2014 and are not indicative of the fair market value of those instruments as of the date of this report. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Corporation’s entire holdings of a particular financial instrument. The fair value of the Corporation’s time deposit liabilities do not take into consideration the value of the Corporation’s long-term relationships with depositors, which may have significant value.

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

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

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COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

The carrying values, estimated fair values and placement in the fair value hierarchy of the Corporation’s financial instruments(1) for which fair value is only disclosed but not recognized on the balance sheet at the dates indicated are summarized as follows:

	June 30, 2015 (unaudited)				Fair value measurement
(Dollars in thousands)	Carrying Amount		Fair Value		Level 1 inputs		Level 2 Inputs		Level 3 Inputs
Financial assets:
Loans, net	$	410,711	$	414,325	$	—	$	—	$	414,325
FHLB stock	3,207		N/A		—		—		N/A
Financial liabilities:
Certificates of deposit	112,949		114,412		—		114,412		—
Borrowed funds	57,000		57,000		—		57,000		—

	December 31, 2014				Fair value measurement
(Dollars in thousands)	Carrying Amount		Fair Value		Level 1 inputs		Level 2 Inputs		Level 3 Inputs
Financial assets:
Loans, net	$	383,909	$	387,560	$	—	$	—	$	387,560
Loans held for sale	10,995		11,173		—		—		11,173
FHLB stock	3,207		N/A		—		—		N/A
Financial liabilities:
Certificates of deposit	118,206		119,987		—		119,987		—
Borrowed funds	47,800		47,809		—		47,809		—

(1) Excluded from this table are certain financial instruments that approximate fair value, as they were short-term in nature or payable on demand. These include cash and cash equivalents, certificates of deposit, accrued interest receivable, non-term deposit accounts, and accrued interest payable. The respective carrying values of cash and cash equivalents, certificates of deposit and non-term deposit accounts would all be considered to be classified within Level 1 of their fair value hierarchy. The $1.3 million carrying value of accrued interest receivable on loans at June 30, 2015 and December 31, 2014, would generally be considered Level 3 in the fair value hierarchy and the carrying value of accrued interest payable of $12,000 and $11,000 would be considered Level 2 at June 30, 2015 and December 31, 2014, respectively.

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

Management’s discussion and analysis should be read in conjunction with the Corporation’s (also referred to herein as, “Company’s” “us,” “we” or “our”) consolidated financial statements and notes thereto contained in this report and the Corporation’s 2014 consolidated financial statements.

Special Note Regarding Forward-Looking Statements

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

Accounting Policies/Critical Accounting Estimates

As discussed in the 2014 consolidated financial statements included in the Corporation’s annual report on Form 10-K, the most significant areas in which management applies critical assumptions and estimates that are particularly susceptible to change relate to the determination of the allowance for loan losses, the valuation of deferred tax assets and the valuation of real estate held for sale. The Corporation has not changed its significant accounting and reporting policies from those disclosed in its 2014 consolidated financial statements other than adopting the fair value option for certain residential one-to four-family loans held for sale in order to better match the changes in fair value of such loans with the changes in the fair value of the forward loan sale commitments used to economically hedge them.

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Overview

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

The Corporation’s earnings are largely dependent on net interest income which is the difference between interest earned on loans, investments and cash and cash equivalents, and the cost of funding (primarily deposits and borrowed funds). The re-pricing frequency of the Corporation’s assets and liabilities are not identical, and therefore subject the Corporation to the risk of adverse changes in interest rates. The Corporation’s earnings are also dependent on the net gains on sales of loans, and other mortgage banking income, which is volatile. When interest rates rise, the demand for mortgage loans tends to fall and may reduce the number of loans we can originate for sale. Weak or deteriorating economic conditions also tend to reduce loan demand. The Corporation’s operating expenses are high as a percentage of net interest income and non-interest income, due to prior branch growth and increased personnel as we positioned the Bank for future growth.

Net income was $302,000 for the three months ended June 30, 2015 as compared to a net loss of $184,000 for the three months ended June 30, 2014. Net income increased due to an increase of $568,000 in net interest income, primarily due to growth in loan interest income of $532,000, lower provision for loan losses of $42,000, and a decrease in total non-interest expenses of $259,000, partially offset by a decrease in total non-interest income of $198,000 and an increase in income tax expense of $185,000. The decrease in non-interest income was primarily the result of a decrease in net gains on sales of loans, and other mortgage banking income of $178,000 for the three months ended June 30, 2015 as compared to the three months ended June 30, 2014, due principally to lower net margins earned on the sales of mortgage loans. The decrease in non-interest expenses of $259,000 for the three months ended June 30, 2015 as compared to the three months ended June 30, 2014 was primarily due to a decrease of $198,000 in impairment loss on real estate held for sale as well as a decrease in other general and administrative expenses due to $148,000 of roof repair costs during the three months ended June 30, 2014 on the Sharpe Drive property previously classified as real estate held for sale which was sold in 2014. During the three months ended June 30, 2015, an impairment loss of $195,000 was recorded based on an acceptance of an offer in July 2015 to sell the Coventry land which is classified in real estate held for sale. During the three months ended June 30, 2014, an impairment loss of $393,000 was recorded related to the Sharpe Drive property as a result of entering into a Purchase & Sale Agreement.

Net income was $675,000 for the six months ended June 30, 2015 as compared to a net loss of $1.1 million for the six months ended June 30, 2014. Net income increased primarily due to the $1.5 million contribution ($914,000, net of income taxes) made on January 14, 2014 to Coastway Cares Charitable Foundation II comprised of $300,000 in cash and 122,054 shares of common stock. In addition, net income increased due to the increase in net interest income of $1.0 million primarily due to increased loan interest income, as well as an increase in net gains on sales of loans and other mortgage banking income of $318,000. During the six months ended June 30, 2015, SBA loans totaling $4.2 million were sold for a gain of $328,000 as compared to no SBA loan sales during the six months ended June 30, 2014. Excluding the net of income tax impact of the contribution to the charitable foundation, net loss for the six months ended June 30, 2014 would have been $152,000. The earnings results for the six months ended June 30, 2015 as compared to the same period in 2014 were also impacted by a decrease in the provision for loan losses of $110,000. Non-interest expenses increased $129,000, excluding the $1.5 million charitable foundation contribution, and income tax expense increased $1.1 million primarily due to higher pre-tax income. Non-interest expenses increased due to $360,000 in increased occupancy expense primarily due to increased costs to operate our new corporate headquarters which relocated in August 2014 and increased snow removal costs of $97,000 for the six months ended June 30, 2015 as compared to the six months ended June 30, 2014. During the six months ended June 30, 2015, an impairment loss of $195,000 was recorded based on an acceptance of an offer in July 2015 to sell the Coventry land which is classified in real estate held for sale. During the six months ended June 30, 2014, an impairment loss of $393,000 was recorded related to the Sharpe Drive property as a result of entering into a Purchase & Sale Agreement.

Comparison of Financial Condition at June 30, 2015 and December 31, 2014

Assets. Our total assets increased $33.0 million, or 7.1%, to $498.9 million at June 30, 2015 from $465.8 million at December 31, 2014 primarily due to loan growth. Loans held for sale increased $5.9 million from December 31, 2014 to $16.9 million at June 30, 2015 due to an increase in loan originations. Total loans (excluding loans held for sale) increased $7.2 million, or 1.9%, to $409.6 million at June 30, 2015 from $383.2 million at December 31, 2014. The increase in total loans was primarily due to an increase in residential one- to four-family loans of $28.1 million, or 20.9%, to $162.2 million at June 30, 2015 from $134.1 million at December 31, 2014. Residential one-to four-family loans increased due to purchases of $18.9 million of loans from third parties as well as organic loan growth. Residential one- to four-family loans of $162.2 million at June 30, 2015 included 41 individual loans totaling $22.4 million purchased from third parties which were underwritten

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based on the Bank’s credit standards. Commercial real estate loans increased $11.6 million, or 10.7% to $119.6 million at June 30, 2015 as compared to $108.0 million at December 31, 2014. SBA loans declined $5.7 million, or 12.8%, to $38.4 million at June 30, 2015 as compared to $44.0 million at December 31, 2014 primarily due to the sale of $4.2 million of such loans during the first quarter of 2015.

Loans

A summary of the balances of loans are as follows:

	June 30, 2015					December 31, 2014
(Dollars in thousands)	Amount			Percent		Amount			Percent
Residential real estate:
1-4 family	$	162,166		39.59	%	$	134,084		34.99	%
Home equity loans and lines of credit	76,564			18.69		79,771			20.82
Commercial real estate	119,597			29.20		108,025			28.19
Commercial business	6,203			1.51		7,698			2.01
Commercial construction	5,500			1.34		8,181			2.14
SBA loans	38,378			9.37		44,032			11.49
Consumer	1,225			0.30		1,372			0.36

Total loans	409,633			100.00	%	383,163			100.00	%
Net deferred loan costs	3,101					2,688
Allowance for loan losses	(2,023		)			(1,942		)
Total loans, net	$	410,711				$	383,909

Deposits. Our primary source of funds is retail deposits held by individuals and businesses within our market area. Deposits increased $23.1 million, or 6.7%, to $366.7 million at June 30, 2015 from $343.5 million at December 31, 2014. The increase in deposits was primarily as a result of an increase in our transaction accounts, partially offset by a decrease in certificates of deposit. The increase in our transaction accounts was due to an increase in the balance of non-interest bearing demand deposit accounts of $10.1 million, or 13.8%, an increase of $13.0 million in the balance of savings and interest bearing demand deposit accounts, or 15.0%, and an increase of $4.9 million in the balance of money market accounts, or 7.6%. Certificates of deposit decreased $5.3 million, or 4.4%. Certificates of deposits exceeding $250,000 amounted to $17.7 million and $16.0 million at June 30, 2015 and December 31, 2014, respectively. Customers have generally continued to maintain funds in more liquid deposit accounts in periods of low interest rates. We have also continued to expand our services to our small business customers.

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

	June 30, 2015				December 31, 2014
(Dollars in thousands)	Amount		Percent		Amount		Percent
Non-interest bearing demand deposits	$	83,644	22.81	%	$	73,503	21.40	%
Money market accounts	68,981		18.81		64,117		18.66
Savings and interest bearing demand deposit accounts	99,510		27.14		86,529		25.19
Club accounts	1,600		0.44		1,189		0.35
Total transaction accounts	253,735		69.20		225,338		65.60
Certificates of deposit	112,949		30.80		118,206		34.40
Total deposits	$	366,684	100.00	%	$	343,544	100.00	%

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Borrowed Funds. We utilize borrowings from the Federal Home Loan Bank of Boston as an alternate funding source. Borrowed funds at June 30, 2015 totaled $57.0 million as compared to $47.8 million at December 31, 2014, an increase of $9.2 million or 19.2%. Borrowed funds at June 30, 2015 were comprised of $57.0 million of short-term advances at a weighted average rate of 0.21% as compared to short-term advances of $46.5 million at December 31, 2014 at a weighted average rate of 0.24% and long-term advances of $1.3 million at December 31, 2014 at a weighted average rate of 4.04%. The decrease in long-term advances during the six months ended June 30, 2015 of $1.3 million was due to maturities. The increase in overnight advances during the six months ended June 30, 2015 was due to loan growth.

Total Stockholders’ Equity. Total stockholders’ equity increased to $70.7 million at June 30, 2015 from $70.5 million at December 31, 2014. The increase in stockholders’ equity was due to net income of $675,000 and $88,000 of ESOP shares committed to be allocated, partially offset by stock repurchases of $532,000 during the six months ended June 30, 2015.

Nonperforming Assets

Loans on which the accrual of interest has been discontinued are designated as non-performing loans. Accrual of interest on loans is generally discontinued when contractual payments of principal or interest have become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is performing. When a loan is placed on non-accrual status, unpaid interest credited to income is reversed. Interest received on nonaccrual loans is applied against principal or interest or is recognized in income on a cash basis. Generally, loans are restored to accrual status when the loan is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

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

Non-performing loans decreased to $5.4 million, or 1.31% of total loans at June 30, 2015, from $6.4 million, or 1.68% of total loans, at December 31, 2014 primarily due to a $1.3 million decrease in non-performing one- to four-family residential loans partially offset by an increase of $252,000 in home equity non-performing loans. Two residential one- to four-family loans with totaling of $609,000 were moved to accrual status during the first quarter of 2015 and one residential one- to four-family loans totaling $573,000 was moved to accrual status in the second quarter of 2015 following at least six months of current payments. The collateral securing a residential and home equity loan was sold by short sale during the second quarter of 2015 causing a reduction in non-performing loans of $206,000, of which $181,000 was residential and $25,000 was home equity.

Foreclosed real estate consists of property acquired through formal foreclosure or the acceptance of a deed in lieu of foreclosure, and is initially recorded at fair value less costs to sell and subsequent revaluations are recorded at the lower of cost or fair value less costs to sell. Non-performing assets are comprised of non-performing loans, and foreclosed real estate. The designation of a loan or other asset as non-performing does not necessarily indicate that loan principal and interest will ultimately be uncollectible. However, management recognizes the greater risk characteristics of these assets and therefore considers the potential risk of loss on assets included in this category in evaluating the adequacy of the allowance for loan losses. Despite prudent loan underwriting, adverse changes within the Bank’s market area, or deterioration in local, regional or national economic conditions, could negatively impact the Bank’s level of non-performing loans and assets in the future.

Non-performing assets decreased $2.0 million during the six months ended June 30, 2015 to $5.7 million, or 1.15% of total assets at June 30, 2015 from $7.7 million at December 31, 2014 due to the decrease in non-performing loans discussed above and the sales of foreclosed real estate of $1.0 million or 1.66% of total assets.

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

(Dollars in thousands)	June 30, 2015			December 31, 2014
Nonaccrual loans:
Residential real estate mortgage loans:
1-4 family	$	1,165		$	1,642
Home equity loans and lines of credit	521			277
Commercial real estate loans	—			—
Commercial business loans	—			—
SBA loans	89			144
Commercial construction loans	—			—
Consumer loans	—			—
Total nonaccrual loans	1,775			2,063
Non-accruing troubled debt restructured loans:
Residential real estate mortgage loans:
1-4 family	3,392			4,229
Home equity loans and lines of credit	100			92
Commercial real estate loans	115			—
Commercial business loans	—			—
SBA loans	—			60
Commercial construction loans	—			—
Consumer loans	—			—
Total non-accruing troubled debt restructured loans	3,607			4,381
Total nonperforming loans	5,382			6,444
Foreclosed real estate:
Residential real estate mortgage loans:
1-4 family	300			1,035
Home equity loans and lines of credit	—			—
Commercial loans	—			—
Commercial business loans	—			—
SBA loans	33			250
Commercial construction loans	—			—
Consumer loans	—			—
Total foreclosed real estate	333			1,285
Total nonperforming assets	$	5,715		$	7,729

Total accruing troubled debt restructured loans	$	3,326		$	2,850
Delinquent loans 60 — 89 days past due	$	434		$	700
Loans 60-89 days past due to total loans	0.11		%	0.18		%
Ratios:
Non-performing loans to total loans	1.31		%	1.68		%
Non-performing assets to total assets	1.15		%	1.66		%

For the three and six months ended June 30, 2015 and 2014, and for the year ended December 31, 2014, gross interest income which would have been recorded had the non-performing loans been current in accordance with their original terms amounted to $53,000, $131,000, $59,000 and $131,000 and $249,000, respectively. The amount that was included in interest income on

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such loans totaled $49,000, $89,000, $68,000, $119,000 and $226,000 for the three and six months ended June 30, 2015 and 2014, and the year ended December 31, 2014, respectively.

Asset Quality

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

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

(Dollars in thousands)	June 30, 2015		December 31, 2014
Special mention	$	2,106	$	2,151
Substandard	3,610		4,046
Doubtful	—		—
Loss	—		—
Total classified and special mention loans	$	5,716	$	6,197

The level of classified and special mention loans decreased by $481,000 to $5.7 million at June 30, 2015 from $6.2 million at December 31, 2014 principally due to full repayments on three SBA loans previously classified as “substandard”.

Allowance for Loan Losses

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

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

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

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

Substantially all of the Corporation’s loans are secured by collateral. Loans 90 days past due and other classified loans are evaluated for impairment and general or specific allowances are established. Typically for a non-performing impaired real estate loan, the value of the underlying collateral is estimated using an independent appraisal, adjusted for property specific conditions and other factors, net of estimated selling costs and related specific reserves are adjusted on a quarterly basis. If a

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non-performing impaired real estate loan is in the process of foreclosure, and/or there are serious doubts about further collectability of principal or interest, and there is uncertainty about the value of the underlying collateral, a new appraisal may be ordered. Any shortfall would result in immediately charging off the portion of the loan that was impaired.

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

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

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

	Three months ended June 30,						Six months ended June 30,
(Dollars in thousands)	2015			2014			2015			2014
Balance at beginning of period	1,975			$	1,821		1,942			1,656
Provision for loan losses	72			114			171			281
Charge-offs:
Residential 1-4 family	(38		)	(52		)	(38		)	(52		)
Home equity loans and lines of credit	—			(34		)	(76		)	(56		)
Commercial real estate loans	—			—			—			—
Commercial business loans	—			—			—			—
SBA	—			(14		)	(9		)	(14		)
Commercial construction	—			—			—			—
Consumer	—			—			—			—
Total charge-offs	(38		)	(100		)	(123		)	(122		)
Recoveries on charged-off loans
Residential 1-4 family	11			51			11			55
Home equity loans and lines of credit	1			1			1			12
Commercial real estate loans	—			—			—			—
Commercial business loans	—			—			—			—
SBA	1			1			16			3
Commercial construction	—			—			—			—
Consumer	1			3			5			6
Total recoveries	14			56			33			76
Net (charge-offs) recoveries	(24		)	(44		)	(90		)	(46		)
Balance at end of period	$	2,023		$	1,891		$	2,023		$	1,891
Annualized net loans (charge-offs) recoveries to average loans outstanding	(0.02		)%	(0.05		)%	(0.04		)%	(0.03		)%
Allowance for loan losses to non-performing loans at end of period	37.59		%	25.39		%	37.59		%	25.39		%
Allowance for loan losses to total loans at end of period	0.49		%	0.53		%	0.49		%	0.53		%

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

Comparison of Operating Results for the Three Months Ended June 30, 2015 and June 30, 2014.

General. Net income was $302,000 for the three months ended June 30, 2015 as compared to a net loss of $184,000 for the three months ended June 30, 2014. Net income increased due to an increase of $568,000 in net interest income, primarily due to growth in loan interest income of $532,000, lower provision for loan losses of $42,000, and a decrease in total non-interest expenses of $259,000, partially offset by a decrease in total non-interest income of $198,000 and an increase in income tax expense of $185,000. The decrease in non-interest income was primarily the result of a decrease in net gains on sales of loans, and other mortgage banking income of $178,000 for the three months ended June 30, 2015 as compared to the three months ended June 30, 2014, due principally to lower net margins earned on the sales of mortgage loans. The decrease in non-interest expenses of $259,000 for the three months ended June 30, 2015 as compared to the three months ended June 30, 2014 was primarily due to a decrease of $198,000 in impairment loss on real estate held for sale as well as a decrease in other general and administrative expenses due to $148,000 of roof repair costs during the three months ended June 30, 2014 on the Sharpe Drive property previously classified as real estate held for sale which was sold in 2014. During the three months ended June 30, 2015, an impairment loss of $195,000 was recorded based on an acceptance of an offer in July 2015 to sell the Coventry land which is classified in real estate held for sale. During the three months ended June 30, 2014, an impairment loss of $393,000 was recorded related to the Sharpe Drive property as a result of entering into a Purchase & Sale Agreement.

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Interest Income. Interest income increased $532,000, or 14.0%, to $4.3 million for the three months ended June 30, 2015 from $3.8 million for the three months ended June 30, 2014. The increase reflected an increase in the average balance of interest earning assets of $57.2 million to $437.9 million for the three months ended June 30, 2015 as compared to $380.7 million for the three months ended June 30, 2014, partially offset by a decrease in the average yield on interest-earning assets to 3.96% for the three months ended June 30, 2015 as compared to 3.99% for the three months ended June 30, 2014. The majority of our interest income was derived from interest and fees on loans.

Interest and fees on loans increased $532,000, or 14.2%, to $4.3 million for the three months ended June 30, 2015 from $3.7 million for the three months ended June 30, 2014. Interest and fees on loans increased due to an increase in the average balance of loans and loans held for sale of $61.9 million to $415.2 million for the three months ended June 30, 2015 as compared to $353.3 million for the three months ended June 30, 2014. The increase in our average balance of loans was principally due to the growth in our residential one-to four- family and commercial real estate loan portfolios. During the three months ended June 30, 2014, interest and fees on loans included a prepayment penalty of $34,000 related to one loan. Partially offsetting the increase in average balance of loans, our average yield on loans decreased to 4.14% for the three months ended June 30, 2015 from 4.26% for the three months ended June 30, 2014 primarily due to a decline in market interest rates as well as the increase in residential one-to four- family residential loans which generally are originated at lower interest rates as compared to commercial real estate and SBA loans.

Interest Expense. Interest expense decreased $36,000, or 4.3%, to $557,000 for the three months ended June 30, 2015 from $593,000 for the three months ended June 30, 2014 due to a decline in the average cost of deposits of 12 basis points to 0.77% for the three months ended June 30, 2015 as compared to 0.85% for the three months ended June 30, 2014 as a result of lower interest rates. The average cost of certificates of deposit declined from 1.60% for the three months ended June 30, 2014 to 1.52% for the three months ended June 30, 2015. While average interest-bearing deposits increased $2.8 million for the three months ended June 30, 2015 as compared to the three months ended June 30, 2104, the average balance of the higher costing certificates of deposit decreased $8.4 million for the three months ended June 30, 2015 to $115.0 million from $123.5 million for the prior year period.

Interest expense on borrowed funds increased $14,000 to $28,000 for the three months ended June 30, 2015 from $14,000 for the three months ended June 30, 2014 due to an increase of $46.3 million in the average balance of borrowed funds. The average balance of borrowed funds increased to $48.3 million for the three months ended June 30, 2015 from $2.0 million for the three months ended June 30, 2014, as we increased short-term borrowings to fund loan growth. The average cost of borrowed funds decreased to 0.23% for the three months ended June 30, 2015 from 2.83% for the three months ended June 30, 2014 due to a combination of maturities of long-term borrowings and the increased use of one-to-two month borrowings which cost less than overnight borrowings.

Net Interest Income. Net interest income increased $568,000, or 14.6%, to $3.8 million for the three months ended June 30, 2015 from $3.2 million for the three months ended June 30, 2014. This increase was due to both a $8.0 million increase in net interest-earning assets to $112.7 million for the three months ended June 30, 2015 and an increase in our interest rate spread of 14 basis points to 3.27% for the three months ended June 30, 2015 as compared to 3.13% for the prior year period. The net interest margin increased eight basis points to 3.45% for the three months ended June 30, 2015 from 3.37% for the three months ended June 30, 2014.

Rate / Volume Analysis

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

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				Three months ended June 30, 2015 vs. 2014
	Net			Increase (decrease) due to
(Dollars in thousands)	Change			Volume			Rate
Interest-earning assets:
Loans and loans held for sale	$	532		$	641		$	(109	)
Cash and cash equivalents	(5		)	(16		)	11
Federal Home Loan Bank of Boston stock and other investments	5			14			(9		)
Total interest-earning assets	532			639			(107		)
Interest-bearing liabilities:
Money Market accounts	5			5			—
Savings accounts	2			2			—
Club accounts	1			—			1
Certificates of deposit	(58		)	(26		)	(32		)
Borrowed funds	14			38			(24		)
Total interest-bearing liabilities	(36		)	19			(55		)
Net interest income	$	568		$	620		$	(52	)

The following table sets forth average balance sheets, average yields and costs, and certain other information for the three months ended June 30, 2015 and 2014. No tax-equivalent yield adjustments were made, as we had no non-taxable interest-earning assets during the periods presented. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances, but have been reflected in the tables as loans carrying a zero yield. The yields set forth below include the effect of deferred loan fees, discounts and premiums that are amortized or accreted to interest income or interest expense.

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AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS

	Three months ended June 30, 2015						Three months ended June 30, 2014
(Dollars in thousands)	Average Balance		Interest		Average Yield(4)		Average Balance		Interest		Average Yield(4)
Assets:
Loans and loans held for sale	$	415,234	$	4,281	4.14	%	$	353,320	$	3,749	4.26	%
Cash and cash equivalents	13,691		24		0.70	%	24,925		29		0.47	%
Federal Home Loan Bank of Boston stock and other investments	8,952		15		0.67	%	2,472		10		1.62	%
Total interest-earning assets	437,877		4,320		3.96	%	380,717		3,788		3.99	%
Non-interest-earning assets	44,245						38,267
Total assets	$	482,122					$	418,984

Liabilities and Equity:
Money market accounts	$	66,531	69		0.42	%	$	62,131	64		0.41	%
Savings accounts	93,698		23		0.10	%	86,901		21		0.10	%
Club accounts	1,562		1		—	%	1,492		—		—	%
Certificates of deposit	115,046		436		1.52	%	123,490		494		1.60	%
Total interest-bearing deposits	276,837		529		0.77	%	274,014		579		0.85	%
Borrowed funds	48,328		28		0.23	%	1,981		14		2.83	%
Total interest bearing liabilities	325,165		557		0.69	%	275,995		593		0.86	%
Non-interest bearing deposits	80,951						68,258
Other liabilities	5,508						3,231
Total liabilities	411,624						347,484
Stockholders’ equity	70,498						71,500
Total liabilities and stockholders’ equity	$	482,122					$	418,984

Net interest income			$	3,763					$	3,195
Net interest rate spread(1)					3.27	%					3.13	%
Net interest-earning assets(2)	$	112,712					$	104,722

Net interest margin(3)					3.45	%					3.37	%
Average interest-earning assets to interest-bearing liabilities					134.66	%					137.94	%

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

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

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

(4) Annualized.

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Provision for loan losses. A provision for loan losses of $72,000 was recorded to the allowance for loan losses during the three months ended June 30, 2015, a decrease of $42,000 as compared to a provision of $114,000 for the three months ended June 30, 2014. During the three months ended June 30, 2015, a provision of $49,000 was recorded to the residential one-to four- family portfolio and a provision of $35,000 was recorded to the commercial real estate portfolio primarily due to loan growth in both portfolios. Our provisions are based on our assessment of loss history, current asset quality, loan growth and economic trends.

During the three months ended June 30, 2014, a provision of $114,000 was recorded, of which $41,000 was related to the residential one-to-four family loan portfolio. A provision of $19,000 was recorded related the commercial real estate portfolio and a provision of $12,000 was recorded related to the construction portfolio, primarily due to loan growth. We recorded a provision of $40,000 related to the home equity portfolio. We recorded net charge-offs of $33,000 on the home equity portfolio during the three months ended June 30, 2014.

Non-Interest income. Non-interest income decreased $198,000, or 13.3%, to $1.3 million for the three months ended June 30, 2015 from $1.5 million for the three months ended June 30, 2014. The decrease in non-interest income was primarily the result of a decrease in net gains on sales of loans, and other mortgage banking income of $178,000 for the three months ended June 30, 2015 as compared to the three months ended June 30, 2014. Gains on sales of mortgage loans decreased $89,000 from $427,000 for the three months ended June 30, 2014 to $338,000 for the three months ended June 30, 2015 due to lower net margins earned on mortgage loan sales. Mortgage loans sold during the three months ended June 30, 2015 totaled $40.9 million as compared to $29.8 million during the three months ended June 30, 2014. A decrease in the fair value of mortgage derivatives, commitments to sell and loans held for sale of $103,000 was recorded during the three months ended June 30, 2015 as compared to the three months ended June 30, 2014.

Non-Interest expenses. Non-interest expenses decreased $259,000, or 5.5%, to $4.5 million for the three months ended June 30, 2015 from $4.7 million for the three months ended June 30, 2014. The decrease in non-interest expenses was primarily due to a $198,000 reduction in impairment loss on real estate held for sale. During the three months ended June 30, 2015, impairment of $195,000 was recorded based on an acceptance of an offer in July 2015 to sell the Coventry land. During the three months ended June 30, 2014, an impairment loss of $393,000 was recorded related to the Sharpe Drive property as a result of entering into a Purchase & Sale Agreement. Salary and employee benefits expense increased $36,000 for the three months ended June 30, 2015 as compared to the three months ended June 30, 2014 primarily due to an increase in supplemental executive retirement plan expense of $48,000 during the three months ended June 30, 2015 as compared to the same period in 2014, general merit increases, and an increase in full time equivalent employees to 136 at June 30, 2015 from 132 at June 30, 2014, partially offset by a decline in termination benefits of $103,000 which was recorded in the second quarter of 2014. Occupancy expense increased $70,000 from the second quarter of 2014 to the second quarter of 2015 primarily due to increased costs to operate our new corporate headquarters which relocated in August 2014. Foreclosed real estate expenses decreased $95,000 to $25,000 for the three months ended June 30, 2015 as compared to $119,000 for the three months ended June 30, 2014 primarily due to higher provisions for losses on foreclosed properties in 2014. Other general and administrative expenses decreased $106,000 to $429,000 for the three months ended June 30, 2015 as compared to $535,000 for the comparable 2014 period primarily due to the 2014 period including $148,000 roof repair costs on the Sharpe Drive property previously classified as real estate held for sale which was sold in 2014.

Income tax expense. Income tax expense of $204,000 was recorded for the three months ended June 30, 2015 as compared to $19,000 of income tax expense for the three months ended June 30, 2014. The increase in income tax expense was primarily due to an increase in pre-tax income of $671,000 during the three months ended June 30, 2015 as compared to the three months ended June 30, 2014. The effective tax rate for the three months ended June 30, 2015 was 40.3% as compared to 11.5% for the three months ended June 30, 2014. The effective tax rate was was lower for the 2014 period partially due to a higher level of impairment loss on real estate held for sale which is non-deductible for state income tax purposes.

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Comparison of Operating Results for the Six Months Ended June 30, 2015 and June 30, 2014

General. Net income was $675,000 for the six months ended June 30, 2015 as compared to a net loss of $1.1 million for the six months ended June 30, 2014. Net income increased primarily due to the $1.5 million contribution ($914,000, net of income taxes) made on January 14, 2014 to Coastway Cares Charitable Foundation II comprised of $300,000 in cash and 122,054 shares of common stock. In addition, net income increased due to the increase in net interest income of $1.0 million primarily due to increased loan interest income, as well as an increase in net gains on sales of loans and other mortgage banking income of $318,000. During the six months ended June 30, 2015, SBA loans totaling $4.2 million were sold for a gain of $328,000 as compared to no SBA loan sales during the six months ended June 30, 2014. Excluding the net of income tax impact of the contribution to the charitable foundation, net loss for the six months ended June 30, 2014 would have been $152,000. The earnings results for the six months ended June 30, 2015 as compared to the same period in 2014 were also impacted by a decrease in the provision for loan losses of $110,000. Non-interest expenses increased $129,000, excluding the $1.5 million charitable foundation contribution, and income tax expense increased $1.1 million primarily due to higher pre-tax income. Non-interest expenses increased due to $360,000 in increased occupancy expense primarily due to increased costs to operate our new corporate headquarters which relocated in August 2014 and increased snow removal costs of $97,000 for the six months ended June 30, 2015 as compared to the six months ended June 30, 2014. During the six months ended June 30, 2015, an impairment loss of $195,000 was recorded based on an acceptance of an offer in July 2015 to purchase the Coventry land. During the six months ended June 30, 2014, an impairment loss of $393,000 was recorded related to the Sharpe Drive property as a result of entering into a Purchase & Sale Agreement.

Interest Income. Interest income increased $958,000, or 12.8%, to $8.4 million for the six months ended June 30, 2015 from $7.5 million for the six months ended June 30, 2014. The increase reflected an increase in the average balance of interest earning assets of $52.4 million to $430.1 million for the six months ended June 30, 2015 as compared to $377.7 million for the six months ended June 30, 2014, partially offset by a decrease in the average yield on interest-earning assets to 3.96% for the six months ended June 30, 2015 as compared to 4.00% for the six months ended June 30, 2014. The majority of our interest income was derived from interest and fees on loans.

Interest and fees on loans increased $953,000, or 12.9%, to $8.4 million for the six months ended June 30, 2015 from $7.4 million for the six months ended June 30, 2014. Interest and fees on loans increased due to an increase in the average balance of loans and loans held for sale of $60.7 million to $407.3 million for the six months ended June 30, 2015 as compared to $346.7 million for the six months ended June 30, 2014. The increase in our average balance of loans was principally due to the growth in our residential one-to four- family and commercial real estate loan portfolios during the six months ended June 30, 2015. During the six months ended June 30, 2014, interest and fees on loans included prepayment penalties of $122,000 related to two loans as well as the recovery of interest previously unrecognized of $54,000 on another loan which was fully repaid. Partially offset by the increase in average balance of loans, our average yield on loans decreased to 4.14% for the six months ended June 30, 2015 as compared to 4.32% for six months ended June 30, 2014.

Interest Expense. Interest expense decreased $63,000, or 5.3%, to $1.1 million for the six months ended June 30, 2015 from $1.2 million for the six months ended June 30, 2014 due to a decline in the average cost of deposits of seven basis points to 0.79% for the six months ended June 30, 2015 as compared to 0.86% for the six months ended June 30, 2014 as a result of lower interest rates. The average cost of certificates of deposit declined from 1.60% for the six months ended June 30, 2014 to 1.54% for the six months ended June 30, 2015. The average cost of savings accounts decreased three basis points to 0.09% for the six months ended June 30, 2015 as we lowered rates effective July 1, 2013 and on April 1, 2014. While the average balance of interest-bearing deposits increased $4.0 million to $275.5 million for the six months ended June 30, 2015, the average balance of the higher costing certificates of deposit decreased $6.9 million to $117.1 million for the six months ended June 30, 2015 as compared to $123.9 million for the six months ended June 30, 2014.

Interest expense on borrowed funds increased $27,000 to $63,000 for the six months ended June 30, 2015 from $36,000 for the six months ended June 30, 2014 primarily due to a $40.7 million increase in the average balance of borrowed funds to $44.9 million from $4.3 million for the six months ended June 30, 2014. The average cost of borrowed funds decreased to 28 basis points for the six months ended June 30, 2015 from 1.71% for the six months ended June 30, 2014, as we repaid longer term borrowings.

Net Interest Income. Net interest income increased $1.0 million or 16.2%, to $7.3 million for the six months ended June 30, 2015 from $6.3 million for the six months ended June 30, 2014. This increase was due to an $11.1 million increase in net interest-earning assets to $109.7 million for the six months ended June 30, 2015. This growth in net interest-earning assets also was due to an increase in our interest rate spread of 12 basis points to 3.25% for the six months ended June 30, 2015 as compared to 3.13% for the prior year period. The net interest margin increased to 3.43% for the six months ended June 30, 2015 from 3.36% for the six months ended June 30, 2014.

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Rate / Volume Analysis

	Six months ended June 30, 2015 vs. 2014 Increase (decrease) due to
(Dollars in thousands)	Net Change			Volume			Rate
Interest-earning assets:
Loans and loans held for sale	$	953		$	1,256		$	(303	)
Cash and cash equivalents	(2		)	(28		)	26
Federal Home Loan Bank of Boston stock and other investments	7			12			(5		)
Total interest-earning assets	958			1,240			(282		)
Interest-bearing liabilities:
Money Market accounts	9			9			—
Savings accounts	(7		)	4			(11		)
Club accounts	—			—			—
Certificates of deposit	(90		)	(48		)	(42		)
Borrowed funds	27			80			(53		)
Subscriptions payable	(2		)	(1		)	(1		)
Total interest-bearing liabilities	(63		)	44			(107		)
Net interest income	$	1,021		$	1,196		$	(175	)

The following table sets forth average balance sheets, average yields and costs, and certain other information for the six months ended June 30, 2015 and 2014. No tax-equivalent yield adjustments were made, as we had no non-taxable interest-earning assets during the periods presented. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances, but have been reflected in the tables as loans carrying a zero yield. The yields set forth below include the effect of deferred loan fees, discounts and premiums that are amortized or accreted to interest income or interest expense.

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AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS

	Six months ended June 30, 2015						Six months ended June 30, 2014
(Dollars in thousands)	Average Balance		Interest		Average Yield(4)		Average Balance		Interest		Average Yield(4)
Assets:
Loans and loans held for sale	$	407,321	8,372		4.14	%	$	346,661	$	7,419	4.32	%
Cash and cash equivalents	15,226		49		0.65	%	26,673		51		0.39	%
Federal Home Loan Bank of Boston stock and other investments	7,595		27		0.72	%	4,405		20		0.92	%
Total interest-earning assets	430,142		8,448		3.96	%	377,739		7,490		4.00	%
Non-interest-earning assets	44,736						37,961
Total assets	$	474,878					$	415,700

Liabilities and Equity:
Money market accounts	65,648		136		0.42	%	$	61,187	127		0.42	%
Savings accounts	91,364		43		0.09	%	84,972		50		0.12	%
Club accounts	1,432		1		0.14	%	1,420		1		0.14	%
Certificates of deposit	117,062		893		1.54	%	123,946		983		1.60	%
Total interest-bearing deposits	275,506		1,073		0.79	%	271,525		1,161		0.86	%
Borrowed funds	44,936		63		0.28	%	4,257		36		1.71	%
Subscriptions payable	—		—		—	%	3,358		2		0.12	%

Total interest bearing liabilities	320,442		1,136		0.71	%	279,140		1,199		0.87	%
Non-interest bearing deposits	78,616						64,889
Other liabilities	5,400						5,321
Total liabilities	404,458						349,350
Stockholders’ equity	70,420						66,350
Total liabilities and stockholders’ equity	474,878						$	415,700

Net interest income			$	7,312					$	6,291
Net interest rate spread(1)					3.25	%					3.13	%
Net interest-earning assets(2)	$	109,700					$	98,599

Net interest margin(3)					3.43	%					3.36	%
Average interest-earning assets to interest-bearing liabilities					134.23	%					135.32	%

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

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

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

(4) Annualized.

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Provision for loan losses. A provision for loan losses of $171,000 was recorded to the allowance for loan losses during the six months ended June 30, 2015, a decrease of $110,000 as compared to a provision of $281,000 for the six months ended June 30, 2014. Our provisions are based on our assessment of loss history, current asset quality and economic trends. During the six months ended June 30, 2015, a provision of $160,000 was recorded relating to the residential one-to four- family loan portfolio primarily due to a combination of loan growth and due to an increase of $11,000 on specific reserves on impaired loans since December 31, 2014. For the six months ended June 30, 2015, a provision of $60,000 was recorded related to the commercial real estate portfolio primarily due to loan growth. We recorded a provision of $16,000 on the home equity portfolio during the six months ended June 30, 2015. Net charge-offs of $76,000 on the home equity loan portfolio were recorded during the six months ended June 30, 2015. Home equity loans and lines of credit declined $3.2 million during the six months ended June 30, 2015. We recorded a credit to the provision of $37,000 during the six months ended June 30, 2015 related to a decline in the SBA portfolio balance and due to lower specific reserves.

A provision of $281,000 was recorded during the six months ended June 30, 2014. We recorded $127,000 of the provision for the six months ended June 30, 2014 related to the residential one- to four-family loan portfolio and $46,000 to the home equity portfolio, based on our assessment of loss history, asset quality and economic trends and charge-offs experienced in the portfolio. During the six months ended June 30, 2014, the home equity loan portfolio had net charge-offs of $44,000.

Non-Interest income. Non-interest income increased $296,000, or 11.2%, to $2.9 million for the six months ended June 30, 2015 from $2.6 million for the six months ended June 30, 2014. The increase in non-interest income was primarily due the sale of SBA loans during 2015. During the six months ended June 30, 2015, SBA loans totaling $4.2 million were sold for a gain of $328,000 as compared to no SBA loan sales during the six months ended June 30, 2014. Gains on sales of mortgage loans decreased $124,000 from $805,000 for the six months ended June 30, 2014 to $681,000 for the six months ended June 30, 2015. Mortgage loans sold during the six months ended June 30, 2014 amounted to $54.1 million as compared to $78.6 million during the six months ended June 30, 2015. The decline in the net gain on sales of mortgage loans was due to lower net margin on the sales of mortgage loans during 2015. An increase in the fair value of mortgage derivatives, commitments to sell and loans held for sale of $89,000 was recorded during the six months ended June 30, 2015 as compared to the six months ended June 30, 2014, due to a combination of increased loan sale volume and pipeline and the election of fair value accounting for loans held for sale as of January 1, 2015.

Non-Interest expenses. Non-interest expenses decreased $1.4 million, or 24.1%, to $9.0 million for the six months ended June 30, 2015 from $10.3 million for the six months ended June 30, 2014. The decrease in non-interest expense was primarily due to the 2014 contribution of $1.5 million to Coastway Cares Charitable Foundation II, in connection with our initial public offering, of which $300,000 was in cash and 122,054 was from shares contributed, which did not occur in 2015. Salary and employee benefits expense increased $61,000 for the six months ended June 30, 2015 as compared to the six months ended June 30, 2014 due to an increase in FTEs which was 136 employees at June 30, 2015 as compared to 132 FTEs at June 30, 2014, general merit increases and an increase of supplemental executive retirement expense of $97,000, partially offset by a $103,000 reduction in involuntary termination benefits.

Occupancy expense increased $360,000 due to increased costs to operate our new corporate headquarters which relocated in August 2014 and increased snow removal costs of $97,000 for the six months ended June 30, 2015 as compared to the six months ended June 30, 2014. During the six months ended June 30, 2015, impairment of $195,000 was recorded based on an acceptance of an offer in July 2015 to sell the Coventry land. During the six months ended June 30, 2014, an impairment loss of $393,000 was recorded related to the Sharpe Drive property as a result of entering into a Purchase & Sale Agreement. The decision to enter the Purchase & Sale agreement for the Sharpe Drive property was made considering a number of factors including the operating costs of the property, the then pending purchase of the new corporate headquarters, and the interest to be earned on the financing. Foreclosed real estate expenses decreased $67,000 to $103,000 for the six months ended June 30, 2015 from $170,000 for the prior year period primarily due to lower provisions for losses.

Advertising expenses increased $45,000 to $143,000 during the six months ended June 30, 2015 as compared to $98,000 during the six months ended June 30, 2014 as result of timing. Other general and administrative expenses decreased $50,000 to $813,000 for the six months ended June 30, 2015 as compared to $863,000 for the comparable 2014 period primarily due to $148,000 in roof repairs incurred during the second quarter of 2014 on the Sharpe Drive property that did not occur in 2015, partially offset by a $68,000 increase in loan servicing expenses.

Income tax expense (benefit). Income tax expense of $446,000 was recorded for the six months ended June 30, 2015 as compared to $632,000 of income tax benefit recorded for the six months ended June 30, 2014. The increase in income tax expense was primarily due to an increase in pre-tax income during the six months ended June 30, 2015 as compared to the six months ended June 30, 2014. The tax benefit related to the charitable foundation contribution was $607,000 during the six months ended June 30, 2014. The effective tax rate for the six months ended June 30, 2015 was 39.8% as compared to 37.2% for the six months ended June 30, 2014. The effective tax rate was lower for the 2014 period partially due to a higher level of impairment loss on real estate held for sale which is non-deductible for state income tax purposes.

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Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations. Our primary sources of funds consist of deposit inflows, loans repayments, advances from the Federal Home Loan Bank of Boston, principal repayments and loans sales. While maturities and scheduled amortization of loans are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. Our Asset/Liability Committee, under the direction of the Chief Financial Officer, is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We believe that we have enough sources of liquidity to satisfy our short- and long-term liquidity needs as of June 30, 2015.

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

(i) Expected loan demand;

(ii) Expected deposit flows and borrowing maturities;

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

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

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

The Corporation’s most liquid assets are cash and cash equivalents. The level of these assets is dependent on operating, financing, lending and investing activities during any given period. At June 30, 2015, cash and cash equivalents totaled $11.9 million. The Corporation also has $6.1 million of certificates of deposit.

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

At June 30, 2015, the Bank had $41.2 million in commitments to originate loans, $24.2 million of which will be sold. In addition to commitments to originate loans, the Bank had $68.6 million in unused lines of credit to borrowers and commitments to purchase loans from third parties of $19.7 million at June 30, 2015. Certificates of deposit due within one year of June 30, 2015 totaled $55.7 million, or 15.2%, of total deposits. If these deposits do not remain with us, we may be required to seek other sources of funds, including utilizing additional Federal Home Loan Bank of Boston advances and selling the guaranteed portions of SBA loans of $24.2 million. Depending on market conditions, the Bank may be required to pay higher rates on such deposits or other borrowed funds than it currently pays on the certificates of deposit due on or before June 30, 2015. Management believes, however, based on historical experience and current market interest rates, that the Bank will retain upon maturity, a large portion of certificates of deposit with maturities of one year or less as of June 30, 2015.

The Corporation’s primary investing activity is originating loans. During the six months ended June 30, 2015 and for the year ended December 31, 2014, loan originations and purchases, net of principal repayments totaled $31.5 million, and $57.3 million, respectively. During the six months ended June 30, 2015, the Corporation received proceeds from the sale of SBA loans of $4.6 million.

Financing activities consist primarily of activity in deposit accounts, Federal Home Loan Bank of Boston (FHLB) advances, IPO proceeds and stock repurchases. We experienced a net increase in deposits of $23.1 million and $13.6 million for the six months ended June 30, 2015 and for the year ended December 31, 2014, respectively. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors, and by other factors. FHLB net borrowings totaled $9.2 million during the six months ended June 30, 2015 as compared to net borrowings of $19.8 million for the year ended December 31, 2014. Stock subscriptions of $43.4 million were converted into stockholders’ equity of $46.3 million upon the close of the IPO in January 2014. The ESOP purchased $4.0 million of stock during the year ended December 31, 2014. The Corporation repurchased $532,000 of its common stock as part of a previously announced 5% stock repurchase program during the six months ended June 30, 2015.

Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Boston that provide an additional source of funds. Federal Home Loan Bank of Boston advances were $57.0 million and $47.8 million at June 30, 2015 and December 31, 2014, respectively. At June 30, 2015, we had the ability to borrow up to an additional $70.5 million from the Federal Home Loan Bank of Boston. We also have the ability to borrow with the Federal Reserve discount window. At

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June 30, 2015, the Bank had the capacity to borrow up to $16.1 million from the Federal Reserve discount window, but had no outstanding borrowings as of that date.

Capital Resources

The Corporation believes its current capital is adequate to support ongoing operations. As of June 30, 2015, the Bank qualifies as “well capitalized” under applicable regulations of the Rhode Island Department of Business Regulation and the FDIC. To be categorized as “well capitalized,” the Bank must maintain minimum Total Capital, Tier 1 and Common Equity Tier 1 Capital ratios of 10%, 8% and 6.5% respectively, and, maintain a leverage capital ratio (Tier 1 capital to average assets) of at least 5%.

The Bank’s actual capital amounts and ratios are presented as of June 30, 2015 in the table below.

	Actual				Minimum Capital for Capital Adequacy Purposes				Minimum Capital To Be Well Capitalized
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to risk weighted assets)	$	54,051	14.53	%	$	29,765	8.00	%	$	37,206	10.00	%
Tier 1 Capital (to risk weighted assets)	$	52,028	13.98	%	$	22,324	6.00	%	$	29,765	8.00	%
Common Equity Tier 1(to risk weighted assets	$	52,028	13.98	%	$	16,742	4.50	%	$	24,184	6.50	%
Tier 1 leverage Capital (to average assets)	$	52,028	11.09	%	$	18,771	4.00	%	$	23,463	5.00	%

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

Item 3 - Quantitative and Qualitative Disclosures About Market Risk

Not required for smaller reporting companies.

Item 4 - Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

There has been no change in the Corporation’s internal control over financial reporting that has occurred during the Corporation’s most recent fiscal quarter (i.e., the three months ended June 30, 2015) that has materially affected, or is reasonably likely to materially affect, such internal controls.

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings

At June 30, 2015 there were no material legal proceedings to which the Corporation is a party or of which any of its property is subject. From time to time, the Corporation is a party to various legal proceedings incident to its business.

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Item 1A - Risk Factors

Not required for smaller reporting companies.

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

a) Unregistered Sales of Equity Securities. None

b) Use of Proceeds. None

c) Repurchase of Equity Securities

The following table provides certain information with regard to shares repurchased by the Company during the three months ended June 30, 2015.

Period	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)	(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(1)
April 1 — April 30, 2015	16,900	$	11.13	16,900	221,859
May 1 — May 31, 2015	9,400	$	11.13	9,400	212,459
June 1 — June 30, 2015	12,600	$	11.26	12,600	199,859
Total	38,900	$	11.17	38,900	199,859

(1) The Corporation authorized its first stock repurchase program during the first quarter of 2015. The Corporation’s Board of Directors authorized a stock repurchase program to acquire up to 247,459 shares, or 5.0% of the Corporation’s then outstanding common stock. Repurchases will be made from time to time depending on market conditions and other factors, and will be conducted through open market or private transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission. There is no guarantee as to the exact number of shares to be repurchased by the Corporation.

Item 3 - Defaults upon Senior Securities

Not Applicable

Item 4 - Mine Safety Disclosures

Not Applicable

Item 5 - Other Information

Not Applicable

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Item 6 - Exhibits

EXHIBIT INDEX

Exhibit No.		Description

31.1*		Certification of Principal Executive Officer under Securities Exchange Act Rule 13a-14(a)
31.2*		Certification of Principal Financial Officer under Securities Exchange Act Rule 13a-14(a)
32*		Certification of Principal Executive Officer and Principal Financial Officer under 18 U.S.C. § 1350 Furnished Pursuant to Securities Exchange Act Rule 13a-14(b)

101		The following materials from Coastway Bancorp, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 were formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014, (ii) Consolidated Statements of Net Income for the three and six months ended June 30, 2015 and 2014, (iii) Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2015 and 2014, (iv) Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2015 and (v) Notes to Unaudited Consolidated Financial Statements.

*Filed herewith

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SIGNATURES

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

	COASTWAY BANCORP, INC.


Dated: August 5, 2015

	By:	/s/ William A. White
			President and Chief Executive Officer
			(Principal Executive Officer)


		/s/ Jeanette Fritz
			Executive Vice President and
			Chief Financial Officer
			(Principal Financial Officer)

Coastway Bancorp, Inc. - FORM 10-Q - August 5, 2015

Attached files

Coastway Bancorp, Inc. Reports