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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
 
For the Quarterly Period ended March 31, 2015
Or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For transition period from              to             
 
Commission File Number 001-35871
 
Westbury Bancorp, Inc.
(Exact Name of Registrant as Specified in Charter)
____________________________________________
Maryland
 
46-1834307
(State or Other Jurisdiction
of Incorporation)
 
(I.R.S. Employer
Identification Number)
 
 
 
200 South Main Street, West Bend, Wisconsin
 
53095
(Address of Principal Executive Officers)
 
(Zip Code)
 
(262) 334-5563
Registrant’s telephone number, including area code
 
Not Applicable
(Former name or former address, if changed since last report)
____________________________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  o.
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x  No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
¨
 
Accelerated filer
¨
 
 
 
 
 
Non-accelerated filer
¨
 
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).  Yes  o  No  x
Indicate the number of shares outstanding of each of the Issuer’s classes of common stock as of the latest practicable date.
There were 4,514,949 shares of Common Stock, par value $.01 per share, outstanding as of April 29, 2015.



WESTBURY BANCORP, INC. 
Form 10-Q Quarterly Report 
Table of Contents 




PART I
 
ITEM 1.                                           FINANCIAL STATEMENTS

Westbury Bancorp, Inc. and Subsidiary
Consolidated Balance Sheets
March 31, 2015 and September 30, 2014
(In Thousands, except share data)

 
March 31,
2015
 
September 30,
2014
 
(Unaudited)
 
 
Assets
 

 
 

Cash and due from banks
$
10,427

 
$
9,369

Interest-bearing deposits
6,378

 
8,239

Cash and cash equivalents
16,805

 
17,608

Securities available-for-sale
77,881

 
90,346

Securities held to maturity, at amortized cost ($3,042 fair value at March 31, 2015)
3,025

 

Loans held for sale, at lower of cost or fair value
1,594

 
326

Loans, net of allowance for loan losses of $4,483 and $4,072 at March 31 and September 30, respectively
467,447

 
416,874

Federal Home Loan Bank stock, at cost
3,350

 
2,670

Foreclosed real estate
2,100

 
2,355

Real estate held for investment
3,697

 
3,763

Office properties and equipment, net
11,337

 
11,181

Cash surrender value of bank-owned life insurance
12,972

 
12,742

Mortgage servicing rights
1,409

 
1,624

Deferred tax asset
4,899

 
5,702

Other assets
3,618

 
3,504

Total assets
$
610,134

 
$
568,695

Liabilities and Stockholders’ Equity
 

 
 

Liabilities
 

 
 

Deposits
$
512,047

 
$
454,928

Advances from Federal Home Loan Bank
13,000

 
17,000

Advance payments by borrowers for property taxes and insurance
1,966

 
5,869

Other liabilities
3,985

 
4,411

Total liabilities
530,998

 
482,208

Stockholders’ Equity
 

 
 

Preferred stock $0.01 par value, 50,000,000 shares authorized; none issued or outstanding

 

Common stock $0.01 par value, 100,000,000 shares authorized; 5,346,206 shares issued at March 31, 2015 and September 30, 2014
53

 
53

Additional paid-in capital
49,661

 
49,164

Retained earnings
46,121

 
45,190

Unearned Employee Stock Ownership Plan (ESOP) shares
(3,651
)
 
(3,754
)
Accumulated other comprehensive income (loss)
441

 
(46
)
Less common stock repurchased, 818,157 shares at cost, at March 31, 2015 and 271,296 at September 30, 2014
(13,489
)
 
(4,120
)
Total stockholders’ equity
79,136

 
86,487

Total liabilities and stockholders’ equity
$
610,134

 
$
568,695

 
See Notes to Unaudited Consolidated Financial Statements.

2


Westbury Bancorp, Inc and Subsidiary
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statements of Operations
 
 
 
 
 
 
 
Three and Six Months Ended March 31, 2015 and 2014 (Unaudited)
 
 
 
 
 
 
 
(In Thousands, except per share data)
 
 
 
 
 
 
 
 
Three Months Ended 
 March 31,
 
Six Months Ended 
 March 31,
 
2015
 
2014
 
2015
 
2014
Interest and dividend income:
 

 
 

 
 

 
 

Loans
$
4,685

 
$
3,949

 
$
9,144

 
$
7,927

Investments - nontaxable
15

 
22

 
32

 
38

Investments - taxable
404

 
472

 
796

 
967

Interest bearing deposits
16

 
29

 
28

 
66

Total interest and dividend income
5,120

 
4,472

 
10,000

 
8,998

Interest expense:
 

 
 

 
 

 
 

Deposits
446

 
398

 
871

 
822

Advances from the Federal Home Loan Bank
14

 
1

 
18

 
1

Total interest expense
460

 
399

 
889

 
823

Net interest income before provision for loan losses
4,660

 
4,073

 
9,111

 
8,175

Provision for loan losses
300

 
200

 
650

 
350

Net interest income after provision for loan losses
4,360

 
3,873

 
8,461

 
7,825

Noninterest income:
 

 
 

 
 

 
 

Service fees on deposit accounts
999

 
966

 
2,155

 
2,031

Gain on sales of loans, net
174

 
17

 
243

 
64

Servicing fee income, net of amortization and impairment
6

 
71

 
43

 
318

Insurance and securities sales commissions
98

 
99

 
156

 
194

Gain on sales of securities
3

 
24

 
73

 
24

Gain (loss) on sales of branches and other assets
(12
)
 
(68
)
 
6

 
(68
)
Increase in cash surrender value of life insurance
128

 
83

 
230

 
188

Rental income from real estate operations
148

 
157

 
276

 
317

Other income
67

 
78

 
103

 
117

Total noninterest income
1,611

 
1,427

 
3,285

 
3,185

Noninterest expenses:
 

 
 

 
 

 
 

Salaries and employee benefits
2,439

 
2,429

 
4,820

 
4,726

Commissions
71

 
48

 
126

 
99

Occupancy
385

 
497

 
698

 
924

Furniture and equipment
125

 
129

 
228

 
259

Data processing
792

 
853

 
1,573

 
1,714

Advertising
44

 
25

 
104

 
92

Real estate held for investment
120

 
159

 
223

 
311

Net loss from operations and sale of foreclosed real estate
31

 
116

 
179

 
450

FDIC insurance premiums
107

 
169

 
212

 
342

Valuation loss on real estate held for sale

 
1,964

 

 
1,964

Branch realignment

 
573

 

 
573

Other expenses
1,108

 
1,352

 
2,164

 
2,504

Total noninterest expenses
5,222

 
8,314

 
10,327

 
13,958

Income (loss) before income tax expense (benefit)
749

 
(3,014
)
 
1,419

 
(2,948
)
Income tax expense (benefit)
265

 
(1,215
)
 
488

 
(1,217
)
Net income (loss)
$
484

 
$
(1,799
)
 
$
931

 
$
(1,731
)
Earnings per share:
 

 
 

 
 

 
 

Basic
$
0.11

 
$
(0.38
)
 
$
0.21

 
$
(0.36
)
Diluted
$
0.11

 
$
(0.38
)
 
$
0.21

 
$
(0.36
)
See Notes to Unaudited Consolidated Financial Statements.

3


Westbury Bancorp, Inc. and Subsidiary
 
Consolidated Statements of Comprehensive Income (Loss)
Three and Six Months Ended March 31, 2015 and 2014
(Unaudited)
(In Thousands)
 
 
Three Months Ended 
 March 31,
 
Six Months Ended 
 March 31,
 
2015
 
2014
 
2015
 
2014
Net income (loss)
$
484

 
$
(1,799
)
 
$
931

 
$
(1,731
)
Other comprehensive income, before tax:
 

 
 

 
 

 
 

Unrealized gains on available-for-sale securities
620

 
1,108

 
875

 
612

Reclassification adjustment for realized gains included in net income
(3
)
 
(24
)
 
(73
)
 
(24
)
Other comprehensive income, before tax
617

 
1,084

 
802

 
588

Income tax expense related to items of other comprehensive income
(242
)
 
(459
)
 
(315
)
 
(218
)
Other comprehensive income, net of tax
375

 
625

 
487

 
370

Comprehensive income (loss)
$
859

 
$
(1,174
)
 
$
1,418

 
$
(1,361
)
 
See Notes to Unaudited Consolidated Financial Statements.


4


Westbury Bancorp, Inc. and Subsidiary
 
Consolidated Statements of Changes in Stockholders’ Equity
Six Months Ended March 31, 2015 and 2014
(Unaudited)
(In Thousands, except share data)
 
Preferred
Stock
 
Common
Stock
 
Additional
Paid In
Capital
 
Retained
Earnings
 
Unearned
ESOP
Shares
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Common Stock Repurchased
 
Total
Balance, September 30, 2013
$

 
$
51

 
$
48,800

 
$
46,625

 
$
(4,114
)
 
$
(760
)
 
$

 
$
90,602

Net loss

 

 

 
(1,731
)
 

 

 

 
(1,731
)
Other comprehensive income, net of tax

 

 

 

 

 
370

 

 
370

Allocation of 20,570 shares by ESOP

 

 
81

 

 
206

 

 

 
287

Commitment to be allocated of 5,142 ESOP shares

 

 
21

 

 
51

 

 

 
72

Balance, March 31, 2014
$

 
$
51

 
$
48,902

 
$
44,894

 
$
(3,857
)
 
$
(390
)
 
$

 
$
89,600

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, September 30, 2014
$

 
$
53

 
$
49,164

 
$
45,190

 
$
(3,754
)
 
$
(46
)
 
$
(4,120
)
 
$
86,487

Net income

 

 

 
931

 

 

 

 
931

Other comprehensive income, net of tax

 

 

 

 

 
487

 

 
487

Repurchase of 546,861 shares of common stock

 

 

 

 

 

 
(9,369
)
 
(9,369
)
Stock based compensation expense

 

 
402

 

 

 

 

 
402

Allocation of 5,142 shares by ESOP

 

 
61

 

 
51

 

 

 
112

Commitment to be allocated of 5,142 ESOP shares
 
 
 
 
34

 
 
 
52

 
 
 

 
86

Balance, March 31, 2015
$

 
$
53

 
$
49,661

 
$
46,121

 
$
(3,651
)
 
$
441

 
$
(13,489
)
 
$
79,136

 
See Notes to Unaudited Consolidated Financial Statements.


5



Westbury Bancorp, Inc. and Subsidiary
 
 
 
 
 
 
 
Consolidated Statements of Cash Flows
 
 
 
Six Months Ended March 31, 2015 and 2014 (Unaudited)
 
 
 
(In Thousands)
 
 
 
 
Six Months Ended 
 March 31,
 
2015
 
2014
Cash Flows From Operating Activities
 

 
 

Net income (loss)
$
931

 
$
(1,731
)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
 

 
 

Provision for loan losses
650

 
350

Depreciation and amortization
317

 
393

            Depreciation on real estate held for investment
66

 
89

Net amortization of securities premiums and discounts
272

 
326

Amortization and impairment of mortgage servicing rights
215

 
(14
)
Capitalization of mortgage servicing rights

 
(1
)
Gain on sales of available-for-sale securities
(73
)
 
(24
)
(Gain) loss on sales of branches and other assets
(6
)
 
68

Write-down of real estate held-for-sale

 
1,964

Branch realignment

 
573

Loss on sale of foreclosed real estate
20

 
150

Write-down of foreclosed real estate
57

 
183

Loans originated for sale
(14,510
)
 
(5,188
)
Proceeds from sale of loans
13,485

 
5,783

Gain on sale of loans, net
(243
)
 
(64
)
ESOP compensation expense
198

 
168

Stock based compensation expense
402

 

Deferred income taxes
488

 
(1,191
)
Increase in cash surrender value of life insurance
(230
)
 
(188
)
Net change in:
 

 
 

Other assets
(107
)
 
(312
)
Other liabilities and advance payments by borrowers for property taxes and insurance
(4,317
)
 
(5,380
)
Net cash used in operating activities
(2,385
)
 
(4,046
)
Cash Flows From Investing Activities
 

 
 

Purchases of securities available-for-sale
(10,287
)
 
(9,599
)
Proceeds from sales of securities available-for-sale
17,536

 
14,145

Proceeds from maturities, prepayments, and calls of securities available-for-sale
5,819

 
5,038

Purchases of securities held to maturity
(3,025
)
 

Purchase of FHLB stock
(680
)
 

Net increase in loans
(51,648
)
 
(14,924
)
Purchases of office properties and equipment
(486
)
 
(483
)
Proceeds from sales of foreclosed real estate
603

 
717

Net cash used in investing activities
(42,168
)
 
(5,106
)
Cash Flows From Financing Activities
 

 
 

Net increase in deposits
57,119

 
10,400

Decrease in Federal Home Loan Bank borrowings
(4,000
)
 

Repurchase of common stock
(9,369
)
 

Net cash provided by financing activities
43,750

 
10,400

Net increase (decrease) in cash and cash equivalents
(803
)
 
1,248

Cash and cash equivalents at beginning
17,608

 
47,665

Cash and cash equivalents at end
$
16,805

 
$
48,913

Supplemental Disclosures of Cash Flow Information
 

 
 

Interest paid (including amounts credited to deposits)
$
888

 
$
822

Supplemental Schedules of Non-cash Investing Activities
 

 
 

Loans receivable transferred to foreclosed real estate
$
425

 
$
474

Real estate held for investment transferred to real estate held for sale

 
2,255

Office properties and equipment transferred to real estate held for sale

 
2,451

 
See Notes to Unaudited Consolidated Financial Statements.

6


Westbury Bancorp, Inc. and Subsidiary
 
Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data)
 
Note 1.                                 Basis of Presentation

 The accompanying unaudited consolidated financial statements of Westbury Bancorp, Inc. and its wholly-owned subsidiary, Westbury Bank, (the "Bank", and collectively, the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X.  Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Estimates used in the preparation of the financial statements are based on various factors including the current interest rate environment and the general strength of the local economy.  Changes in the overall interest rate environment can significantly affect the Company’s net interest income and the value of its recorded assets and liabilities.  Actual results could differ from those estimates used in the preparation of the financial statements.  Certain prior period amounts have been reclassified to conform to current period presentation.  These reclassifications did not result in any changes to previously reported net income or stockholders’ equity.
 
In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the Company’s financial condition as of March 31, 2015 and September 30, 2014 and the results of operations and cash flows for the interim periods ended March 31, 2015 and 2014.  All interim amounts are unaudited, and the results of operations for the interim periods herein are not necessarily indicative of the results of operations to be expected for the year.  These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended September 30, 2014 filed as part of Westbury Bancorp, Inc.’s Annual Report on Form 10-K for the year ended September 30, 2014.
 
The Jumpstart Our Business Startups Act (the JOBS Act), which was signed into law on April 5, 2012, has made numerous changes to the federal securities laws to facilitate access to capital markets. Under the JOBS Act, a company with total annual gross revenues of less than $1.0 billion during its most recently completed fiscal year qualifies as an “emerging growth company.” The Company qualifies as an “emerging growth company” and believes that it will continue to qualify as an “emerging growth company” until five years from the completion of the stock offering.

As an “emerging growth company,” the Company has elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, the financial statements may not be comparable to the financial statements of companies that comply with such new or revised accounting standards.

Note 2.                                 Recent Accounting Developments
 
In January 2014, the FASB issued ASU 2014-04, Receivables (Topic 310) - Troubled Debt Restructurings by Creditors. ASU 2014-04 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 property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. ASU 2014-04 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2014. Adoption by the Company is not expected to have a material impact on the consolidated financial statements and related disclosures.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 is intended to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP. ASU 2014-09 is effective for annual reporting periods and interim periods within those annual periods beginning after December 15, 2017. Adoption by the Company is not expected to have a material impact on the consolidated financial statements and related disclosures.

In June 2014, the FASB issued ASU 2014-11, Transfers and Servicing (Topic 860) - Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. ASU 2014-11 is intended to clarify the accounting for and improve the disclosures related to repurchase-to-maturity transactions and repurchase financings. ASU 2014-11 is effective for the first interim or

7


annual period beginning after December 15, 2015. Adoption by the Company is not expected to have a material impact on the consolidated financial statements and related disclosures.

In June 2014, the FASB issued ASU 2014-12, Compensation - Stock Compensation (Topic 718) - Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period. ASU 2014-12 is intended to clarify the accounting for the timing of expense recognition related to employee share-based payments in which a performance target that effects vesting could be achieved after the requisite service period. ASU 2014-12 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Adoption by the Company is not expected to have a material impact on the consolidated financial statements and related disclosures.

In August 2014, the FASB issued ASU 2014-14, Receivables - Troubled Debt Restructuring by Creditors (Topic 310) - Classification of Certain Government-Guaranteed Mortgage Loans Upon Foreclosure. ASU 2014-14 is intended to clarify the accounting for and improve the consistency of balance sheet classification of certain foreclosed mortgage loans that are either fully or partially guaranteed under government programs. Greater consistency in classification of such mortgage loans upon foreclosure is expected to provide more decision-useful information about a creditor's foreclosed mortgage loans that are expected to be recovered, at least in part, through government guarantees. ASU 2014-14 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Adoption by the Company is not expected to have a material impact on the consolidated financial statements and related disclosures.


Note 3.                                 Earnings Per Share
 
Earnings per common share is computed using the two-class method. Basic earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding, adjusted for weighted average unallocated ESOP shares, during the applicable period, excluding outstanding participating securities. Participating securities include non-vested restricted stock awards to the extent holders of these securities receive non-forfeitable dividends or dividend equivalents at the same rate as holders of the Company's common stock. Diluted earnings per share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of stock compensation using the treasury stock method.
 
The following table presents a reconciliation of the number of shares used in the calculation of basic and diluted earnings per common share (in thousands, except share and per share data).
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2015
 
2014
 
2015
 
2014
Net income (loss)
$
484

 
$
(1,799
)
 
$
931

 
$
(1,731
)
Basic potential common shares:
 

 
 
 
 
 
 
Weighted average shares outstanding
4,657,638

 
5,142,541

 
4,746,438

 
5,142,541

Weighted average unallocated ESOP shares
(368,549
)
 
(387,405
)
 
(371,149
)
 
(390,262
)
Basic weighted average shares outstanding
4,289,089

 
4,755.136

 
4,375,289

 
4,752.279

Dilutive effect of equity awards
33,670

 

 
28,971

 

Diluted weighted average shares outstanding
4,322,759

 
4,755,136

 
4,404,260

 
4,752,279

Basic income (loss) per share
$
0.11

 
$
(0.38
)
 
$
0.21

 
$
(0.36
)
Diluted income (loss) per share
$
0.11

 
$
(0.38
)
 
$
0.21

 
$
(0.36
)


8




Note 4.                                 Investment Securities
 
The amortized cost and fair value of investment securities are summarized as follows:
 
 
March 31, 2015
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
(Losses)
 
Fair
Value
Available for Sale
 
 
 
 
 
 
 
U.S. Government and agency securities
$
24

 
$
1

 
$

 
$
25

U.S. Government agency residential mortgage-backed securities
38,762

 
534

 
(112
)
 
39,184

U.S. Government agency collateralized mortgage obligations
2,424

 
23

 
(47
)
 
2,400

U.S. Government agency commercial mortgage-backed securities
9,617

 
77

 

 
9,694

Municipal securities
26,328

 
278

 
(28
)
 
26,578

Total Available for Sale
77,155

 
913

 
(187
)
 
77,881

Held to Maturity
 
 
 
 
 
 
 
Municipal securities
3,025

 
17

 

 
3,042

Total Investment Securities
$
80,180

 
$
930


$
(187
)

$
80,923

 
September 30, 2014
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
(Losses)
 
Fair
Value
Available for Sale
 
 
 
 
 
 
 
U.S. Government and agency securities
$
5,250

 
$

 
$
(71
)
 
$
5,179

U.S. Government agency residential mortgage-backed securities
37,144

 
389

 
(337
)
 
37,196

U.S. Government agency collateralized mortgage obligations
3,458

 
30

 
(56
)
 
3,432

U.S. Government agency commercial mortgage-backed securities
10,835

 
11

 
(94
)
 
10,752

Municipal securities
33,735

 
280

 
(228
)
 
33,787

Total Available for Sale
90,422

 
710

 
(786
)
 
90,346

Held to Maturity
 
 
 
 
 
 
 
Municipal securities

 

 

 

Total Investment Securities
$
90,422

 
$
710

 
$
(786
)
 
$
90,346



9



The amortized cost and fair value of investment securities, by contractual maturity at March 31, 2015 are shown in the following table.  Actual maturities differ from contractual maturities for mortgage-backed securities because the mortgages underlying the securities may be called or repaid without penalty.  Therefore, these securities are not presented in the maturity categories in the table below.
 
 
March 31, 2015
 
Amortized Cost
 
Fair Value
Available for sale:
 
 
 
Due in one year or less
$
2,447

 
$
2,475

Due after one year through five years
14,696

 
14,865

Due after five years through ten years
7,604

 
7,671

Due after ten years
1,605

 
1,592

U.S. Government agency collateralized mortgage obligations
2,424

 
2,400

U.S. Government agency residential mortgage-backed securities
38,762

 
39,184

U.S. Government agency commercial mortgage-backed securities
9,617

 
9,694

 
77,155

 
77,881

 
 
 
 
Held to maturity:
 
 
 
Due in one year or less
566

 
566

Due after one year through five years
679

 
680

Due after five years through ten years
929

 
937

Due after ten years
851

 
859

 
3,025

 
3,042

Total
$
80,180

 
$
80,923

 
Proceeds from sales of investment securities during the three months ended March 31, 2015 and 2014, were $5,452 and $14,145, respectively. Gross realized gains, during the three months ended March 31, 2015 and 2014, on these sales amount to $14 and $170, respectively. Gross realized losses on these sales were $11 and $146, during the three months ended March 31, 2015 and 2014 respectively.

Proceeds from sales of investment securities during the six months ended March 31, 2015 and 2014, were $17,536 and $14,145, respectively. Gross realized gains, during the six months ended March 31, 2015 and 2014, on these sales amounted to $125 and $170, respectively. Gross realized losses on these sales were $52 and $146, during the six months ended March 31, 2015 and 2014, respectively.

There were no securities that were pledged to secure treasury, tax, and loan deposits and other purposes required or permitted by law at March 31, 2015 and September 30, 2014.

10



Information pertaining to securities with gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are summarized as follows:
 
 
March 31, 2015
 
Less than 12 Months
 
12 Months or Longer
 
Total
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
U.S. Government and agency securities
$

 
$

 
$

 
$

 
$

 
$

U.S. Government agency residential mortgage-backed securities
3,858

 
(13
)
 
8,321

 
(99
)
 
12,179

 
(112
)
U.S. Government agency collateralized mortgage obligations

 

 
753

 
(47
)
 
753

 
(47
)
U.S Government agency commercial mortgage-backed securities

 

 

 

 

 

Municipal securities
2,008

 
(13
)
 
1,690

 
(15
)
 
3,698

 
(28
)
 
$
5,866

 
$
(26
)
 
$
10,764

 
$
(161
)
 
$
16,630

 
$
(187
)
 
 
September 30, 2014
 
Less than 12 Months
 
12 Months or Longer
 
Total
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
U.S. Government and agency securities
$

 
$

 
$
5,179

 
$
(71
)
 
$
5,179

 
$
(71
)
U.S. Government agency residential mortgage-backed securities
9,617

 
(54
)
 
13,075

 
(283
)
 
22,692

 
(337
)
U.S. Government agency collateralized mortgage obligations

 

 
891

 
(56
)
 
891

 
(56
)
U.S. Government agency commercial mortgage-backed securities
6,235

 
(73
)
 
1,033

 
(21
)
 
7,268

 
(94
)
Municipal securities
3,046

 
(8
)
 
13,621

 
(220
)
 
16,667

 
(228
)
 
$
18,898

 
$
(135
)
 
$
33,799

 
$
(651
)
 
$
52,697

 
$
(786
)
 
At March 31, 2015, the investment portfolio included 17 securities available-for-sale which had been in an unrealized loss position for more than twelve months and 8 securities available-for-sale which had been in an unrealized loss position for less than twelve months. These securities are considered to be acceptable credit risks.  Based upon an evaluation of the available evidence, including recent changes in market rates, credit rating information and information obtained from regulatory filings, management believes the decline in fair value for these securities is temporary.  The Company does not have any current requirement to sell and does not intend to sell these securities prior to any anticipated recovery in fair value.
 
At September 30, 2014, the investment portfolio included 63 securities available-for-sale which had been in an unrealized loss position for greater than twelve months and 25 securities available-for-sale which had been in an unrealized loss position for less than twelve months.


11


Note 5.                                 Loans
 
A summary of the balances of loans follows:
 
 
March 31, 2015
 
September 30,
2014
Real estate:
 

 
 

Single family
$
150,102

 
$
135,337

Multifamily
92,194

 
76,396

Commercial real estate
155,121

 
135,121

Construction and land development
20,941

 
16,362

Total real estate
418,358

 
363,216

Commercial business
34,569

 
37,675

Consumer:
 

 
 

Home equity lines of credit
12,608

 
14,275

Education
4,374

 
4,694

Other
2,342

 
1,321

Total consumer
19,324

 
20,290

Total loans
472,251

 
421,181

Less:
 

 
 

Net deferred loan fees
321

 
235

Allowance for loan losses
4,483

 
4,072

Net loans
$
467,447

 
$
416,874


The following tables present the contractual aging of the recorded investment in past due loans by class of loans as of March 31, 2015 and September 30, 2014:
 
March 31, 2015
 
Current
 
30-59 Days
Past Due
 
60-89 Days
Past Due
 
Loans Past
Due 90 Days
or More
 
Total
Single family
 
$
148,804

 
$
1,016

 
$

 
$
282

 
$
150,102

Multifamily
 
92,194

 

 

 

 
92,194

Commercial real estate
 
154,727

 

 

 
394

 
155,121

Construction and land development
 
20,941

 

 

 

 
20,941

Commercial business
 
34,567

 
2

 

 

 
34,569

Consumer and other:
 
 

 
 

 
 

 
 

 
 

Home equity lines of credit
 
12,428

 

 

 
180

 
12,608

Education
 
4,180

 
54

 
66

 
74

 
4,374

Other
 
2,342

 

 

 

 
2,342

 
 
$
470,183

 
$
1,072

 
$
66

 
$
930

 
$
472,251

 

12


September 30, 2014
 
Current
 
30-59 Days
Past Due
 
60-89 Days
Past Due
 
Loans Past
Due 90 Days
or More
 
Total
Single family
 
$
133,102

 
$
1,623

 
$
162

 
$
450

 
$
135,337

Multifamily
 
76,396

 

 

 

 
76,396

Commercial real estate
 
134,584

 
178

 
163

 
196

 
135,121

Construction and land development
 
16,362

 

 

 

 
16,362

Commercial business
 
37,653

 

 

 
22

 
37,675

Consumer and other:
 
 

 
 

 
 

 
 

 
 

Home equity lines of credit
 
13,918

 
228

 

 
129

 
14,275

Education
 
4,502

 
28

 
44

 
120

 
4,694

Other
 
1,319

 

 

 
2

 
1,321

 
 
$
417,836

 
$
2,057

 
$
369

 
$
919

 
$
421,181

 
There were no loans past due ninety days or more still accruing interest as of March 31, 2015 and September 30, 2014.
 
The following table presents the recorded investment in nonaccrual loans by class of loans as of March 31, 2015 and September 30, 2014:
 
 
March 31, 2015
 
September 30,
2014
Single family
$
426

 
$
791

Multifamily

 

Commercial real estate
394

 
350

Construction and land development

 

Commercial business

 
22

Consumer and other:
 
 
 
Home equity lines of credit
194

 
145

Education
74

 
120

Other

 
2

 
$
1,088

 
$
1,430

 
As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management categorizes loans into risk categories based on relevant information about the ability of the borrowers to service their debt and comply with various terms of their loan agreements.  The Company considers current financial information, historical payment experience, credit documentation, public information and current economic trends.  Generally, all sizeable credits receive a financial review no less than annually to monitor and adjust, if necessary, the credit’s risk profile.  Credits classified as watch and special mention generally receive a review more frequently than annually.
 
The Company categorizes loans into the following risk categories based on relevant information about the ability of borrowers to service their debt:
 
Pass — A pass asset is well protected by the current worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less costs to acquire and sell in a timely manner, of any underlying collateral.
 
Watch — A watch asset has potential weaknesses that deserve management’s close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date.  Watch assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.
 
Special Mention — A special mention asset has characteristics of deterioration in quality exhibited by any number of well-defined weaknesses requiring significant corrective action.  The repayment ability of the borrower has not been validated, or has become marginal or weak and the loan may have exhibited some overdue payments or payment extensions and/or renewals.
 

13


Substandard — A substandard asset is an asset with a well-defined weakness that jeopardizes repayment in whole or in part, of the debt.  These credits are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged.  These assets are characterized by the distinct possibility that the Company will or has sustained some loss of principal and/or interest if the deficiencies are not corrected.

Doubtful — A doubtful asset is an asset that has all the weaknesses inherent in the substandard classification with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.  These credits have a high probability for loss, yet because certain important and reasonably specific pending factors may work toward the strengthening of the asset, its classification of loss is deferred until its more exact status can be determined.
 
Homogeneous loan types are assessed for credit quality based on the contractual aging status of the loan and payment activity.  In certain cases, based upon payment performance, the loan being related with another commercial type loan or for other reasons, a loan may be categorized into one of the risk categories noted above, unless such loan carries private mortgage insurance (PMI).  Such assessment is completed at the end of each reporting period.
 
The following tables present the risk category of loans evaluated by internal asset classification based on the most recent analysis performed and the contractual aging as of March 31, 2015 and September 30, 2014:
 
March 31, 2015
 
Pass
 
Watch
 
Special Mention
 
Substandard
 
Doubtful
 
Total
Single family
 
$
147,649

 
$
1,151

 
$

 
$
1,302

 
$

 
$
150,102

Multifamily
 
88,915

 
2,841

 
438

 

 

 
92,194

Commercial real estate
 
148,027

 
4,931

 
961

 
1,202

 

 
155,121

Construction and land development
 
20,941

 

 

 

 

 
20,941

Commercial business
 
31,284

 
3,147

 

 
138

 

 
34,569

Consumer and other:
 
 

 
 

 
 

 
 

 
 

 
 

Home equity lines of credit
 
12,343

 

 

 
265

 

 
12,608

Education
 
4,374

 

 

 

 

 
4,374

Other
 
2,342

 

 

 

 

 
2,342

Total
 
$
455,875

 
$
12,070

 
$
1,399

 
$
2,907

 
$

 
$
472,251

 
September 30, 2014
 
Pass
 
Watch
 
Special Mention
 
Substandard
 
Doubtful
 
Total
Single family
 
$
132,067

 
$
1,317

 
$
118

 
$
1,835

 
$

 
$
135,337

Multifamily
 
73,876

 
1,915

 
445

 
160

 

 
76,396

Commercial real estate
 
126,319

 
6,117

 
858

 
1,827

 

 
135,121

Construction and land development
 
16,357

 

 

 
5

 

 
16,362

Commercial business
 
34,112

 
3,459

 

 
104

 

 
37,675

Consumer and other:
 
 

 
 

 
 

 
 

 
 

 
 

Home equity lines of credit
 
14,088

 

 

 
187

 

 
14,275

Education
 
4,694

 

 

 

 

 
4,694

Other
 
1,319

 

 

 
2

 

 
1,321

 
 
$
402,832

 
$
12,808

 
$
1,421

 
$
4,120

 
$

 
$
421,181



14


The following tables provide additional detail of the activity in the allowance for loan losses, by portfolio segment, for the three months ended March 31, 2015 and 2014:
 
Three Months Ended
March 31, 2015
 
Single Family
 
Multifamily
 
Commercial
Real Estate
 
Construction and
Land Development
 
Commercial
Business
 
Consumer
and Other
 
Total
Allowance for loan losses:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
 
$
1,025

 
$
932

 
$
1,388

 
$
367

 
$
412

 
$
100

 
$
4,224

Provision for loan losses
 
86

 
93

 
124

 
(6
)
 
(2
)
 
5

 
300

Loans charged-off
 
(47
)
 

 
(14
)
 

 

 

 
(61
)
Recoveries
 

 

 
9

 

 
5

 
6

 
20

Ending balance
 
$
1,064

 
$
1,025

 
$
1,507

 
$
361

 
$
415

 
$
111

 
$
4,483

Period-ended amount allocated for:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Individually evaluated for impairment
 
$
40

 
$

 
$

 
$

 
$

 
$
57

 
$
97

Collectively evaluated for impairment
 
1,024

 
1,025

 
1,507

 
361

 
415

 
54

 
4,386

Ending Balance
 
$
1,064

 
$
1,025

 
$
1,507

 
$
361

 
$
415

 
$
111

 
$
4,483

Loans:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Individually evaluated for impairment
 
$
1,683

 
$
1,874

 
$
1,085

 
$

 
$

 
$
278

 
$
4,920

Collectively evaluated for impairment
 
148,419

 
90,320

 
154,036

 
20,941

 
34,569

 
19,046

 
467,331

Ending Balance
 
$
150,102

 
$
92,194

 
$
155,121

 
$
20,941

 
$
34,569

 
$
19,324

 
$
472,251

 
Three Months Ended
March 31, 2014
 
Single Family
 
Multifamily
 
Commercial
Real Estate
 
Construction and
Land Development
 
Commercial
Business
 
Consumer
and Other
 
Total
Allowance for loan losses:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
 
$
1,658

 
$
138

 
$
1,493

 
$
171

 
$
220

 
$
63

 
$
3,743

Provision for loan losses
 
(183
)
 
(35
)
 
253

 
81

 
48

 
36

 
200

Loans charged-off
 
(146
)
 

 

 

 

 
(1
)
 
(147
)
Recoveries
 
84

 
4

 
1

 

 
11

 
2

 
102

Ending balance
 
$
1,413

 
$
107

 
$
1,747

 
$
252

 
$
279

 
$
100

 
$
3,898

Period-ended amount allocated for:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Individually evaluated for impairment
 
$
99

 
$

 
$

 
$

 
$

 
$
60

 
$
159

Collectively evaluated for impairment
 
1,314

 
107

 
1,747

 
252

 
279

 
40

 
3,739

Ending Balance
 
$
1,413

 
$
107

 
$
1,747

 
$
252

 
$
279

 
$
100

 
$
3,898

Loans:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Individually evaluated for impairment
 
$
2,742

 
$
3,011

 
$
2,062

 
$

 
$

 
$
177

 
$
7,992

Collectively evaluated for impairment
 
129,239

 
51,232

 
119,517

 
12,280

 
23,965

 
16,749

 
$
352,982

Ending Balance
 
$
131,981

 
$
54,243

 
$
121,579

 
$
12,280

 
$
23,965

 
$
16,926

 
$
360,974

 

15



The following tables provide additional detail of the activity in the allowance for loan losses, by portfolio segment, for the six months ended March 31, 2015 and 2014:

 
Six Months Ended
March 31, 2015
 
Single Family
 
Multifamily
 
Commercial
Real Estate
 
Construction and
Land Development
 
Commercial
Business
 
Consumer
and Other
 
Total
Allowance for loan losses:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
 
$
1,072

 
$
757

 
$
1,412

 
$
301

 
$
454

 
$
76

 
$
4,072

Provision for loan losses
 
189

 
268

 
139

 
60

 
(36
)
 
30

 
650

Loans charged-off
 
(208
)
 

 
(62
)
 

 
(14
)
 
(2
)
 
(286
)
Recoveries
 
11

 

 
18

 

 
11

 
7

 
47

Ending balance
 
$
1,064

 
$
1,025

 
$
1,507

 
$
361

 
$
415

 
$
111

 
$
4,483

Period-ended amount allocated for:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Individually evaluated for impairment
 
$
40

 
$

 
$

 
$

 
$

 
$
57

 
$
97

Collectively evaluated for impairment
 
1,024

 
1,025

 
1,507

 
361

 
415

 
54

 
4,386

Ending Balance
 
$
1,064

 
$
1,025

 
$
1,507

 
$
361

 
$
415

 
$
111

 
$
4,483

Loans:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Individually evaluated for impairment
 
$
1,683

 
$
1,874

 
$
1,085

 
$

 
$

 
$
278

 
$
4,920

Collectively evaluated for impairment
 
148,419

 
90,320

 
154,036

 
20,941

 
34,569

 
19,046

 
467,331

Ending Balance
 
$
150,102

 
$
92,194

 
$
155,121

 
$
20,941

 
$
34,569

 
$
19,324

 
$
472,251


 
Six Months Ended
March 31, 2014
 
Single Family
 
Multifamily
 
Commercial
Real Estate
 
Construction and
Land Development
 
Commercial
Business
 
Consumer
and Other
 
Total
Allowance for loan losses:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
 
$
1,873

 
$
165

 
$
1,501

 
$
374

 
$
211

 
$
142

 
$
4,266

Provision for loan losses
 
(117
)
 
(62
)
 
466

 
(122
)
 
202

 
(17
)
 
350

Loans charged-off
 
(442
)
 

 
(232
)
 

 
(159
)
 
(28
)
 
(861
)
Recoveries
 
99

 
4

 
12

 

 
25

 
3

 
143

Ending balance
 
$
1,413

 
$
107

 
$
1,747

 
$
252

 
$
279

 
$
100

 
$
3,898

Period-ended amount allocated for:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Individually evaluated for impairment
 
$
99

 
$

 
$

 
$

 
$

 
$
60

 
$
159

Collectively evaluated for impairment
 
1,314

 
107

 
1,747

 
252

 
279

 
40

 
3,739

Ending Balance
 
$
1,413

 
$
107

 
$
1,747

 
$
252

 
$
279

 
$
100

 
$
3,898

Loans:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Individually evaluated for impairment
 
$
2,742

 
$
3,011

 
$
2,062

 
$

 
$

 
$
177

 
$
7,992

Collectively evaluated for impairment
 
129,239

 
51,232

 
119,517

 
12,280

 
23,965

 
16,749

 
$
352,982

Ending Balance
 
$
131,981

 
$
54,243

 
$
121,579

 
$
12,280

 
$
23,965

 
$
16,926

 
$
360,974



 

16



The following tables present additional detail of impaired loans, segregated by segment, as of and for the three and six month periods ended March 31, 2015 and 2014.  The unpaid principal balance represents the recorded balance prior to any partial charge-offs.  The recorded investment represents customer balances net of any partial charge-offs recognized on the loans.  The interest income recognized column represents all interest income reported on either a cash or accrual basis after the loan became impaired.
 
 
 
 
 
 
 
 
 
Three months ended
 
Six months ended
March 31, 2015
 
Unpaid
Principal
Balance
 
Recorded
Investment
 
Allowance for
Loan Losses
Allocated
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
With no related allowance recorded: 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Single family
 
$
1,569

 
$
1,367

 
$

 
$
1,258

 
$
12

 
$
1,310

 
$
21

Multifamily
 
1,970

 
1,874

 

 
1,884

 
20

 
1,894

 
40

Commercial real estate
 
1,179

 
1,085

 

 
822

 
15

 
703

 
25

Construction and land development
 

 

 

 

 

 

 

Commercial business
 

 

 

 

 

 

 

Consumer and other
 
301

 
221

 

 
262

 
1

 
223

 
2

With an allowance recorded:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Single family
 
316

 
316

 
40

 
355

 
4

 
343

 
7

Multifamily
 

 

 

 

 

 

 

Commercial real estate
 

 

 

 

 

 
55

 

Construction and land development
 

 

 

 

 

 

 

Commercial business
 

 

 

 

 

 

 

Consumer and other
 
57

 
57

 
57

 
58

 
1

 
58

 
1

 
 
$
5,392

 
$
4,920

 
$
97

 
$
4,639


$
53

 
$
4,586

 
$
96

 
 
 
 
 
 
 
 
 
Three months ended
 
Six months ended
March 31, 2014
 
Unpaid
Principal
Balance
 
Recorded
Investment
 
Allowance for
Loan Losses
Allocated
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
With no related allowance recorded: 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Single family
 
$
2,499

 
$
2,334

 
$

 
$
2,467

 
$
4

 
$
2,111

 
$
10

Multifamily
 
3,366

 
3,011

 

 
3,022

 
36

 
3,706

 
73

Commercial real estate
 
2,134

 
2,062

 

 
1,966

 
13

 
1,870

 
28

Construction and land development
 

 

 

 

 

 

 

Commercial business
 

 

 

 

 

 

 

Consumer and other
 
335

 
117

 

 
118

 

 
127

 

With an allowance recorded:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Single family
 
1,235

 
408

 
99

 
204

 

 
510

 

Multifamily
 

 

 

 
85

 

 
114

 

Commercial real estate
 

 

 

 
99

 

 
126

 

Construction and land development
 

 

 

 

 

 
64

 

Commercial business
 

 

 

 

 

 

 

Consumer and other
 
60

 
60

 
60

 
60

 
1

 
60

 
2

 
 
$
9,629

 
$
7,992

 
$
159

 
$
8,021

 
$
54

 
$
8,688

 
$
113



17



The following is a summary of troubled debt restructured loans (TDRs) at March 31, 2015 and September 30, 2014:
 
 
March 31, 2015
 
September 30, 2014
Troubled debt restructurings - accrual
$
3,449

 
$
3,507

Troubled debt restructurings - nonaccrual

 
195

 
$
3,449

 
$
3,702

 
Modifications of loan terms in a TDR are generally in the form of an extension of payment terms or lowering of the interest rate, although occasionally the Company has reduced the outstanding principal balance.
 
There were no loans modified in a TDR during the three months ended March 31, 2015 and 2014. There were no loans modified in a TDR during the six months ended March 31, 2015. During the six months ended March 31, 2014, single family loans totaling $88 were modified in a TDR.

There were no re-defaults of TDR that occurred during the three months or six months ended March 31, 2015 and 2014.
 
Certain of the Bank’s officers, employees, directors, and their associates are loan customers of the Bank.  As of March 31, 2015 and September 30, 2014, loans of approximately $5,333 and $4,653, respectively, were outstanding to such parties.  These loans were made on substantially the same terms as those prevailing for comparable transactions with other persons and do not involve more than the normal risk of collectability.

An analysis of such loans is as follows:
 
Six Months Ended March 31, 2015
 
 
Balance, beginning
$
4,653

New loans originated
1,159

Draws on lines of credit
131

Principal repayments
(610
)
Balance, ending
$
5,333



18


Note 6.                                 Deposits
 
The following table presents the composition of deposits as of:

 
March 31, 2015
 
September 30, 2014
 
Amount
 
Percent
 
Amount
 
Percent
Checking Accounts:
 

 
 

 
 

 
 

Noninterest bearing
$
86,814

 
16.95
%
 
$
77,790

 
17.10
%
Interest bearing
138,605

 
27.07
%
 
132,925

 
29.22
%
 
225,419

 
44.02
%
 
210,715

 
46.32
%
Passbook and Statement Savings
127,028

 
24.81
%
 
122,227

 
26.87
%
Variable Rate Money Market Accounts
46,752

 
9.13
%
 
25,615

 
5.63
%
Certificates of Deposit
112,848

 
22.04
%
 
96,371

 
21.18
%
 
$
512,047

 
100.00
%
 
$
454,928

 
100.00
%
 
Certificates of deposit over one hundred thousand dollars totaled $55,170 and $34,853 as of March 31, 2015 and September 30, 2014, respectively. Of these amounts, $7,265 and $5,602 are equal to or greater than two hundred fifty thousand dollars as of March 31, 2015 and September 30, 2014, respectively.
 
Note 7.                                 Regulatory Capital
 
The federal banking agencies have adopted regulations that substantially amend the capital regulations currently applicable to us. These regulations implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act.

Effective January 1, 2015 (with some changes transitioned into full effectiveness over two to four years), the Bank became subject to new capital requirements adopted by the OCC. These new requirements create a new required ratio for common equity Tier 1 ("CETI") capital, increase the leverage and Tier 1 capital ratios, change the risk weight of certain assets for purposes of the risk-based capital ratios, create an additional capital conservation buffer over the required capital ratios and change what qualifies as capital for purposes of meeting these various capital requirements. Beginning in 2016, failure to maintain the required capital conservation buffer will limit the ability of the Bank to pay dividends, repurchase shares or pay discretionary bonuses. The Company is exempt from consolidated capital requirements as those requirements do not apply to certain small bank holding companies with assets under $1 billion.

Under the new capital regulations, the minimum capital ratios are: (1) CETI capital ratio of 4.5% of risk-weighted assets; (2) a Tier 1 capital ratio of 6.0% of risk-weighted assets: (3) a total capital ratio of 8.0% of risk-weighted assets; and (4) a leverage ratio of 4.0%. CETI generally consists of common stock and retained earnings, subject to applicable regulatory adjustments and deductions.

There are a number of changes in what constitutes regulatory capital, some of which are subject to transition periods. These changes include the phasing-out of certain instruments as qualifying capital. The Bank does not use any of these instruments. Under the new requirements for total capital, Tier 2 capital is no longer limited to the amount of Tier 1 capital included in total capital. Mortgage servicing rights, certain deferred tax assets and investments in unconsolidated subsidiaries over designated percentages of CETI will be deducted from capital. The Bank has elected to permanently opt-out of the inclusion of accumulated other comprehensive income in our capital calculations, as permitted by the regulations. This opt-out will reduce the impact of market volatility on our regulatory capital levels.

The new requirements also include changes in the risk-weights of assets to better reflect credit risk and other risk exposures. These include a 150% risk weight (increased from 100%) for certain high volatility commercial real estate acquisition, development and construction loans and for non-residential mortgage loans that are 90 days past due or otherwise in non-accrual status; a 20% (increased from 0%) credit conversion factor for the unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancellable; a 250% risk weight (increased from 100%) for mortgage servicing and deferred tax assets that are not deducted from capital; and increased risk weights (0% to 600%) for equity exposures.

In addition to the minimum CETI, Tier 1 and total capital ratios, the Bank will have to maintain a capital conservation buffer consisting of additional CETI capital greater than 2.5% of risk-weighted assets above the required minimum levels in order to

19


avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions. This new capital conservation buffer requirement will be phased in beginning in January 2016 at 0.625% of risk-weighted assets and increasing each year until fully implemented in January 2019.

The OCC's prompt corrective action standards changed effective January 1, 2015. Under the new standards, in order to be considered well-capitalized, the Bank must have a CETI ratio of 6.5% (new), a Tier 1 ratio of 8.0% (increased from 6.0%), a total risk-based capital ratio of 10.0% (unchanged) and a leverage ratio of 5.0% (unchanged). The Bank meets all these new requirements, including the full capital conservation buffer.
 
The Bank’s actual capital amounts and ratios and those required by the regulatory standards in effect as of the dates presented are as follows:
  
At March 31, 2015
Actual
 
For Capital Adequacy
Purposes
 
To Be Well Capitalized Under Prompt Corrective Action Provisions
 
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
CETI capital (to risk-weighted assets) - Westbury Bank
64,023

 
13.18
%
 
21,859

 
4.50
%
 
31,574

 
6.50
%
Tier 1 capital (to risk-weighted assets) - Westbury Bank
64,023

 
13.18
%
 
29,146

 
6.00
%
 
38,861

 
8.00
%
Total capital (to risk-weighted assets) - Westbury Bank
$
68,506

 
14.11
%
 
$
38,841

 
8.00
%
 
$
48,551

 
10.00
%
Leverage (to adjusted total assets) - Westbury Bank
64,023

 
10.57
%
 
24,228

 
4.00
%
 
30,285

 
5.00
%


 
At September 30, 2014
Actual
 
For Capital Adequacy
Purposes
 
To Be Well Capitalized Under Prompt Corrective Action Provisions
 
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
Total capital (to risk-weighted assets) - Westbury Bank
$
65,181

 
16.18
%
 
$
32,228

 
8.00
%
 
$
40,285

 
10.00
%
Tier 1 capital (to risk-weighted assets) - Westbury Bank
61,109

 
15.17
%
 
16,113

 
4.00
%
 
24,170

 
6.00
%
Tier 1 capital (to adjusted total assets) - Westbury Bank
61,109

 
11.13
%
 
21,962

 
4.00
%
 
27,452

 
5.00
%
 
The following table reconciles the Bank’s stockholders’ equity to regulatory capital as of March 31, 2015 and September 30, 2014:
 
 
March 31,
2015
 
September 30,
2014
Stockholders’ equity of the Bank
$
69,299

 
$
67,529

Less: Disallowed servicing assets

 
(162
)
Unrealized (gain) loss on securities
(438
)
 
33

Disallowed investment in subsidiary
(3,296
)
 
(3,296
)
Disallowed deferred tax assets
(1,542
)
 
(2,995
)
Tier 1 capital and tangible capital
64,023

 
61,109

Plus: Allowable general valuation allowances
4,483

 
4,072

Risk-based capital
$
68,506

 
$
65,181

 
Note 8.                          Commitments
 
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments include commitments to extend credit and involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.  The contractual amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

20


 
The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit is represented by the contractual amount of those instruments.  The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
 
The following instruments were outstanding whose contract amounts represent credit risk:
 
 
March 31, 2015
 
September 30,
2014
Commitments to extend mortgage credit:
 

 
 

Fixed rate
$
2,422

 
$
960

Adjustable rate
1,941

 
3,339

Unused commercial loan and home equity lines of credit
85,711

 
61,325

Standby letters of credit
951

 
422

Commitment to sell loans
1,594

 
326


Commitments to extend credit are agreements to lend funds 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.  As some such commitments expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  The Company evaluates each customer’s creditworthiness on a case-by-case basis.  The Company generally extends credit only on a secured basis.  Collateral obtained varies but consists primarily of single family residences.
 
Unfunded commitments under lines of credit are commitments for possible future extensions of credit to existing customers.  These lines of credit may be uncollateralized and ultimately may not be drawn upon to the total extent to which the Company is committed.
 
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.  Those letters of credit are primarily issued to support public and private borrowing arrangements, and, generally, have terms of one year or less.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.  The Company holds collateral supporting those commitments if deemed necessary.  In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Company would be required to fund the commitment.  The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount shown in the summary above.  If the commitment is funded, the Company would be entitled to seek recovery from the customer.  At March 31, 2015 and September 30, 2014, no amounts have been recorded as liabilities for the Company’s potential obligations under these guarantees.

Commitments to sell loans are commitments to sell single family mortgage loans to investors on the secondary market.
 
Note 9.                          Fair Value Measurements
 
ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.  ASC Topic 820 requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach.  Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability.  Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.  In that regard, ASC Topic 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
 
Level 1:  Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
 

21


Level 2:  Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
 
Level 3:  Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.
 
Securities available-for-sale:  The fair value of the Company’s securities available-for-sale is determined using Level 2 inputs, which are derived from readily available pricing sources and third-party pricing services for comparable instruments.  The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, treasury yield curves, trading levels, credit information and credit terms, among other factors. In certain cases where Level 1 or Level 2 are not available, securities are classified within Level 3 of the hierarchy.
 
Derivatives:  The fair values of the Company’s embedded derivatives related to certain certificates of deposit are determined using inputs that are observable or that can be corroborated by observable market data (such as the S&P 500 Index and the 10- year U.S. Treasury rate) and, therefore, are classified within Level 2 of the valuation hierarchy.
 
Assets and liabilities recorded at fair value on a recurring basis:  The following table summarizes assets measured at fair value on a recurring basis, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value as of:
 
 
 
 
 
Fair Value Measurements
March 31, 2015
 
Total
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant Other
Unobservable
Inputs (Level 3)
Assets
 
 

 
 

 
 

 
 

Securities available-for-sale
 
 

 
 

 
 

 
 

U.S. Government and agency securities
 
$
25

 
$

 
$
25

 
$

U.S. Government agency residential mortgage-backed securities
 
39,184

 

 
39,184

 

U.S. Government agency collateralized mortgage obligations
 
2,400

 

 
2,400

 

U.S. Government agency commercial mortgage-backed securities
 
9,694

 

 
9,694

 

Municipal securities
 
26,578

 

 
26,578

 

Total securities available-for-sale
 
$
77,881

 
$

 
$
77,881

 
$

Derivatives
 
$
151

 
$

 
$
151

 
$

 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 

 
 
 
 

Derivatives
 
$
151

 
$

 
$
151

 
$



22


 
 
 
 
Fair Value Measurements
September 30, 2014
 
Total
 
Quoted Prices in
Active Markets  for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant Other
Unobservable
Inputs (Level 3)
Assets
 
 

 
 

 
 

 
 

Securities available-for-sale
 
 

 
 

 
 

 
 

U.S. Government and agency securities
 
$
5,179

 
$

 
$
5,179

 
$

U.S. Government agency residential mortgage-backed securities
 
37,196

 

 
37,196

 

U.S. Government agency collateralized mortgage obligations
 
3,432

 

 
3,432

 

U.S. Government agency commercial mortgage-backed securities
 
10,752

 

 
10,752

 

Municipal securities
 
33,787

 

 
33,787

 

Total securities available-for-sale
 
$
90,346

 
$

 
$
90,346

 
$

Derivatives
 
$
87

 
$

 
$
87

 
$

 
 
 
 
 
 
 
 
 
Liabilities
 
 

 
 

 
 

 
 

Derivatives
 
$
87

 
$

 
$
87

 
$

 
The Company did not have any transfers between Level 1, Level 2, and Level 3 of the fair value hierarchy during the six months ended March 31, 2015.  The Company’s policy for determining transfers between levels occurs at the end of the reporting period when circumstances in the underlying valuation criteria change and result in a transfer between levels.
 
Assets recorded at fair value on a nonrecurring basis:  The Company may be required, from time to time, to measure certain instruments at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles.
 
Impaired loans:  The Company does not record loans at fair value on a recurring basis.  The specific reserves for collateral-dependent impaired loans are based on the fair value of the collateral less estimated costs to sell. The fair value of collateral is determined based on appraisals.  In some cases, adjustments were made to the appraised values due to various factors including age of the appraisal, age of comparables included in the appraisal, and known changes in the market and in the collateral.  When significant adjustments were based on unobservable inputs, the resulting fair value measurement has been categorized as a Level 3 measurement.  Impaired loans with a carrying amount of $373 and $541 have a valuation allowance of $97 and $136 included in the allowance for loan losses to reflect their fair value as of March 31, 2015 and September 30, 2014, respectively.
 
Foreclosed real estate:  The Company does not record foreclosed real estate owned at a fair value on a recurring basis.  The fair value of foreclosed real estate was determined using Level 3 inputs based on appraisals or broker pricing opinions.  In some cases, adjustments were made to these values due to various factors including the age of the appraisal, age of comparables included in the appraisal, and known changes in the market and in collateral.  Foreclosed real estate is measured at fair value less estimated costs to sell at the date of foreclosure.  Subsequent to foreclosure, additional writedowns may be recorded based on changes to the fair value of the assets.

Mortgage servicing rights:  Mortgage servicing rights ("MSRs") do not trade in an active, open market with readily observable prices.  While sales of MSRs do occur, the precise terms and conditions typically are not readily available.  Accordingly, the Company estimates the fair value of MSRs using discounted cash flow models incorporating numerous assumptions from the perspective of market participants including servicing income, servicing costs, market discount rates, prepayments speeds, and default rates.  Due to the nature of the valuation inputs, MSRs are classified within Level 3 of the valuation hierarchy.  As of March 31, 2015, mortgage servicing rights with a carrying amount of $1,569 have a valuation allowance of $160 to reflect their fair value of $1,409.  As of September 30, 2014, mortgage servicing rights with a carrying amount of $1,784 have a valuation allowance of $160 to reflect their fair value of $1,624.



23


 
 
 
 
Fair Value Measurements
March 31, 2015
 
Total
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant Other
Unobservable
Inputs (Level 3)
Assets
 
 

 
 

 
 

 
 

Impaired loans
 
$
276

 
$

 
$

 
$
276

Foreclosed real estate
 
2,100

 

 

 
2,100

Mortgage servicing rights
 
1,409

 

 

 
1,409

 
 
 
 
 
Fair Value Measurements
September 30, 2014
 
Total
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant Other
Unobservable
Inputs (Level 3)
Assets
 
 

 
 

 
 

 
 

Impaired loans
 
$
405

 
$

 
$

 
$
405

Foreclosed real estate
 
2,355

 

 

 
2,355

Mortgage servicing rights
 
1,624

 

 

 
1,624

 
Disclosure of fair value information about financial instruments, for which it is practicable to estimate that value, is required whether or not recognized in the consolidated balance sheets.  In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.  Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.  In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments.  Certain financial instruments with a fair value that is not practicable to estimate and all non-financial instruments are excluded from the disclosure requirements.  Accordingly, the aggregate fair value amounts presented do not necessarily represent the underlying value of the Company for assets and liabilities not previously described.  The Company, in estimating its fair value disclosures for financial instruments not described above, used the following methods and assumptions:
 
Cash and cash equivalents:  The carrying amounts of cash and cash equivalents reported in the consolidated balance sheets approximate those assets’ fair values.
 
Securities held to maturity: The fair values of securities held to maturity are based on quoted market prices for similar securities, adjusted for differences in security characteristics.

Loans:  For variable-rate mortgage loans that re-price frequently and with no significant change in credit risk, fair values are based on carrying values.  The fair values for fixed rate residential mortgage loans are based on quoted market prices for similar loans sold in conjunction with sale transactions, adjusted for differences in loan characteristics.  The fair values for commercial real estate loans, rental property mortgage loans, and consumer and other loans are estimated using discounted cash flow analyses and using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.
 
Loans held for sale:  Fair value of loans held for sale are based on commitments on hand from investors or prevailing market prices.
 
Federal Home Loan Bank stock:  The carrying amount of FHLB stock approximates its fair value based on the redemption provisions of the FHLB.
 
Accrued interest receivable and payable:  The carrying amounts of accrued interest receivable and payable approximate their fair values.
 
Deposits:  The fair value disclosed for interest-bearing and non-interest-bearing checking accounts, savings accounts, and money market accounts are equal to the amount payable on demand at the reporting date (i.e., their carrying amounts).  The fair values of fixed rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities of the outstanding certificates of deposit.

24


 
Advances from the Federal Home Loan Bank:  The fair values of FHLB advances are estimated using discounted cash flow analyses, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.
 
Advance payments by borrowers for property taxes and insurance:  The carrying amounts of the advance payments by borrowers for property taxes and insurance approximate their fair values.
 
Mortgage banking derivatives:  The fair value of commitments to originate mortgage loans held for sale is estimated by comparing the Company’s cost to acquire mortgages and the current price for similar mortgage loans, taking into account the terms of the commitments and the credit worthiness of the counterparties.  The fair value of forward commitments to sell residential mortgage loans is the estimated amount that the Bank would receive or pay to terminate the forward delivery contract at the reporting date based on market prices for similar financial instruments.  The fair value of these derivative financial instruments was not material at March 31, 2015 and September 30, 2014.

25


 
The estimated fair values and related carrying amounts of the Company’s financial instruments are as follows:
 
 
March 31, 2015
 
Carrying
Amount
 
Estimated Fair
Value
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant Other
Unobservable
Inputs
(Level 3)
Financial assets:
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
16,805

 
$
16,805

 
$
16,805

 
$

 
$

Securities available for sale
77,881

 
77,881

 

 
77,881

 

Securities held to maturity
3,025

 
3,042

 

 
3,042

 

Loans, net
467,447

 
467,980

 

 

 
467,980

Loans held for sale, net
1,594

 
1,594

 

 
1,594

 

Federal Home Loan Bank stock
3,350

 
3,350

 

 

 
3,350

Mortgage servicing rights
1,409

 
1,409

 

 

 
1,409

Accrued interest receivable
1,930

 
1,930

 
1,930

 

 

Derivative asset
151

 
151

 

 
151

 

Financial liabilities:
 

 
 

 
 

 
 

 
 

Deposits
512,047

 
489,066

 
86,814

 

 
402,252

Advances from Federal Home Loan Bank
13,000

 
13,000

 

 
13,000

 

Advance payments by borrowers for property taxes and insurance
1,966

 
1,966

 
1,966

 

 

Accrued interest payable
4

 
4

 
4

 

 

Derivative liability
151

 
151

 

 
151

 

 
 
September 30, 2014
 
Carrying
Amount
 
Estimated Fair
Value
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant Other
Unobservable
Inputs
(Level 3)
Financial assets:
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
17,608

 
$
17,608

 
$
17,608

 
$

 
$

Securities available for sale
90,346

 
90,346

 

 
90,346

 

Loans, net
416,874

 
415,857

 

 

 
415,857

Loans held for sale, net
326

 
326

 

 
326

 

Federal Home Loan Bank stock
2,670

 
2,670

 

 

 
2,670

Mortgage servicing rights
1,624

 
1,624

 

 

 
1,624

Accrued interest receivable
1,784

 
1,784

 
1,784

 

 

Derivative asset
87

 
87

 

 
87

 

Financial liabilities:
 

 
 

 
 

 
 

 
 

Deposits
454,928

 
442,342

 
77,790

 

 
364,552

Advances from Federal Home Loan Bank
17,000

 
17,000

 

 
17,000

 

Advance payments by borrowers for property taxes and insurance
5,869

 
5,869

 
5,869

 

 

Accrued interest payable
3

 
3

 
3

 

 

Derivative liability
87

 
87

 

 
87

 



26


Note 10.                                 Employee Stock Ownership Plan
 
The Bank maintains a leveraged employee stock ownership plan ("ESOP") that covers all employees meeting certain minimum age and service requirements. The ESOP was established in conjunction with the Company's stock offering completed in April 2013 and operates on a plan year ending December 31. The ESOP initially borrowed $4.1 million from the Company and used those funds to acquire 411,403 shares, or 8.0% of the total number of shares issued by the Company in its initial public offering. The shares were acquired at a price of $10.00 per share. The Bank makes annual contributions to the ESOP equal to the ESOP's debt service. The ESOP shares were pledged as collateral for its debt. As the debt is repaid, shares are released from collateral and allocated to active participants, based on the proportion of debt service paid in the year. The debt repayment and release of shares generally occurs at December 31, the plan year end date. The Company accounts for its ESOP in accordance with ASC 718-40. Accordingly, because the debt is intercompany, it is eliminated in consolidation for presentation in these statements. The shares pledged as collateral are reported as unearned ESOP shares in the balance sheet. Total ESOP shares may be reduced as a result of employees leaving the Company as shares that have previously been released to those exiting employees may be removed from the ESOP and transferred to that employee. As shares are committed to be released from collateral, the Company reports compensation expense equal to the current market price of the shares, and the shares become outstanding for EPS computations. During the three months ended March 31, 2015, 5,142 shares were committed to be released. The total ESOP compensation expense recorded for the three months ended March 31, 2015 and 2014 was $86 and $72 respectively. During the six months ended March 31, 2015, 10,284 shares were committed to be released, 5,142 of which were released and available for allocation at December 31, 2014 concurrent with the payment of the annual debt service on the ESOP loan. The total ESOP compensation expense recorded for the six months ended March 31, 2015 and 2014 was $198 and $168 respectively.

The ESOP shares as of March 31, 2015 and September 30, 2014 were as follows (in thousands, except share data):


March 31, 2015
 
September 30, 2014


 

Allocated shares to active participants
36,442

 
20,570

Shares committed to be released
5,142

 
15,428

Unallocated shares
365,121

 
375,405

Total ESOP shares
406,705

 
411,403

Fair value of unallocated shares
$
6,390

 
$
5,650


Note 11. Equity Compensation Plans

ASC Topic 718 requires that the grant date fair value of equity awards to employees be recognized as compensation expense over the period during which an employee is required to provide service in exchange for such award.

The following table summarizes the impact of the Company's share-based payment plans in the financial statements for the periods shown:

 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
Total cost of stock grant plan during the year
$
155

 
$

 
$
310

 
$

Total cost of stock option plan during the year
46

 

 
92

 

Total cost of share-based payment plans during the year
$
201

 
$

 
$
402

 

 
 
 
 
 
 
 
 
Amount of related income tax benefit recognized in income
$
79

 
$

 
$
158

 
$


The Company adopted the Westbury Bancorp Inc 2014 Equity Incentive Plan (the "Plan") in 2014. In June 2014, the Company's stockholders approved the Plan which authorized the issue of up to 203,665 restricted stock awards and up to 509,162 stock options. As of March 31, 2015 there were no restricted stock awards and 182,938 options available for future grants.


27


Annual equity-based incentive awards are typically granted to selected officers and employees mid-year. Options are granted with an exercise price equal to no less than the market price of the Company's shares at the date of grant: those option awards generally vest over five years of service and have 10-year contractual terms. Restricted shares and units typically vest over a five year period. Equity awards may also be granted at other times throughout the year in connection with the recruitment and retention of officers and employees.

The following table summarizes stock options outstanding for the three and six months ended March 31, 2015:
 
Number of Options
Weighted Average Exercise Price
Weighted Average Remaining Contractual Term (in years)
Aggregate Intrinsic Value (in thousands)
Options outstanding as of December 31, 2014
326,224

$
15.20

 
 
Granted


 
 
Exercised


 
 
Expired or canceled


 
 
Forfeited


 
 
Options outstanding as of March 31, 2015
326,224

$
15.20

9.25

$
750

Options exercisable as of March 31, 2015

$


$


 
Number of Options
Weighted Average Exercise Price
Weighted Average Remaining Contractual Term (in years)
Aggregate Intrinsic Value (in thousands)
Options outstanding as of September 30, 2014
326,224

$
15.20

 
 
Granted


 
 
Exercised


 
 
Expired or canceled


 
 
Forfeited


 
 
Options outstanding as of March 31, 2015
326,224

$
15.20

9.25

$
750

Options exercisable as of March 31, 2015

$


$


The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model based on certain assumptions. Expected volatility is based on historical volatility and the expectations of future volatility of Company shares. The risk free interest rate for periods within the contractual term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life of options is estimated based on historical employee behavior and represents the period of time that options granted are expected to remain outstanding.

The following assumptions were used for options granted during the year ended September 30, 2014:

Risk-free interest rate
2.10
%
Expected volatility of Company's stock
9.49
%
Expected dividend yield
%
Expected life of options (years)
7.5

Weighted average fair value per option of options granted during the year
$
2.82


The total intrinsic value of options exercised during the three and six months ended March 31, 2015 was $0.

28



The following is a summary of changes in restricted shares for the three and six months ended March 31, 2015:
 
Number of Shares
 
Weighted Average Grant Date Fair Value
Shares Outstanding at December 31, 2014
203,665

 
$
15.20

Granted

 

Vested

 

Forfeited

 

Shares Outstanding at March 31, 2015
203,665

 
$
15.20


 
Number of Shares
 
Weighted Average Grant Date Fair Value
Shares Outstanding at September 30, 2014
203,665

 
$
15.20

Granted

 

Vested

 

Forfeited

 

Shares Outstanding at March 31, 2015
203,665

 
$
15.20


The total intrinsic value of restricted shares that vested during the six months ended March 31, 2015 was $0.

As of March 31, 2015, there was $3.4 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements (including share option and nonvested share awards) granted under the Plan. At March 31, 2015, the weighted-average period over which the unrecognized compensation expense is expected to be recognized was approximately 4.25 years.

29



Note 12. Condensed Parent Company Financial Information

The condensed financial statements of Westbury Bancorp, Inc. (parent company only) are presented below:

Balance Sheets
(In thousands)
 
 
 
 
 
March 31,
 
September 30,
 
2015
 
2014
Assets
 
 
 
Cash and interest bearing deposits
$
2,775

 
$
6,878

Investments
1,424

 
6,590

Loan to ESOP
3,778

 
3,931

Investment in subsidiary
72,702

 
71,131

Other assets
1,992

 
1,674

   Total assets
$
82,671

 
$
90,204

Liabilities and Stockholders' Equity
 
 
 
Total liabilities
$
131

 
$
115

Stockholders' equity
82,540

 
90,089

Total liabilities and stockholders' equity
$
82,671

 
$
90,204



Statements of Operations
(In thousands)
 
 
 
 
 
 
 
 
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2015
 
2014
 
2015
 
2014
Interest and other income
$
63

 
$
71

 
$
126

 
$
141

Interest and other expense
165

 
261

 
349

 
448

Loss before income tax benefit and equity in undistributed net income of subsidiary
(102
)
 
(190
)
 
(223
)
 
(307
)
Income tax benefit
(24
)
 
(61
)
 
(54
)
 
(93
)
Loss before equity in undistributed net income (loss) of subsidiary
(78
)
 
(129
)
 
(169
)
 
(214
)
Equity in undistributed net income (loss) of subsidiary
562

 
(1,670
)
 
1,100

 
(1,517
)
   Net income (loss)
$
484

 
$
(1,799
)
 
$
931

 
$
(1,731
)


30



Statements of Cash Flows
(in thousands)
 
 
 
 
 
For Six Months Ended March 31,
 
2015
 
2014
Cash Flows From Operating Activities
 
 
 
  Net income (loss)
$
931

 
$
(1,731
)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
 
 
 
Equity in undistributed net income (loss) of subsidiary
(1,100
)
 
1,517

Net change in other liabilities
16

 
6

Net change in other assets
100

 
47

       Net cash used in operating activities
(53
)
 
(161
)
 
 
 
 
Cash Flows From Investing Activities
 
 
 
  Purchase of securities
(728
)
 
(663
)
  Sales and maturities of securities
5,894

 
706

  Payments received on ESOP loan
153

 
183

        Net cash provided by investing activities
5,319

 
226

 
 
 
 
Cash Flows From Financing Activities
 
 
 
Repurchase of common stock
(9,369
)
 

         Net cash used in financing activities
(9,369
)
 

         Net increase (decrease) in cash
(4,103
)
 
65

Cash
 
 
 
   Beginning of period
6,878

 
9,271

   End of period
$
2,775

 
$
9,336



31


ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
This Quarterly 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,” “will,” “may,” “should,” “indicate,” “would,” “believe,” “contemplate,” “continue,” “intend,” “target” 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 Quarterly 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 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 local real estate markets (including real estate values);
significant increases in our delinquencies and loan losses, including as a result of our inability to resolve classified or non-performing assets, changes in the underlying cash flows of our borrowers, 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 increasing our commercial business, commercial real estate and multi-family lending while maintaining our asset quality;
our success in introducing new financial products;
our ability to attract and maintain deposits;
our ability to achieve increased operating efficiencies and enhanced profitability following the closing of underperforming branch offices;
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;
fluctuations in the demand for loans, which may be affected by the number of unsold homes, land and other properties in our market areas and by declines in the value of real estate in our market area;
changes in consumer spending, borrowing and savings habits;
further declines in the yield on our assets resulting from the current low interest rate environment;
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, or prohibit us from paying dividends, which could adversely affect our dividends and earnings;
changes in the level of government support of housing finance;
our ability to enter new markets successfully and capitalize on growth opportunities;
changes in consumer spending, borrowing and savings habits;
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, 

32


capital requirements (particularly the new capital regulations), regulatory fees and compliance costs, and changes in the level of government support of housing finance;
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 compensation and benefit plans;
our ability to retain key members of our senior management team and to address staffing needs to respond to demand or to implement our strategic plans;
our ability to control costs and expenses, particularly those associated with operating as a publicly traded company;
changes in the financial condition or future prospects of issuers of securities that we own;
the ability of third-party service providers to perform their obligations to us;
the availability, effectiveness and security of our information technology systems; and
other economic, competitive, governmental, regulatory and operational factors affecting our operations, pricing, products and services.

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.

33



Critical Accounting Policies
 
There are no material changes to the critical accounting policies disclosed in Westbury Bancorp, Inc.’s Annual Report on Form 10-K for the period ended September 30, 2014.
 
Overview
Our Business. Westbury Bancorp, Inc. (the "Company") is a Maryland corporation and the savings and loan holding company for Westbury Bank (the "Bank") , which was formed in connection with the mutual-to-stock conversion of the Bank's former mutual holding company, WBSB Bancorp, MHC, in 2013. Westbury Bank is a federally-chartered savings bank headquartered in West Bend, Wisconsin.
We provide financial services to individuals, families and businesses through our nine banking offices located in Washington County and Waukesha County. Although our current operations are not focused in Milwaukee County, we are affected by conditions in Milwaukee County because our loan portfolio includes a significant number of loans that are secured by real estate or that have borrowers located in Milwaukee County. In addition, a number of our customers who reside in Washington or Waukesha Counties are employed in Milwaukee County, and the operations of our commercial customers depend in part on sales of products and services to individuals or other businesses located in Milwaukee County.
Our principal business consists of attracting retail and commercial deposits from the general public in our market area and investing those deposits, together with funds generated from operations, and to a lesser extent, borrowings, in one- to four-family residential real estate loans, commercial and multi-family real estate loans, construction loans and commercial business loans, and, to a lesser extent, consumer loans, including home equity lines of credit and automobile loans. A significant majority of our deposits are transaction accounts, which we believe are less susceptible to large-scale withdrawals than certificates of deposit as a result of changes in interest rates, and which we believe have a lower cost of funds over various interest cycles. At March 31, 2015, transaction accounts, consisting of checking, money market and savings accounts, made up 78.0% of our deposits. We also purchase investment securities consisting primarily of government-sponsored mortgage-backed securities, government-sponsored debentures, municipal securities and corporate securities.
Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provisions for loan losses, non-interest income and non-interest expense. Non-interest income consists primarily of service charges on deposit accounts, loan servicing income, gain on sales of securities and loans, debit card income, income from bank-owned life insurance and miscellaneous other income. Non-interest expense consists primarily of expenses related to compensation and employee benefits, occupancy and equipment, data processing, federal deposit insurance premiums, ATM charges, professional fees, advertising and other operating expenses.
Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.

Regulatory Matters - Federal Reserve Bank. On April 28, 2014, the Company received correspondence from the Federal Reserve Bank noting that it had no objection to the termination of a Board resolution which required the Company to receive prior written non-objection from the Federal Reserve Bank to declare or pay dividends, issue debt or redeem Company stock. The Board of Directors terminated the resolution at its May 2014 meeting.
Regulatory Matters - OCC. On January 6, 2014, the Company received notification from the Office of the Comptroller of the Currency (the “OCC”) that the Formal Written Agreement and Individual Minimum Capital Requirement ("IMCR") between the OCC and the Bank had been terminated effective December 24, 2013. The Bank had been subject to the Formal Written Agreement since October 29, 2012 and to a memorandum of understanding that the Formal Written Agreement superseded since February 2010. The Bank had been subject to the IMCR since November 5, 2012. As a result of the termination of the Formal Written Agreement, the Bank is no longer designated as in “troubled condition” and is designated as an “eligible institution” with respect to expedited processing of applications that it might file. Accordingly, the Bank is no longer required to obtain the approval of the OCC prior to effecting changes in its directors or executive officers, and is no longer subject to restrictions on the declaration or payment of dividends. 
Comparison of Financial Condition at March 31, 2015 and September 30, 2014
 
Total Assets.  Total assets increased by $41.4 million, or 7.3%, to $610.1 million at March 31, 2015 from $568.7 million at September 30, 2014.  The increase in total assets was primarily the result of an increase in net loans of $50.6 million,

34


loans held for sale of $1.3 million, and securities held to maturity of $3.0 million, offset by a decrease in cash and cash equivalents of $803,000 and securities available for sale of $12.5 million.
 
Net Loans.  Net loans increased by $50.6 million, or 12.1%, to $467.4 million at March 31, 2015 from $416.9 million at September 30, 2014.  Single family loans increased by $14.8 million, multifamily loans increased by $15.8 million, commercial real estate loans increased by $20.0 million and construction and land development loans increased by $4.6 million, offset by a decrease in commercial business loans of $3.1 million and in consumer loans of $966,000 and an increase in allowance for loan losses of $411,000 during the six months ended March 31, 2015. 

Investment Securities.  Investment securities available for sale decreased $12.5 million, or 13.8%, to $77.9 million at March 31, 2015 from $90.3 million at September 30, 2014.  Investment securities held to maturity increased $3.0 million to $3.0 million at March 31, 2015 from $0 at September 30, 2014.
 
Mortgage-backed securities and collateralized mortgage obligations decreased $102,000, to $51.3 million at March 31, 2015 from $51.4 million at September 30, 2014, municipal securities available for sale decreased $7.2 million, to $26.6 million at March 31, 2015 from $33.8 million at September 30, 2014 and government and agency securities decreased $5.2 million, to $25,000 at March 31, 2015 from $5.2 million at September 30, 2014.  Net unrealized gain on securities increased by $802,000 to $726,000 at March 31, 2015 from a net unrealized loss of $76,000 at September 30, 2014, reflecting the effect of a decrease in market interest rates.  At March 31, 2015, investment securities classified as available-for-sale consisted entirely of government-sponsored enterprise mortgage-backed securities and municipal securities. At March 31, 2015, investment securities classified as held to maturity consisted entirely of municipal securities.
 
Foreclosed Real Estate.  Foreclosed real estate held for sale decreased $255,000, or 10.8%, to $2.1 million at March 31, 2015 from $2.4 million at September 30, 2014, as we sold $623,000 of foreclosed properties, foreclosed or obtained deeds on $425,000 of non-performing loans and recorded valuation adjustments of $57,000 during the period.  At March 31, 2015, our foreclosed real estate included primarily one- to four-family residential real estate, multi-family and commercial real estate properties.
 
Deferred Tax Asset. Deferred tax asset decreased $803,000, or 14.1% , to $4.9 million at March 31, 2015 from $5.7 million at September 30, 2014, as the asset was reduced by the accrual of income tax expense as the Company recorded taxable income for the period. The reported balance is net of a valuation reserve of $2.4 million at March 31, 2015 and September 30, 2014. The Company evaluates the need for a valuation allowance in relation to deferred tax assets on a quarterly basis.  The current valuation allowance is primarily the result of uncertainty regarding projections of income in future quarters.  If the Company continues to be profitable, we may be able to record a partial or full reversal of the valuation allowance during the year ending September 30, 2015.

Deposits.  Deposits increased $57.1 million, or 12.6%, to $512.0 million at March 31, 2015 from $454.9 million at September 30, 2014.  Our core deposits, which we consider to be our non-interest bearing and interest bearing checking accounts, passbook and statement savings accounts, and variable rate money market accounts, increased $40.6 million, or 11.3%, to $399.2 million at March 31, 2015 from $358.6 million at September 30, 2014.  In particular, non-interest bearing deposits increased by $9.0 million, or 11.6%, to $86.8 million at March 31, 2015 from $77.8 million at September 30, 2014. Certificates of deposit increased $16.5 million, or 17.1%, to $112.8 million at March 31, 2015 from $96.4 million at September 30, 2014.  

Advances from FHLB. Advances from the FHLB decreased by $4.0 million, or 23.5% to $13.0 million at March 31, 2015 from $17.0 million at September 30, 2014 as we decreased advances due to the growth in deposits and sale of securities to fund current loan growth.
 
Other Liabilities.  Advance payments by borrowers for property taxes and insurance decreased by $3.9 million, or 66.5%, to $2.0 million at March 31, 2015 from $5.9 million at September 30, 2014 due to seasonal disbursements to customers in December to enable the payment of mortgagees’ property taxes offset by ongoing monthly payments by borrowers. 
 
Total Equity.  Total equity decreased $7.4 million to $79.1 million at March 31, 2015 from $86.5 million at September 30, 2014.  The decrease resulted primarily from the repurchase of 546,861 shares of common stock for $9.4 million offset by net income of $931,000 during the six months ended March 31, 2015, stock based compensation expense of $402,000, an increase in other comprehensive income of $487,000, and the release/allocation of ESOP shares of $198,000.

35


Delinquent Loans
 
The following table sets forth our loan delinquencies, including non-accrual loans, by type and amount at the dates indicated:
 
 
30-59 Days
 
Loans Delinquent For
60-89 Days
 
90 Days and Over
 
Total
 
Number
 
Amount
 
Number
 
Amount
 
Number
 
Amount
 
Number
 
Amount
 
(Dollars in thousands)
At March 31, 2015:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Real estate loans:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

One- to four-family
10

 
$
1,016

 

 
$

 
3

 
$
282

 
13

 
$
1,298

Multi-family

 

 

 

 

 

 

 

Commercial

 

 

 

 
2

 
394

 
2

 
394

Construction and land

 

 

 

 

 

 

 

Total real estate
10

 
1,016

 

 

 
5

 
676

 
15

 
1,692

Commercial business loans
1

 
2

 

 

 

 

 
1

 
2

Consumer loans:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Home equity lines of credit

 

 

 

 
1

 
180

 
1

 
180

Education
6

 
54

 
4

 
66

 
6

 
74

 
16

 
194

Other consumer loans

 

 

 

 

 

 

 

Total consumer loans
6

 
54

 
4

 
66

 
7

 
254

 
17

 
374

Total
17

 
$
1,072

 
4

 
$
66

 
12

 
$
930

 
33

 
$
2,068

At September 30, 2014:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Real estate loans:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

One- to four-family
16

 
$
1,623

 
2

 
$
162

 
6

 
$
450

 
24

 
$
2,235

Multi-family

 

 

 

 

 

 

 

Commercial
1

 
178

 
1

 
163

 
2

 
196

 
4

 
537

Construction and land

 

 

 

 

 

 

 

Total real estate
17

 
1,801

 
3

 
325

 
8

 
646

 
28

 
2,772

Commercial business loans

 

 

 

 
2

 
22

 
2

 
22

Consumer loans:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Home equity lines of credit
3

 
228

 

 

 
3

 
129

 
6

 
357

Education
4

 
28

 
6

 
44

 
10

 
120

 
20

 
192

Other consumer loans

 

 

 

 
1

 
2

 
1

 
2

Total consumer loans
7

 
256

 
6

 
44

 
14

 
251

 
27

 
551

Total
24

 
$
2,057

 
9

 
$
369

 
24

 
$
919

 
57

 
$
3,345




36


 
Classified Assets
 
The following table details the Company’s assets graded Substandard or Special Mention as of the date indicated:
 
 
At March 31,
2015
 
At September 30,
2014
 
(In thousands)
Classified Loans:
 

 
 

Loss
$

 
$

Doubtful

 

Substandard — performing:
 

 
 

Real estate loans:
 

 
 

One- to four-family
1,020

 
1,239

Multi-family

 
160

Commercial
1,076

 
1,477

Construction and land

 
5

Total real estate loans
2,096

 
2,881

Commercial business loans
138

 
82

Consumer loans:
 
 
 

Home equity lines of credit
85

 
58

Other consumer loans

 

Total consumer loans
85

 
58

Total substandard — performing
2,319

 
3,021

Substandard — Nonperforming:
 

 
 

Real estate loans:
 

 
 

One- to four-family
282

 
596

Multi-family

 

Commercial
126

 
350

Construction and land

 

Total real estate loans
408

 
946

Commercial business loans

 
22

Consumer loans:
 

 
 

Home equity lines of credit
180

 
129

Other consumer loans

 
2

Total consumer loans
180

 
131

Total substandard — nonperforming
588

 
1,099

Total classified loans
2,907

 
4,120

Foreclosed real estate
2,100

 
2,355

Total classified assets
$
5,007

 
$
6,475

Special mention:
 

 
 

Real estate loans:
 

 
 

One- to four-family
$

 
$
118

Multi-family
438

 
445

Commercial
961

 
858

Construction and land

 

Total real estate loans
1,399

 
1,421

Commercial business loans

 

Consumer loans:
 

 
 

Home equity lines of credit

 

Other consumer loans

 

Total consumer loans

 

Total special mention
1,399

 
1,421

Total classified assets and special mention loans
$
6,406

 
$
7,896


37


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 loans modified at interest rates materially less than current market rates.
 

 
At March 31, 2015
 
At September 30, 2014
 
(Dollars in thousands)
Nonaccrual loans:
 

 
 

Real estate loans:
 

 
 

One- to four-family
$
426

 
$
791

Multi family

 

Commercial
394

 
350

Construction and land

 

Total real estate
820

 
1,141

Commercial business loans

 
22

Consumer loans:
 

 
 

Home equity lines of credit
194

 
145

Education
74

 
120

Other consumer loans

 
2

Total consumer loans
268

 
267

Total nonaccrual loans(1)
1,088

 
1,430

Loans greater than 90 days delinquent and still accruing:
 

 
 

Real estate loans:
 

 
 

One- to four-family

 

Multi-family

 

Commercial

 

Construction and land

 

Total real estate

 

Commercial business loans

 

Consumer loans:
 

 
 

Home equity lines of credit

 

Education

 

Other consumer loans

 

Total consumer loans

 

Total delinquent loans accruing

 

Total non-performing loans
1,088

 
1,430

Foreclosed assets:
 

 
 

One- to four-family
527

 
653

Multi-family
402

 
458

Commercial real estate
1,149

 
1,149

Construction and land

 
95

Home equity line of credit
22

 

Total foreclosed assets
2,100

 
2,355

Total nonperforming assets
$
3,188

 
$
3,785

Performing troubled debt restructurings
$
3,449

 
$
3,507

Ratios:
 

 
 

Nonperforming loans to total loans
0.23
%
 
0.34
%
Nonperforming assets to total assets
0.52
%
 
0.67
%
Nonperforming assets and troubled debt restructurings to total assets
1.09
%
 
1.28
%
_______________________
(1)
Includes $0 and $195,000, respectively, of troubled debt restructurings that were on non-accrual status at March 31, 2015 and September 30, 2014.

38



The decrease in delinquent loans, classified and non-performing assets at March 31, 2015, from September 30, 2014, was primarily due to generally improved economic conditions, our collection efforts and the quality of our underwriting, which resulted in reductions in delinquent and non-performing loans and improved payment performance which allowed certain classified loans to be upgraded or paid off by refinance with another financial institution.
 
Interest income that would have been recorded for the three and six months ended March 31, 2015, had non-accruing loans been current according to their original terms, amounted to $18,000 and $36,000, respectively.  Interest of approximately $1,000 and $10,000, respectively, related to these loans was included in interest income for the three and six months ended March 31, 2015.
 
Other Loans of Concern.   There were no other loans at March 31, 2015 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.
 
Comparison of Operating Results for the Three Months Ended March 31, 2015 and March 31, 2014
 
General.  Net income for the three months ended March 31, 2015 was $484,000 compared to net loss of $1.8 million for the three months ended March 31, 2014. The increase in net income of $2.3 million was due primarily to increases of $587,000 in net interest income, $33,000 in service fees on deposit accounts and a decrease in recurring non-interest expenses of $555,000, offset by decreases in servicing fee income of $65,000 and gains of sales of securities of $21,000, and increases in provisions for loan losses of $100,000 and income tax expense of $1.5 million. In addition, during the three months ended March 31, 2014, the Company incurred a charge of $2.0 million to reduce the carrying value of real estate held for sale to fair value, and a charge of $573,000 for branch realignment (including severance pay accruals and writeoff of undepreciated leasehold improvements), and did not incur such charges in the three months ended March 31, 2015.
 
Interest and Dividend Income. Interest and dividend income increased $648,000, or 14.5%, to $5.1 million for the three months ended March 31, 2015 from $4.5 million for the three months ended March 31, 2014. This increase was primarily attributable to a $736,000 increase in interest income on loans receivable offset by a decrease of $88,000 in interest and dividend income on investment securities and interest-earning deposits.  The average balance of loans increased $98.3 million to $454.8 million for the three months ended March 31, 2015 from $356.5 million for the three months ended March 31, 2014. The average yield on loans decreased by 31 basis points to 4.12% for the three months ended March 31, 2015 from 4.43% for the three months ended March 31, 2014.  The average balance of investment securities decreased by $13.8 million, or 13.8%, to $86.1 million for the three months ended March 31, 2015 from $99.8 million for the three months ended March 31, 2014, while the average yield on investment securities decreased by 3 basis points to 1.95% for the three months ended March 31, 2015 from 1.98% for the three months ended March 31, 2014.   The decrease in our average yield on loans reflects the growth in our loan portfolio at current market rates and the effects of downward pressure on loan pricing caused by the prolonged low interest rate environment.
 
Interest Expense. Total interest expense increased $61,000, or 15.3%, to $460,000 for the three months ended March 31, 2015 from $399,000 for the three months ended March 31, 2014.  Interest expense on deposit accounts increased $48,000 to $446,000 for the three months ended March 31, 2015 from $398,000 for the three months ended March 31, 2014.  The average balance of interest bearing deposits decreased $21.3 million to $401.9 million for the three months ended March 31, 2015 from $423.2 million for the three months ended March 31, 2014, while the average cost of interest bearing deposits increased 6 basis points to 0.44% from 0.38%, although we continue to operate in a low interest rate environment. However, the composition of our interest bearing deposits changed, with the average balance of higher cost certificates of deposit increasing by $13.1 million and the average balance of lower cost checking, savings and money market accounts decreasing by $34.4 million. Interest expense on FHLB advances increased $13,000 to $14,000 for the three months ended March 31, 2015 from $1,000 for the three months ended March 31, 2014. The increase was due to an increase of $38.8 million in the average balance of FHLB advances to $43.3 million for the three months ended March 31, 2015 from $4.5 million for the three months ended March 31, 2014.
 
Net Interest Income. Net interest income increased $587,000, or 14.4%, to $4.7 million for the three months ended March 31, 2015 from $4.1 million for the three months ended March 31, 2014.  Average interest-earning assets increased by $74.3 million, or 15.6%, to $549.2 million for the three months ended March 31, 2015, from $474.9 million for the three months ended March 31, 2014. Average deposits and interest-bearing liabilities increased by $84.0 million, or 18.7%, to $531.8 million for the three months ended March 31, 2015, from $447.9 million for the three months ended March 31, 2014.  Our net interest margin decreased 4 basis points to 3.39% for the three months ended March 31, 2015 from 3.43% for the three months ended March 31, 2014.  The decrease in our net interest margin reflects the growth in our loan portfolio at current market rates and the effects of downward pressure on loan pricing caused by the prolonged low interest rate environment. The

39


prolonged low interest rate environment also has an adverse impact on our ability to further reduce rates on transaction accounts. 
 
Provision for Loan Losses.  We recorded a provision for loan losses of $300,000 for the three months ended March 31, 2015 compared to $200,000 for the three months ended March 31, 2014.  The increase in the provision corresponds with the growth in the loan portfolio compared to the prior year period partially offset by improvement in our charge-off experience compared to the prior year period. The allowance for loan losses was $4.5 million, or 0.95% of total loans, at March 31, 2015, compared to $4.1 million, or 0.97% of total loans, at September 30, 2014, and $3.9 million, or 1.08% of total loans, at March 31, 2014.  Total nonperforming loans were $1.1 million at March 31, 2015, compared to $1.4 million at September 30, 2014, and $4.4 million at March 31, 2014.  As a percentage of nonperforming loans, the allowance for loan losses was 412.0% at March 31, 2015, compared to 284.8% at September 30, 2014, and 87.9% at March 31, 2014.  Total classified loans were $2.9 million at March 31, 2015, compared to $4.1 million at September 30, 2014, and $9.6 million at March 31, 2014.
 
The allowance for loan losses reflects the balance we believe to be appropriate to cover incurred probable losses which were inherent in the loan portfolio at March 31, 2015, September 30, 2014, and March 31, 2014.
 
Non-Interest Income Non-interest income increased $184,000, or 12.9%, to $1.6 million for the three months ended March 31, 2015 from $1.4 million for the three months ended March 31, 2014. The increase was primarily related to increases in gain on sales of loans of $157,000, increase in cash surrender value of life insurance of $45,000, gain on sales of branches and other assets of $56,000, and service fees on deposit accounts of $33,000; offset by decreases in servicing fee income of $65,000, gain on the sale of securities of $21,000, insurance and securities sales commissions of $1,000, and rental income from real estate operations of $9,000.  The increase in gain on sales of loans resulted from improved demand for fixed rate mortgages during the period. The increase in increase in cash surrender value of life insurance resulted from a calendar year end increase in dividend payments on certain of our life insurance policies. The increase in service fees on deposit accounts resulted from an increase in debit card interchange income and overdraft fees on checking accounts.The decrease in servicing fee income resulted from the partial recovery, in the 2014 reporting period, of valuation reserves on our mortgage servicing asset as a result of an increase in the expected life of our serviced loan portfolio due to the increase in market interest rates during the 2014 reporting period.
 
Non-Interest Expense.  Non-interest expense decreased $3.1 million, or 37.2%, to $5.2 million for the three months ended March 31, 2015, from $8.3 million for the three months ended March 31, 2014. The decrease was primarily caused by decreases of $85,000 in net loss from operation and sale of foreclosed real estate, $112,000 in occupancy expense, $244,000 in other expenses, $61,000 in data processing expense, $62,000 in FDIC insurance premiums expense and $39,000 in real estate held for investment expenses, as well as non-recurring charges during the 2014 period of $2.0 million in charges to reduce the carrying value of real estate held for sale and $573,000 in branch realignment expenses. These reductions were offset by an increase of $10,000 in salaries and employee benefits. The charges to reduce the carrying value of real estate held for sale and the branch realignment expenses were incurred in 2014 in conjunction with the closing of two underperforming branch offices and the sale of our West Bend home loan center due to changes in our mortgage lending business. The decrease in net loss from operation and sale of foreclosed real estate resulted from lower levels of foreclosed real estate being managed, on average during the period, compared to the prior period. The decreases in occupancy expense and real estate held for investment expenses resulted from the closing of three branches and the sale of related real estate in the second half of fiscal 2014. The decrease in FDIC insurance premium expense was a result of the reduction of the rate the Bank is charged for this insurance due to the termination of the formal agreement with the OCC in fiscal 2014. The increase in salaries and employee benefits resulted primarily from the awards made under our equity incentive plan in June 2014.
 
Provision for Income Taxes.  Income tax expense was $265,000 for the three months ended March 31, 2015, compared to an income tax benefit of $1.2 million for the three months ended March 31, 2014.  The effective tax rate as a percent of pre-tax income(loss) was 35.4% and (40.3%) for the three months ended March 31, 2015 and 2014, respectively. The effective tax rate was higher for the three months ended March 31, 2015 due to the impact of tax-exempt income on the effective rate calculation in a tax loss scenario such as occurred in the three months ended March 31, 2014.

Comparison of Operating Results for the Six Months Ended March 31, 2015 and March 31, 2014
 
General.  Net income for the six months ended March 31, 2015 was $931,000 compared to net loss of $1.7 million for the six months ended March 31, 2014. The increase in net income of $2.7 million was primarily due to an increase in noninterest income of $100,000 and net interest income of $936,000 and a decrease in recurring non-interest expenses of $1.1 million, offset by increases in provisions for loan losses of $300,000 and income tax expense of $1.7 million. In addition, during the six months ended March 31, 2014, the Company incurred a charge of $2.0 million to reduce the carrying value of

40


real estate held for sale to fair value, and a charge of $573,000 for branch realignment (including severance pay accruals and writeoff of undepreciated leasehold improvements), and did not incur such charges in the six months ended March 31, 2015.
 
Interest and Dividend Income. Interest and dividend income increased $1.0 million, or 11.1%, to $10 million for the six months ended March 31, 2015 from $9.0 million for the six months ended March 31, 2014. This increase was primarily attributable to a $1.2 million increase in interest income on loans receivable offset by a $215,000 decrease in interest and dividend income on investment securities.  The average balance of loans increased $90.7 million, or 26.1%, to $438.9 million for the six months ended March 31, 2015 from $348.2 million for the six months ended March 31, 2014. The average yield on loans decreased 38 basis points to 4.17% for the six months ended March 31, 2015 from 4.55% for the six months ended March 31, 2014.  The average balance of investment securities decreased $17.3 million, or 16.8%, to $85.7 million for the six months ended March 31, 2015 from $103.0 million for the six months ended March 31, 2014, while the average yield on investment securities decreased 2 basis points to 1.93% for the six months ended March 31, 2015 from 1.95% for the six months ended March 31, 2014.   The increase in our net interest margin reflects the growth in the average balances of our loan portfolio offset partially by the effects of downward pressure on current market rates and loan pricing caused by the prolonged low interest rate environment.
 
Interest Expense. Total interest expense increased $66,000, or 8.0%, to $889,000 for the six months ended March 31, 2015 from $823,000 for the six months ended March 31, 2014.  Interest expense on deposit accounts increased $49,000 to $871,000 for the six months ended March 31, 2015 from $822,000 for the six months ended March 31, 2014.  The average balance of interest bearing deposits decreased $17.7 million to $407.4 million for the six months ended March 31, 2015 from $425.1 million for the six months ended March 31, 2014, while the average cost of interest bearing deposits increased 4 basis points to 0.43% from 0.39%, reflecting the continued low interest rate environment. However, the composition of our interest bearing deposits changed, with the average balance of higher cost certificates of deposit increasing by $11.1 million and the average balance of lower cost checking, savings and money market accounts decreasing by $28.9 million. Interest expense on FHLB advances increased $17,000 to $18,000 for the six months ended March 31, 2015 from $1,000 for the six months ended March 31, 2014. The increase was due to an increase of $24.4 million in the average balance of FHLB advances to $26.6 million for the three months ended March 31, 2015 from $2.2 million for the three months ended March 31, 2014.
 
Net Interest Income. Net interest income increased $936,000, or 11.4%, to $9.1 million for the six months ended March 31, 2015 from $8.2 million for the six months ended March 31, 2014.  Average interest-earning assets increased by $61.1 million, or 12.9%, to $533.8 million for the six months ended March 31, 2015, from $472.7 million for the six months ended March 31, 2014. Average deposits and interest-bearing liabilities increased by $59.8 million, or 13.4%, to $507.3 million for the six months ended March 31, 2015, from $447.5 million for the six months ended March 31, 2014.  Our net interest margin decreased 5 basis points to 3.41% for the six months ended March 31, 2015 from 3.46% for the six months ended March 31, 2014.  The decrease in our net interest margin reflects the effects of downward pressure on loan pricing caused by the prolonged low interest rate environment and its adverse impact on our ability to further reduce rates on transaction accounts.  The change in asset mix with growth in the loan portfolio also positively impacted the margin as investment securities generally do not carry yields as high as those on loan products.
 
Provision for Loan Losses.  We recorded a provision for loan losses of $650,000 for the six months ended March 31, 2015 compared to $350,000 for the six months ended March 31, 2014.  For additional information regarding our allowance for loan losses and certain relation ratios at March 31, 2015, September 30, 2014 and March 31, 2014, see "--Comparison of Operating Results for the Three Months Ended March 31, 2015 and March 31, 2014--Provision for Loan Losses" above.
 
The allowance for loan losses reflects the balance we believe to be appropriate to cover incurred probable losses which were inherent in the loan portfolio at March 31, 2015, September 30, 2014, and March 31, 2014.
 
Non-Interest Income Non-interest income increased $100,000, or 3.1%, to $3.3 million for the six months ended March 31, 2015 from $3.2 million for the six months ended March 31, 2014. The increase was primarily related to an increase in service fees on deposit accounts of $124,000, an increase in gains on sales of loans of $179,000, a increase in the gain on sales of securities of $49,000, and an increase in cash surrender value of life insurance of $42,000 for the six months ended March 31, 2015 from the six months ended March 31, 2014.  These increases were offset by an decrease in insurance and securities sales commissions of $38,000 and servicing fee income of $275,000 for the six months ended March 31, 2015 from the six months ended March 31, 2014. The increase in service fees on deposit accounts resulted from the implementation of an increase in our deposit fee structure during the period. The increase in gain on sales of loans resulted from improved demand for fixed rate mortgages during the period.  The increase in the gain on sales of securities resulted as we sold securities to fund the growth in our loan portfolio and to fund our stock repurchase program. The increase in cash surrender value of life insurance resulted from a calendar year end increase in dividend payments on certain of our life insurance policies. The decrease in insurance and securities sales commissions resulted as we restructured that business line in the second half of fiscal

41


2014 to improve its future contribution to profits. The decrease in servicing fee income resulted from the partial recovery, in the 2014 reporting period, of valuation reserves on our mortgage servicing asset as a result of an increase in the expected life of our serviced loan portfolio due to the increase in market interest rates during the 2014 reporting period.
 
Non-Interest Expense.  Non-interest expense decreased $3.6 million, or 26.0%, to $10.3 million for the six months ended March 31, 2015, from $14.0 million for the six months ended March 31, 2014. The decrease was primarily caused by a decrease of $271,000 in net loss from operations and sale of foreclosed real estate, $226,000 in occupancy, $141,000 in data processing, and $130,000 in FDIC insurance premiums, offset by an increase of $121,000 in compensation expense (salaries, benefits and commissions). Additionally, we incurred non-recurring charges during the 2014 period of $2.0 million in charges to reduce the carrying value of real estate held for sale and $573,000 in branch realignment expenses. The charges to real estate held for sale and for branch realignment related to our decision in 2014 to close two underperforming branch offices and to sell our West Bend home loan center due to changes in our mortgage lending business. The decrease in net loss from operation and sale of foreclosed real estate resulted from lower levels of foreclosed real estate being managed, on average during the period, compared to the prior period. The decreases in occupancy expense resulted from the closing of three branches and the sale of related real estate in the second half of fiscal 2014. The decrease in FDIC insurance premium expense was a result of the reduction of the rate the Bank is charged for this insurance due to the termination of the formal agreement with the OCC in fiscal 2014. The increase in salaries and benefits resulted primarily from the awards made under our equity incentive plan in June 2014.
 
Provision for Income Taxes.  Income tax expense was $488,000 for the six months ended March 31, 2015, compared to an income tax benefit of $1.2 million for the six months ended March 31, 2014.  The effective tax rate as a percent of pre-tax income(loss) was 34.4% and (41.3%) for the six months ended March 31, 2015 and 2014, respectively. The effective tax rate was higher for the six months ended March 31, 2015 due to the impact of tax-exempt income on the effective rate calculation in a tax loss scenario such as occurred in the six months ended March 31, 2014.
 
Analysis of Net Interest Income
 
Net interest income represents the difference between the income we earn on interest-earning assets and the interest expense we pay on interest-bearing liabilities. Net interest income also depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them.  The following tables set forth average balance sheets, average yields and costs, and certain other information at or for the periods indicated.  Average balances are derived from daily average balances for all periods.  Non-accrual loans were included in the computation of average balances, but have been reflected in the tables as loans carrying a zero yield. No tax equivalent yield adjustments have been made.  The yields set forth below include the effect of loan fees, discounts and premiums that are amortized or accreted to interest income.



42


 
 
For the Three Months Ended March 31,
 
 
2015
 
2014
 
 
Average Outstanding Balance
 
Interest
 
Yield/Cost
 
Average Outstanding Balance
 
Interest
 
Yield/Cost
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Loans
 
$
454,759

 
$
4,685

 
4.12
%
 
$
356,504

 
$
3,949

 
4.43
%
Securities
 
86,053

 
419

 
1.95

 
99,849

 
494

 
1.98

Fed funds sold and other interest-earning deposits
 
8,347

 
16

 
0.77

 
18,533

 
29

 
0.63

Total interest-earning assets
 
549,159

 
5,120

 
3.73
%
 
474,886

 
4,472

 
3.77
%
Noninterest-earning assets
 
72,801

 
 
 
 
 
68,954

 
 
 
 
Total assets
 
$
621,960

 
 
 
 
 
$
543,840

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and stockholders' equity:
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing demand deposits
 
$
86,610

 
$

 
%
 
$
20,174

 
$

 
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Checking accounts
 
148,443

 
111

 
0.30

 
189,851

 
106

 
0.22

Passbook and statement savings
 
122,514

 
41

 
0.13

 
119,293

 
42

 
0.14

Variable rate money market
 
29,047

 
16

 
0.22

 
25,244

 
11

 
0.17

Certificates of deposit
 
101,925

 
278

 
1.09

 
88,840

 
239

 
1.08

Total interest bearing deposits
 
401,929

 
446

 
0.44

 
423,228

 
398

 
0.38

      Total deposits
 
488,539

 
446

 
0.37

 
443,402

 
398

 
0.36

 
 
 
 
 
 
 
 
 
 
 
 
 
FHLB advances
 
43,283

 
14

 
0.13

 
4,452

 
1

 

Total deposits and interest-bearing liabilities
 
531,822

 
460

 
0.35
%
 
447,854

 
399

 
0.36
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Other liabilities
 
4,787

 
 
 
 
 
5,042

 
 
 
 
Total liabilities
 
536,609

 
 
 
 
 
452,896

 
 
 
 
Stockholders' equity
 
85,351

 
 
 
 
 
90,944

 
 
 
 
Total liabilities and stockholders' equity
 
$
621,960

 
 
 
 
 
$
543,840

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
 
 
 
$
4,660

 
 
 
 
 
$
4,073

 
 
Net interest rate spread
 
 
 
 
 
3.38
%
 
 
 
 
 
3.41
%
Net interest-earning assets
 
$
17,337

 
 
 
 
 
$
27,032

 
 
 
 
Net interest margin
 
 
 
 
 
3.39
%
 
 
 
 
 
3.43
%
Average of interest-earning assets to interest-bearing liabilities
 
 
 
 
 
103.26
%
 
 
 
 
 
106.04
%


43


 
 
For the Six Months Ended March 31,
 
 
2015
 
2014
 
 
Average Outstanding Balance
 
Interest
 
Yield/Cost
 
Average Outstanding Balance
 
Interest
 
Yield/Cost
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Loans
 
$
438,866

 
$
9,144

 
4.17
%
 
$
348,156

 
$
7,927

 
4.55
%
Securities
 
85,742

 
828

 
1.93

 
103,045

 
1,005

 
1.95

Fed funds sold and other interest-earning deposits
 
9,142

 
28

 
0.61

 
21,489

 
66

 
0.61

Total interest-earning assets
 
533,750

 
10,000

 
3.75
%
 
472,690

 
8,998

 
3.81
%
Noninterest-earning assets
 
67,188

 
 
 
 
 
73,496

 
 
 
 
Total assets
 
$
600,938

 
 
 
 
 
$
546,186

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and stockholders' equity:
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing demand deposits
 
$
73,263

 
$

 
%
 
$
20,130

 
$

 
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Checking accounts
 
156,993

 
214

 
0.27

 
191,999

 
220

 
0.23

Passbook and statement savings
 
122,612

 
90

 
0.15

 
119,056

 
87

 
0.15

Variable rate money market
 
28,324

 
26

 
0.18

 
25,748

 
23

 
0.18

Certificates of deposit
 
99,456

 
541

 
1.09

 
88,324

 
492

 
1.11

Total interest bearing deposits
 
407,385

 
871

 
0.43

 
425,127

 
822

 
0.39

      Total deposits
 
480,648

 
871

 
0.36

 
445,257

 
822

 
0.37

 
 
 
 
 
 
 
 
 
 
 
 
 
FHLB advances
 
26,637

 
18

 
0.14

 
2,202

 
1

 
0.09

Total deposits and interest-bearing liabilities
 
507,285

 
889

 
0.35
%
 
447,459

 
823

 
0.37
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Other liabilities
 
7,422

 
 
 
 
 
7,668

 
 
 
 
Total liabilities
 
514,707

 
 
 
 
 
455,127

 
 
 
 
Stockholders' equity
 
86,231

 
 
 
 
 
91,059

 
 
 
 
Total liabilities and stockholders' equity
 
$
600,938

 
 
 
 
 
$
546,186

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
 
 
 
$
9,111

 
 
 
 
 
$
8,175

 
 
Net interest rate spread
 
 
 
 
 
3.40
%
 
 
 
 
 
3.44
%
Net interest-earning assets
 
$
26,465

 
 
 
 
 
$
25,231

 
 
 
 
Net interest margin
 
 
 
 
 
3.41
%
 
 
 
 
 
3.46
%
Average of interest-earning assets to interest-bearing liabilities
 
 
 
 
 
105.22
%
 
 
 
 
 
105.64
%


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, Federal Home Loan Bank advances and, to a lesser extent, short-term borrowings from other financial institutions. 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. 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 three primary classifications: cash flows from operating activities, investing activities, and financing activities.  Net cash used in operating activities was $2.4 million and $4.0 million for the six months ended March 31, 2015 and March 31, 2014, respectively.  Net cash used in investing activities, which consists primarily of disbursements for loan originations and the purchase of securities, offset by principal collections on loans, proceeds from the sale of securities and proceeds from maturing securities and pay downs on mortgage-backed securities, was $42.2 million and $5.1 million for the six months ended March 31, 2015 and March 31, 2014, respectively.  During the six months ended March

44


31, 2015, we purchased $10.3 million and sold $17.5 million in securities held as available-for-sale, and during the six months ended March 31, 2014, we purchased $9.6 million and sold $14.1 million in securities held as available-for-sale.  Net cash provided by financing activities was $43.8 million and $10.4 million for the six months ended March 31, 2015 and March 31, 2014, respectively and consisted of increases in deposit accounts, offset by decreases in FHLB borrowings and the purchase of Company treasury stock.
 
At March 31, 2015, Westbury Bank exceeded all of its regulatory capital requirements with Tier 1 leverage capital of $64.0 million, or 10.57% of adjusted total assets, which is above the well-capitalized level of $30.3 million, or 5.00%; Common Equity Tier 1 capital of $64.0 million, or 13.18% of adjusted total assets, which is above the well-capitalized level of $31.6 million, or 6.50%; Tier 1 capital of $64.0 million, or 13.18% of risk-weighted assets, which is above the well-capitalized level of $38.9 million, or 8.00%; and total risk-based capital of $68.5 million, or 14.11% of risk-weighted assets, which is above the well-capitalized level of $48.6 million, or 10.00%.  Accordingly, Westbury Bank was categorized as well-capitalized at March 31, 2015. 
 
At March 31, 2015, we had outstanding commitments to originate loans of $4.4 million, unused commercial and home equity lines of credit of $85.7 million and stand-by letters of credit of $951,000.  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 March 31, 2015 totaled $48.0 million.  Management expects 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 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 likely 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.

Impact of Inflation and Changing Prices
 
The financial statements and related data presented herein have been prepared in accordance with U.S. Generally Accepted Accounting Principles which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation.  The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Disclosures of quantitative and qualitative market risk are not required by smaller reporting companies, such as the Company.
 

ITEM 4. CONTROLS AND PROCEDURES
 
An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of March 31, 2015. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.
 
During the quarter ended March 31, 2015, there have been no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934, as amended) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 



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PART II
 
ITEM 1. LEGAL PROCEEDINGS
 
On December 3, 2012, a civil suit was filed in the United States District Court for the Eastern District of Wisconsin, Civil Action Number 12-CV-1210, by First American Title Insurance Company against Westbury Bank.  The plaintiffs sought actual damages of $3.6 million and additional treble or such punitive or other damages as determined by the court, as well as plaintiffs’ fees, costs and expenses.  The suit alleged that Westbury Bank should have been aware of the misappropriation of funds deposited into an escrow account maintained by a commercial customer of Westbury Bank, New Horizon Title, LLC.  The suit also alleged that Westbury Bank improperly deducted overdraft fees from the escrow account, that Westbury Bank aided and abetted its customer in the misappropriation of escrowed funds and in its customer’s breach of fiduciary duty to plaintiffs and lenders to whom the escrowed funds belonged, that Westbury Bank’s conduct amounted to commercial bad faith under state commercial law and that Westbury Bank was unjustly enriched as a result of its actions.
 
The suit was resolved through mediation in February 2015. This resolution had no material impact on the Company's financial condition or results of operation. Other than the foregoing, we are not involved in any pending legal proceedings as a plaintiff or defendant other than routine legal proceedings occurring in the ordinary course of business, and at March 31, 2015, we were not involved in any legal proceedings, the outcome of which would be material to our financial condition or results of operations.
 
ITEM 1A. RISK FACTORS
 
Disclosures of risk factors are not required by smaller reporting companies, such as the Company.

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. 

On February 18, 2015, the Company announced that its Board of Directors had authorized the repurchase of up to 492,695 shares of the Company's common stock, representing 10.0% of the Company's outstanding shares. In connection with this authorization, the Company terminated the previous authorization to purchase 250,000 shares, which had been approved on August 20, 2014, and pursuant to which the Company had repurchased 174,657 shares. The shares may be purchased in the open market or in privately negotiated transactions from time to time depending on market conditions and other factors. As of March 31, 2015, 393,500 shares had been purchased.

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The table below sets forth Westbury Bancorp Inc.'s common stock repurchases during the three months ended March 31, 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
(d)
Maximum number of shares that may yet be purchased under the plans or programs
January 1- January 31, 2015
95,100

(1 
) 
$
16.35

95,100

78,543

February 1- February 28, 2015
3,700

(2 
) 
16.39

3,700

492,195

March 1- March 31, 2015
393,000

(3 
) 
17.54

393,000

99,195

Total
491,800

 
$
17.30

491,800


______________________________________________________________________
(1) All shares were repurchased pursuant to the August 20, 2014 authorization.
(2) Includes 3,200 shares purchased pursuant to the August 20, 2014 authorization and 500 shares purchased pursuant to the February 18, 2015 authorization.
(3) All shares were purchased pursuant to the February 18, 2015 authorization.



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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
None.
 
ITEM 4. MINE SAFETY DISCLOSURES
 
Not applicable.
 
ITEM 5. OTHER INFORMATION
 
None.
 
ITEM 6. EXHIBITS
 
The exhibits required by Item 601 of Regulation S-K are included with this Form 10-Q and are listed on the “Index to Exhibits” immediately following the Signatures.

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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.
 
Westbury Bancorp, Inc.
 
Date: April 29, 2015
 
/s/ Raymond F. Lipman
Raymond F. Lipman
Chairman and Chief Executive Officer
 
/s/ Kirk J. Emerich
Kirk J. Emerich
Senior Vice President and Chief Financial Officer


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INDEX TO EXHIBITS
 
Exhibit Number
 
Description
3.1
 
Articles of Incorporation of Westbury Bancorp, Inc.*
3.2
 
Amended and Restated Bylaws of Westbury Bancorp, Inc.**
31.1
 
Certification of Raymond F. Lipman, Chairman and Chief Executive Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a)
31.2
 
Certification of Kirk J. Emerich, Senior Vice President and Chief Financial Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a)
32
 
Certification of Raymond F. Lipman, Chairman and Chief Executive Officer, and Kirk J. Emerich, Senior Vice President and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101
 
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Comprehensive Income (Loss); (iv) Consolidated Statements of Changes in Stockholders' Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Unaudited Consolidated Financial Statements
_______________________________________
*
Incorporated herein by reference to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-184594).

**
Incorporated herein by reference to Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 2014.

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