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PILGRIM BANCSHARES INC
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08/13PILGRIM BANCSHA : Making News
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PILGRIM BANCSHARES : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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08/10/2018 | 10:20pm CEST

General

Management's discussion and analysis of the financial condition and results of
operations at and for the three and six months ended June 30, 2018 and 2017 is
intended to assist in understanding the financial condition and results of
operations of the Company. The information contained in this section should be
read in conjunction with the unaudited financial statements and the notes
thereto, appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q.



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



· statements of our goals, intentions and expectations;

· statements regarding our business plans, prospects, growth and operating

   strategies;



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

   and



· estimates of our risks and future costs and benefits.





These forward-looking statements are based on our current beliefs and
expectations and are inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond our
control. In addition, these forward-looking statements are subject to
assumptions with respect to future business strategies and decisions that are
subject to change. We are under no duty to and do not take any obligation to
update any forward-looking statements after the date of this Report.



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

· our ability to consummate our proposed merger with Hometown Financial Group,

   Inc.



· our ability to manage our operations under the current adverse economic

   conditions nationally and in our market area;



· adverse changes in the financial industry, securities, credit and national and

   local real estate markets (including real estate values);



· significant increases in our loan losses, including as a result of our

inability to resolve classified and non-performing assets or reduce risks

associated with our loans, and management's assumptions in determining the

   adequacy of the allowance for loan losses;



· credit risks of lending activities, including changes in the level and trend of

loan delinquencies and write-offs and in our allowance for loan losses and

   provision for loan losses;



· competition among depository and other financial institutions;

· our success in implementing our business strategy, particularly increasing our

   commercial real estate, multi-family, non-owner occupied residential and
   construction lending;



· our success in introducing new financial products;

· our ability to attract and maintain deposits;




33





· our ability to continue to improve our asset quality even as we increase our

   non-residential and non-owner occupied residential lending;



· changes in interest rates generally, including changes in the relative

differences between short term and long term interest rates and in deposit

interest rates, that may affect our net interest margin and funding sources;

· risks related to a high concentration of loans secured by real estate located

   in our market area;



· the results of examinations by our regulators, including the possibility that

our regulators may, among other things, require us to increase our reserve for

loan losses, write down assets, change our regulatory capital position, limit

   our ability to borrow funds or maintain or increase deposits;



· changes in laws or government regulations or policies affecting financial

institutions, including the Dodd-Frank Act and the JOBS Act, which could result

in, among other things, increased deposit insurance premiums and assessments,

capital requirements (particularly the new capital regulations), regulatory

fees and compliance costs and the resources we have available to address such

   changes;



· changes in accounting policies and practices, as may be adopted by the bank

regulatory agencies, the Financial Accounting Standards Board, the Securities

and Exchange Commission and the Public Company Accounting Oversight Board;

· changes in our organization, compensation and benefit plans, and our ability to

retain key members of our senior management team and to address staffing needs

   in response to product demand or to implement our strategic plans;



· our ability to control costs and expenses, particularly those associated with

   operating as a publicly traded company;



· failure or security breaches of computer systems on which we depend;

· the ability of key third-party service providers to perform their obligations

   to us;



· changes in the financial condition or future prospects of issuers of securities

   that we own; and



· other economic, competitive, governmental, regulatory and operational factors

affecting our operations, pricing, products and services described elsewhere in

   this Report.




Because of these and a wide variety of other uncertainties, our actual future
results may be materially different from the results indicated by these
forward-looking statements. During the six months ended June 30, 2018, there
were no material changes to the critical accounting policies disclosed in
Pilgrim Bancshares, Inc.'s Annual Report Form 10-K for the year ended December
31, 2017, as filed with the Securities and Exchange Commission on March 21,
2018.



34





Comparison of Financial Condition at June 30, 2018 and December 31, 2017

Total assets increased $54,000, to $265.6 million at June 30, 2018 from $265.5 million at December 31, 2017. The slight increase was primarily due to an increase cash and cash equivalents of $3.1 million, offset by a decrease in several other asset categories including net loans, which decreased $2.7 million.

Total cash and cash equivalents increased $3.1 million, or 21.0%, to $18.1
million at June 30, 2018 from $15.0 million at December 31, 2017. The increase
in cash and cash equivalents resulted from an increase in deposits and proceeds
from loan payoffs.



Net loans decreased $2.7 million, or 1.2%, to $217.3 million at June 30, 2018
from $220.0 million at December 31, 2017. The Company originated $30.2 million
of new loans, and participated in a $230,000 residential construction loan for
the six months ended June 30, 2018. Of the $30.2 million of new loans originated
during the six months ended June 30, 2018, $5.9 million of funds were not
advanced. Loan amortization and payoffs totaled $27.2 million during the six
months ended June 30, 2018.


Investment securities classified as available-for-sale decreased $587,000, or
3.5%, to $16.0 million at June 30, 2018 from $16.6 million at December 31, 2017.
The decrease was due to the maturity of one security and payments in the
ordinary course of business.. Investment securities classified as
held-to-maturity decreased $5,000, or 6.0%, to $78,000 at June 30, 2018, from
$83,000 at December 31, 2017 due to payments in the ordinary course of business.



Bank-owned life insurance at June 30, 2018 increased $18,000, or 0.8%, to $2.4
million at June 30, 2018 from $2.3 million at December 31, 2017 due to normal
increases in cash surrender value.



Deposits increased $4.4 million, or 2.3%, to $194.6 million at June 30, 2018
from $190.2 million at December 31, 2017, primarily due to a $4.6 million
increase in demand deposits and an $883,000 increase in savings accounts and a
$160,000 increase in time deposits, partially offset by a $1.1 million decrease
in money market accounts. Core deposits, which we consider to be our
noninterest-bearing demand accounts, NOW accounts, savings accounts and money
market accounts, collectively increased $4.2 million, or 4.6%, to $96.6 million
at June 30, 2018 from $92.3 million at December 31, 2017 due to new deposit
account openings.



FHLB advances decreased $4.4 million, or 11.0%, to $35.8 million at June 30,
2018 from $40.2 million at December 31, 2017 as a result of payments on
amortizing borrowings. FHLB advances as of June 30, 2018 consisted of long term
bullet and amortizing borrowings.



Stockholders' equity increased $231,000, or 0.7%, to $34.4 million at June 30,
2018 from $34.1 million at December 31, 2017. The increase was driven by
$881,000 of net income offset by $680,000 of dividends declared during the six
months ended June 30, 2018. Additional paid in capital increased $206,000 during
the six month period ended June 30, 2018 due to the impact of equity incentive
plans.



35





Delinquent Loans. The following table sets forth our loan delinquencies by type and amount at the dates indicated.



                                                     At June 30, 2018                                At December 31, 2017

                                          30-59          60-89        90 Days or           30-59             60-89          90 Days or
                                           Days           Days            More             Days               Days             More
                                         Past Due       Past Due        Past Due         Past Due           Past Due         Past Due
                                                                                (In Thousands)
Real estate loans:
One- to four-family residential (1)     $    1,427              -     $    
    567     $         -       $          -     $        112
Commercial                                       -              -                 -               -                  -                -
Multi-family                                     -              -                 -               -                  -                -
Home equity loans and lines of credit           23              -          
      5               -                  -                -
Construction                                 1,638            400                 -               -                  -                -
Total real estate                            3,088            400               572               -                  -              112
Commercial and industrial loans                 15              -          
      -               -                  -                -
Consumer loans                                                  -                 -              12                  -                -
Total loans                             $    3,103$      400     $         572     $        12       $          -     $        112

(1) There were no delinquent non-owner occupied residential real estate loans at

     June 30, 2018 or December 31, 2017.




Classified Assets. The following table sets forth our amounts of classified
assets and assets designated as special mention as of June 30, 2018 and December
31, 2017.



                                       At June 30,       At December 31,
                                          2018                2017

                                                (In Thousands)
            Classified assets:
            Substandard:
            Loans (1)                 $         679     $             685
            Securities                           78                    83
            Total substandard                   757                   768
            Doubtful                              -                     -
            Loss                                  -                     -
            Total classified assets   $         757     $             768
            Special mention           $       3,171     $           3,172




36





Non-Performing Assets. The following table sets forth information regarding our
non-performing assets and troubled debt restructurings at the dates indicated.
The information reflects net charge-offs but not specific reserves. Troubled
debt restructurings include loans where the borrower is experiencing financial
difficulty and for which either a portion of interest or principal has been
forgiven or an extension of term granted, or for which the loans were modified
at interest rates materially less than current market rates.



                                                            At June 30,       At December 31,
                                                               2018                2017

                                                                 (Dollars In Thousands)
Non-accrual loans:
Real estate loans:
One- to four-family residential(1)                         $         674   
 $             112
Commercial                                                             -                     -
Multi-family                                                           -                     -
Home equity loans and lines of credit                                  5   
                 -
Construction                                                           -                     -
Total real estate                                                    679                   112
Commercial and industrial loans                                        -   
                 -
Consumer loans                                                         -                     -
Total non-accrual loans                                              679                   112
Total accruing loans past due 90 days or more                          -                     -
Total of nonaccrual loans and accruing loans  90 days or
more past due                                                        679                   112

Other non-performing assets                                            -                     -
Total non-performing assets                                          679                   112

Performing troubled debt restructurings:
Real estate loans:
One- to four-family residential(2)                                 2,280   
             2,882
Commercial                                                           609                   622
Multi-family                                                           -                     -
Home equity loans and lines of credit                                  -                     6
Total real estate                                                  2,889                 3,510
Commercial and industrial loans                                        -                     -
Consumer loans                                                         -                     -
Total troubled debt restructurings                                 2,889                 3,510

Total non-performing loans and troubled debt
restructurings                                             $       3,568     $           3,622

Non-performing loans to total loans                                 0.31 %                0.05 %
Non-performing assets to total assets                               0.26 %                0.04 %

Non-performing assets and troubled debt restructurings

 to total assets                                                    1.34 %                1.36 %



(1) There were no non-performing non-owner occupied residential real estate loans

at June 30, 2018 or December 31, 2017.

(2) There were no troubled debt restructurings related to non-owner occupied

     residential real estate loans at June 30, 2018 or December 31, 2017.



We had no foreclosed real estate at June 30, 2018 and December 31, 2017.

Other Loans of Concern. There were no other loans at June 30, 2018 that are not
already disclosed where there is information about possible credit problems of
borrowers that caused management to have serious doubts about the ability of the
borrowers to comply with present loan repayment terms and that may result in
disclosure of such loans in the future.



37





Comparison of Operating Results for the Three Months Ended June 30, 2018 and June 30, 2017

General. Net income for the three months ended June 30, 2018 was $423,000,
compared to net income of $324,000 for the three months ended June 30, 2017. The
increase of $99,000, or 30.6%, in net income was primarily due to an increase in
net interest income and lower levels of loan loss provisions, partially offset
by higher noninterest expense.



Interest and Dividend Income.Total interest and dividend income for the three
months ended June 30, 2018 increased $204,000, or 8.6%, to $2.6 million compared
to $2.4 million for the three months ended June 30, 2017. The increase in
interest and dividend income was the result of higher average loan balances and
yields in the three months ended June 30, 2018. The average balance of loans
during the three months ended June 30, 2018 increased $5.7 million to $215.9
million from $210.2 million for the three months ended June 30, 2017, while the
average yield on loans increased 19 basis points to 4.44% for the three months
ended June 30, 2018 from 4.25% for the three months ended June 30, 2017. The
increase in average yield on loans was primarily driven by the Federal Reserve
Bank raising the federal funds rate. During 2017, the Federal Reserve Bank
increased federal funds rates 25 basis points on three separate occasions. The
second 25 basis point increase was not until June 15, 2017. So far in 2018, the
Federal Reserve Bank has increased federal funds rates 25 basis points on two
occasions. The average balance of interest-earning deposits decreased $2.2
million to $16.2 million for the three months ended June 30, 2018 from $18.4
million for the three months ended June 30, 2017, the yield on interest-earning
deposits increased 56 basis points to 1.54% for the three months ended June 30,
2018 from 0.98% for the three months ended June 30, 2017. The increase was
consistent with rising short-term rates.



Interest Expense. Total interest expense increased $90,000, or 18.6%, to
$573,000 for the three months ended June 30, 2018 from $483,000 for the three
months ended June 30, 2017. Interest expense on interest-bearing deposit
accounts increased $39,000, or 10.1%, to $427,000 for the three months ended
June 30, 2018 from $388,000 for the three months ended June 30, 2017. The
increase was primarily due to higher interest rates on money market accounts and
certificates of deposits.


Interest expense on FHLB advances increased $51,000, or 53.7%, to $146,000 for
the three months ended June 30, 2018 from $95,000 for the three months ended
June 30, 2017. The average balance of advances were flat at $36.5 million for
the three months ended June 30, 2018 and 2017. The cost of funds on FHLB
advances increased 54 basis points to 1.60% for the three months ended June 30,
2018 from 1.04% for the three months ended June 30, 2017.



Net Interest and Dividend Income. Net interest and dividend income increased
$114,000, or 6.1%, to $2.0 million for the three months ended June 30, 2018 from
$1.9 million for the three months ended June 30, 2017. On a tax-equivalent
basis, net interest and dividend income increased $113,000, or 5.7%, to $2.0
million for the three months ended June 30, 2018 from $1.9 million for the three
months ended June 30, 2017. The tax-equivalent basis increase resulted from a
$203,000 increase in interest income, partially offset by a $90,000 increase in
interest expense. Our average interest-earning assets increased $2.5 million to
$251.1 million for the three months ended June 30, 2018 from $248.6 million for
the three months ended June 30, 2017. Our net interest rate spread increased 11
basis points to 2.98% for the three months ended June 30, 2018 from 2.87% for
the three months ended June 30, 2017, and our net interest margin increased 15
basis points to 3.18% for the three months ended June 30, 2018 from 3.03% for
the three months ended June 30, 2017. The increase in our interest rate spread
and net interest margin reflected an increase in average balance of loans and
increased interest on loans.



Provision for Loan Losses.We recorded a provision for loan losses for the three
months ended June 30, 2018 of $15,000, compared to a provision of $45,000 for
the three months ended June 30, 2017. We maintain the allowance for loan losses
at levels we believe are adequate to cover our estimate of probable credit
losses as of the end of the reporting period. There were no charge-offs
recognized for the three months ended June 30, 2018 and 2017, respectively. The
allowance for loan losses was $1.3 million, or 0.58% of total loans at June 30,
2018, compared to $1.1 million or 0.53% of total loans at June 30, 2017.



38






Noninterest Income. Noninterest income increased $5,000, or 4.3%, to $122,000
for the three months ended June 30, 2018 from $117,000 for the three months
ended June 30, 2017. The increase was driven by increased deposit fees during
the three months ended June 30, 2018. Rental income was relatively flat at
$56,000 for the three months ended June 30, 2018 compared to $55,000 for the
three months ended June 30, 2017.



Noninterest Expense. Noninterest expense was $1.5 million for the three months
ended June 30, 2018 compared to $1.4 million for the three months ended June 30,
2017. Salaries and benefits increased $27,000 due to staff merit increases, data
processing increased $25,000 due to a conversion, advertising increased $9,000
due to mail and print campaigns, and all other noninterest expenses spread
across various categories netted to zero.



Income Taxes. Income before income taxes of $591,000 resulted in income tax
expense of $168,000 for the three months ended June 30, 2018, compared to income
before income taxes of $503,000 resulting in an income tax expense of $179,000
for the three months ended June 30, 2017. The effective income tax rate was
28.4% for the three months ended June 30, 2018 compared to 35.6% for the three
months ended June 30, 2017. On December 22, 2017, the U.S. federal government
enacted a tax bill, H.R.1, An Act to Provide for Reconciliation Pursuant to
Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018
(Tax Act). Among other provisions, the Tax Act reduced the historical corporate
income tax rate to 21 percent for tax years beginning after December 31, 2017.
The reduction in the effective tax rate for the three months ended June 30, 2018
compared to the three months ended June 30, 2017 was driven by the passage
of
the tax bill.


Comparison of Operating Results for the Six Months Ended June 30, 2018 and June 30, 2017




General. Net income for the six months ended June 30, 2018 was $881,000,
compared to net income of $595,000 for the six months ended June 30, 2017. The
increase of $286,000, or 48.1%, in net income was primarily due to an increase
in net interest income and lower levels of loan loss provisions, partially
offset by higher noninterest expense. Income before taxes increased $272,000 or
28.4%.


Interest and Dividend Income.Total interest and dividend income for the six
months ended June 30, 2018 increased $470,000, or 10.1%, to $5.1 million
compared to $4.7 million for the six months ended June 30, 2017. The increase in
interest and dividend income was the result of higher average loan balances and
yields in the six months ended June 30, 2018. The average balance of loans
during the six months ended June 30, 2018 increased $7.3 million to $217.9
million from $210.6 million for the six months ended June 30, 2017, while the
average yield on loans increased 22 basis points to 4.42% for the six months
ended June 30, 2018 from 4.20% for the six months ended June 30, 2017. The
increase in average yield on loans was primarily driven by the Federal Reserve
Bank raising the federal funds rate. During 2017, the Federal Reserve Bank
increased federal funds rates 25 basis points on three separate occasions. The
first 25 basis point increase was not until March 15, 2017. So far in 2018, the
Federal Reserve Bank has increased federal funds rates 25 basis points on two
occasions. The average balance of interest-earning deposits decreased $969,000
to $14.9 million for the six months ended June 30, 2018 from $15.9 million for
the six months ended June 30, 2017, and the yield on interest-earning deposits
increased 65 basis points to 1.57% for the six months ended June 30, 2018 from
0.92% for the six months ended June 30, 2017. The increase was consistent with
rising short-term rates. The average balance of investment securities decreased
$810,000 to $16.4 million for the six months ended June 30, 2018 from $17.2
million for the six months ended June 30, 2017, and the yield on investment
securities increased 34 basis points to 1.87% for the six months ended June 30,
2018 from 1.53% for the six months ended June 30, 2017. The increase was
consistent with rising short and intermediate-term rates.



Interest Expense. Total interest expense increased $186,000, or 20.0%, to $1.1
million for the six months ended June 30, 2018 from $931,000 for the six months
ended June 30, 2017. Interest expense on interest-bearing deposit accounts
increased $86,000, or 11.7%, to $821,000 for the six months ended June 30, 2018
from $735,000 for the six months ended June 30, 2017. The increase was primarily
due to higher average deposit balances and higher interest rates on certificates
of deposits and money market accounts.



39





Interest expense on FHLB advances increased $100,000, or 51.2%, to $296,000 for
the six months ended June 30, 2018 from $196,000 for the six months ended June
30, 2017. The average balance of advances decreased $401,000, or 1.1%, to $37.6
million for the six months ended June 30, 2018 from $38.0 million for the six
months ended June 30, 2017. The cost of funds on FHLB advances increased 52
basis points to 1.55% for the six months ended June 30, 2018 from 1.03% for the
six months ended June 30, 2017.



Net Interest and Dividend Income. Net interest and dividend income increased
$284,000, or 7.6%, to $4.0 million for the six months ended June 30, 2018 from
$3.7 million for the six months ended June 30, 2017. On a tax-equivalent basis,
net interest and dividend income increased $280,000, or 7.5%, to $4.0 million
for the six months ended June 30, 2018 from $3.7 million for the six months
ended June 30, 2017. The tax-equivalent basis increase resulted from a $466,000
increase in interest income, partially offset by a $186,000 increase in interest
expense. Our average interest-earning assets increased $5.5 million to $251.9
million for the six months ended June 30, 2018 from $246.4 million for the six
months ended June 30, 2017. Our net interest rate spread increased 13 basis
points to 3.01% for the six months ended June 30, 2018 from 2.88% for the six
months ended June 30, 2017, and our net interest margin increased 16 basis
points to 3.20% for the six months ended June 30, 2018 from 3.04% for the six
months ended June 30, 2017. The increase in our interest rate spread and net
interest margin reflected an increase in average balance of loans and increased
interest on loans.



Provision for Loan Losses.We recorded a provision for loan losses for the six
months ended June 30, 2018 of $45,000, compared to a provision of $90,000 for
the six months ended June 30, 2017. We maintain the allowance for loan losses at
levels we believe are adequate to cover our estimate of probable credit losses
as of the end of the reporting period. There were no charge-offs recognized for
the six months ended June 30, 2018 and 2017, respectively. The allowance for
loan losses was $1.3 million, or 0.58% of total loans at June 30, 2018, compared
to $1.1 million or 0.53% of total loans at June 30, 2017.



Noninterest Income. Noninterest income increased $20,000, or 8.6%, to $252,000
for the six months ended June 30, 2018 from $232,000 for the six months ended
June 30, 2017. The increase was driven by increased deposit fees and other fees
during the six months ended June 30, 2018. Rental income was flat at $113,000
for the six months ended June 30, 2018 and 2017.



Noninterest Expense. Noninterest expense was $3.0 million for the six months
ended June 30, 2018 compared to $2.9 million for the six months ended June 30,
2017. Salaries and benefits increased $34,000 due to staff merit increases, data
processing expense increased $28,000, occupancy expense increased $10,000,
communications expenses increased $11,000 and advertising increased $17,000 due
to mail and print ad campaigns, and all other noninterest expenses decreased
$23,000, spread across various categories.



Income Taxes. Income before income taxes of $1.2 million resulted in income tax
expense of $349,000 for the six months ended June 30, 2018, compared to income
before income taxes of $958,000 resulting in an income tax expense of $363,000
for the six months ended June 30, 2017. The effective income tax rate was 28.4%
for the six months ended June 30, 2018 compared to 37.9% for the six months
ended June 30, 2017. On December 22, 2017, the U.S. federal government enacted a
tax bill, H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and
V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (Tax Act).
Among other provisions, the Tax Act reduced the historical corporate income tax
rate to 21 percent for tax years beginning after December 31, 2017. The
reduction in the effective tax rate for the six months ended June 30, 2018
compared to the six months ended June 30, 2017 was driven by the passage of
the
tax bill.



40





Average Balances and Yields. The following table sets forth average balance
sheets, average yields and costs, and certain other information for the periods
indicated. Tax-equivalent yield adjustments have been made because we had
tax-exempt interest-earning assets during the periods. All average balances are
daily average balances based upon amortized costs. Non-accrual loans were
included in the computation of average balances. The yields set forth below
include the effect of deferred fees, discounts, and premiums that are amortized
or accreted to interest income or interest expense.



                                                                              For the Three Months Ended June 30,
                                                                  2018                                                   2017
                                              Average                                                Average
                                            Outstanding                           Average          Outstanding                           Average
                                              Balance          Interest        Yield/Rate(1)         Balance          Interest        Yield/Rate(1)
                                                                                        (In Thousands)
Interest-earning assets:
Loans                                      $     215,901$      2,398                4.44 %   $     210,225$      2,231                4.25 %
Interest-earning deposits                         16,245               62                1.54 %          18,427               45                0.98 %
Investment securities (2)                         16,287               76                1.87 %          17,195               65                1.51 %
Federal Home Loan Bank stock and
The Co- operative Central Reserve Fund             2,680               32                4.73 %           2,741               24                3.50 %
Total interest-earning assets                    251,113            2,568  
             4.09 %         248,588            2,365                3.81 %
Noninterest-earning assets                        10,555                                                 11,057
Total assets                               $     261,668$     259,645

Interest-bearing liabilities:
Savings accounts                           $      20,777                8                0.15 %   $      20,420                8                0.15 %
NOW accounts                                      21,749                3                0.05 %          18,828                2                0.05 %
Money market accounts                             33,317               62                0.74 %          32,200               32                0.39 %
Certificates of deposit                           94,095              354                1.51 %          98,309              346                1.41 %
Total interest-bearing deposits                  169,938              427                1.01 %         169,757              388                0.91 %
Federal Home Loan Bank advances                   36,545              146                1.60 %          36,549               95                1.04 %
Total interest-bearing liabilities               206,483              573                1.11 %         206,306              483                0.94 %
Noninterest-bearing liabilities:
Noninterest-bearing deposits                      20,252                                                 19,288
Other noninterest-bearing liabilities                703                                                    661
Total noninterest-bearing liabilities             20,955                                                 19,949
Total liabilities                                227,438                                                226,255
Total stockholders' equity                        34,230                                                 33,390
Total liabilities and total
stockholders' equity                       $     261,668$     259,645
Net interest income                                          $      1,995$      1,882
Net interest rate spread (3)                                                             2.98 %                                                 2.87 %
Net interest-earning assets (4)            $      44,630$      42,282
Net interest margin (5)                                                                  3.18 %                                                 3.03 %
Average interest-earning assets to
interest-bearing liabilities                      121.61 %                 
                             120.49 %



(1) Yields and rates are annualized.

(2) Includes securities available-for-sale and held-to-maturity. A tax equivalent

adjustment of $4,000 and $5,000 was applied to tax-exempt income for the

three months ended June 30, 2018 and June 30, 2017, respectively.

(3) 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.

(4) Net interest-earning assets represent total interest-earning assets less

total interest-bearing liabilities.

(5) Net interest margin represents net interest income divided by average total

     interest-earning assets.




41






                                                                           

For the Six Months Ended June 30,

                                                                2018                                                   2017
                                            Average                                                Average
                                          Outstanding                           Average          Outstanding                           Average
                                            Balance          Interest        Yield/Rate(1)         Balance          Interest        Yield/Rate(1)

                                                                                      (In Thousands)
Interest-earning assets:
Loans                                    $     217,897$      4,811                4.42 %   $     210,592$      4,425                4.20 %
Interest-earning deposits                       14,927              117                1.57 %          15,896               73                0.92 %
Investment securities (2)                       16,407              153                1.87 %          17,217              132                1.53 %
Federal Home Loan Bank stock and
The Co- operative Central Reserve Fund           2,680               61                4.52 %           2,722               46                3.40 %
Total interest-earning assets                  251,911            5,142                4.08 %         246,427            4,676                3.80 %
Noninterest-earning assets                      10,537                                                 11,086
Total assets                             $     262,448$     257,513

Interest-bearing liabilities:
Savings accounts                         $      20,619               15                0.15 %   $      20,460               15                0.15 %
NOW accounts                                    21,400                5                0.05 %          18,895                5                0.05 %
Money market accounts                           33,521               95                0.57 %          32,251               63                0.39 %
Certificates of deposit                         94,864              706                1.49 %          94,787              652                1.38 %
Total interest-bearing deposits                170,404              821                0.96 %         166,393              735                0.88 %
Federal Home Loan Bank advances                 37,642              296                1.55 %          38,043              196                1.03 %
Total interest-bearing liabilities             208,046            1,117                1.07 %         204,436              931                0.91 %
Noninterest-bearing liabilities:
Noninterest-bearing deposits                    19,418                                                 19,118
Other noninterest-bearing liabilities              886                                                    787
Total noninterest-bearing liabilities           20,304                                                 19,905
Total liabilities                              228,350                                                224,341
Total stockholders' equity                      34,098                                                 33,172
Total liabilities and total
stockholders' equity                     $     262,448$     257,513
Net interest income                                        $      4,025$      3,745
Net interest rate spread (3)                                                           3.01 %                                                 2.88 %
Net interest-earning assets (4)          $      43,865$      41,991
Net interest margin (5)                                                                3.20 %                                                 3.04 %
Average interest-earning assets to
interest-bearing liabilities                    121.08 %                   
                           120.54 %



(1) Yields and rates are annualized.

(2) Includes securities available-for-sale and held-to-maturity. A tax equivalent

adjustment of $8,000 and $12,000 was applied to tax-exempt income for the six

months ended June 30, 2018 and June 30, 2017, respectively.

(3) 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.

(4) Net interest-earning assets represent total interest-earning assets less

total interest-bearing liabilities.

(5) Net interest margin represents net interest income divided by average total

     interest-earning assets.




42





Liquidity and Capital Resources

Our primary sources of funds are deposits, principal and interest payments on
loans and securities, proceeds from the sale of loans, proceeds from maturities
and calls of securities, maturities of certificate of deposit investments and
FHLB advances. While maturities and scheduled amortization of loans and
securities are predictable sources of funds, deposit flows and mortgage
prepayments are greatly influenced by general interest rates, economic
conditions, and competition. Our most liquid assets are cash and short-term
investments including interest-bearing demand deposits with other banks. The
levels of these assets are dependent on our operating, financing, lending, and
investing activities during any given period.



Our cash flows are comprised of six primary classifications: cash flows from
operating activities, investing activities, and financing activities. Net cash
provided by operating activities was $986,000 and $747,000 for the six months
ended June 30, 2018 and June 30, 2017, respectively. Net cash provided by (used
in) investing activities was $2.9 million and $(1.5) million for the six months
ended June 30, 2018 and June 30, 2017, respectively. For the six months ended
June 30, 2018, net cash provided by investing activities consisted primarily of
$2.9 million of net loan collections and amortization. Net cash (used in)
provided by financing activities was $(768,000) and $4.5 million for the six
months ended June 30, 2018 and June 30, 2017, respectively. Activity was
primarily in the deposit accounts and payments on FHLB advances for the six
months ended June 30, 2018 and 2017.



At June 30, 2018, the Bank exceeded all "well capitalized" regulatory capital
requirements with a CET1 capital level of $25.9 million or 15.1% of
risk-weighted assets, which is above the required level of $11.2 million, or
6.5% of risk-weighted assets; a tier 1 capital level of $25.9 million, or 15.1%
of risk-weighted assets, which is above the required level of $13.7 million, or
8.0% of risk-weighted assets; a tier 1 leverage capital level of $25.9 million,
or 9.9% of average assets, which is above the required level of $13.1 million,
or 5.0% of average assets; and total risk-based capital of $27.2 million, or
15.9% of risk-weighted assets, which is above the required level of $17.2
million, or 10.0% of risk-weighted assets. At December 31, 2017, the Bank
exceeded all of its regulatory capital requirements with a CET1 capital level of
$24.9 million, or 14.4% of risk-weighted assets, which was the above the
required level of $11.2 million, or 6.5% of risk-weighted assets; a tier 1
capital level of $24.9 million, or 14.4% of risk-weighted assets which is above
the required level of $13.8 million, or 8.0% of risk-weighted assets; a tier 1
leverage capital level of $24.9 million, or 9.5% of average assets, which is
above the required level of $13.2 million, or 5.0% of average assets; and a
total risk-based capital of $26.1 million, or 15.2% of risk-weighted assets,
which is above the required level of $17.2 million, or 10.0% of risk-weighted
assets. Accordingly, Pilgrim Bank was categorized as well capitalized at June
30, 2018 and December 31, 2017. Management is not aware of any conditions or
events since the most recent notification that would change our category.



At June 30, 2018, we had outstanding commitments to originate loans of $12.6
million and unadvanced funds on loans of $19.2 million. We anticipate that we
will have sufficient funds available to meet our current loan origination
commitments. Certificates of deposit that are scheduled to mature in less than
one year from June 30, 2018 totaled $55.7 million. Management expects, based on
historical experience, that a substantial portion of the maturing certificates
of deposit will be renewed. However, if a substantial portion of these deposits
is not retained, we may utilize FHLB advances or raise interest rates on
deposits to attract new accounts, which may result in higher levels of interest
expense.



Off-Balance Sheet Arrangements. In the normal course of operations, we engage in
a variety of financial transactions that, in accordance with U.S. Generally
Accepted Accounting Principles, are not recorded in our consolidated financial
statements. These transactions involve, to varying degrees, elements of credit,
interest rate and liquidity risk. Such transactions are used primarily to manage
customers' requests for funding and take the form of loan commitments, lines of
credit and standby letters of credit. These arrangements are not expected to
have a material impact on the Company's financial condition or results of
operations.



We have not engaged in any other off-balance sheet transactions in the normal course of our lending activities.

43

© Edgar Online, source Glimpses

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