Pilgrim Bancshares, Inc.

In August 2018, the FASB issued ASU 2018-13, “Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820).” This ASU modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019 and interim periods therein and are to be applied prospectively for all new disclosures, and retrospectively for existing disclosures that were modified or removed. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures and delay adoption of additional disclosures until their effective date. The Company is evaluating the impact of adopting ASU 2018-13 on its financial statements.

Noninterest Expense. Noninterest expense was $1.9 million for the three months ended September 30, 2018 compared to $1.4 million for the three months ended September 30, 2017. The Company recognized $456,000 of merger related expense during the three months ended September 30, 2018 related to its pending merger with Hometown Financial Group. Salaries and benefits increased $53,000 due to staff merit increases and data processing increased $15,000. Federal Deposit Insurance Corporation expense decreased $28,000, and all other noninterest expenses spread across various categories decreased $7,000.

Income Taxes. Income before income taxes of $262,000 resulted in income tax expense of $208,000 for the three months ended September 30, 2018, compared to income before income taxes of $631,000 resulting in an income tax expense of $257,000 for the three months ended September 30, 2017. The effective income tax rate was 79.4% for the three months ended September 30, 2018 compared to 40.7% for the three months ended September 30, 2017. The increase in the effective tax rate was due to the nondeductible nature of the $456,000 of merger related expense.

Noninterest Income. Noninterest income was essentially flat at $361,000 for the nine months ended September 30, 2018 compared to $360,000 for the nine months ended September 30, 2017. The slight increase was driven by increased deposit fees and other fees during the nine months ended September 30, 2018, partially offset by lower gains on sales of loans. Rental income increased $5,000 or 3.0% to $170,000 for the nine months ended 2018 compared to $165,000 for the nine months ended September 30, 2017.

Noninterest Expense. Noninterest expense was $4.9 million for the nine months ended September 30, 2018 compared to $4.3 million for the nine months ended September 30, 2017. The Company recognized $456,000 of merger related expense during the nine months ended September 30, 2018 related to its pending merger with Hometown Financial Group. Salaries and benefits increased $87,000 due to staff merit increases, data processing expense increased $43,000, advertising increased $25,000 due to mail and print ad campaigns, communications expenses increased $11,000, and occupancy expense increased $6,000. The Federal Deposit Insurance Corporation assessment decreased $28,000 due to lower than projected asset growth, and all other noninterest expenses decreased $29,000, spread across various categories.