Attached files

file filename
EX-32 - EXHIBIT 32 - Anchor Bancorpancb10-q2017930exhibit32.htm
EX-31.2 - EXHIBIT 31.2 - Anchor Bancorpancb10-q2017930exhibit312.htm
EX-31.1 - EXHIBIT 31.1 - Anchor Bancorpancb10-q2017930exhibit311.htm

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 September 30, 2017
 or
[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
For the transition period from _____ to _____
 
Commission File Number: 001-34965
 
ANCHOR BANCORP
 
(Exact name of registrant as specified in its charter)
 
Washington  
  26-3356075
(State or other jurisdiction of incorporation 
(I.R.S. Employer
or organization) 
I.D. Number)
 
 
601 Woodland Square Loop SE, Lacey, Washington
98503
(Address of principal executive offices) 
(Zip Code)
 
 
Registrant’s telephone number, including area code:
  (360) 491-2250
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [   ]

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

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

Large accelerated filer ☐ Accelerated filer ☐    Non-accelerated filer ☐ Smaller reporting company ☒  Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [   ] No [X]




Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  As of November 6, 2017, there were 2,494,940 shares of common stock, $0.01 par value per share, outstanding.




ANCHOR BANCORP
FORM 10-Q
TABLE OF CONTENTS
 
                                                                                                                   
                                                                                                                        
As used in this report, the terms, “we,” “our,” and “us,” and “Company” refer to Anchor Bancorp and its consolidated subsidiary, unless the context indicates otherwise.  When we refer to “Anchor Bank” or the “Bank” in this report, we are referring to Anchor Bank, the wholly owned subsidiary of Anchor Bancorp.



PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ANCHOR BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Dollars in thousands, except share data) (Unaudited)
 
September 30, 2017
 
June 30, 2017
ASSETS
 
 
 
Cash and cash equivalents
$
8,925

 
$
14,194

Securities available-for-sale, at fair value, amortized cost of $20,407 and $21,391
20,240

 
21,170

Securities held-to-maturity, at amortized cost, fair value of $4,575 and $4,954
4,553

 
4,949

Loans held for sale

 
1,551

Loans receivable, net of allowance for loan losses of $4,017 and $4,106
383,221

 
377,908

Bank owned life insurance investment, net of surrender charges
20,159

 
20,030

Accrued interest receivable
1,344

 
1,332

Real estate owned, net ("REO")
2,658

 
867

Federal Home Loan Bank  ("FHLB") stock, at cost
2,036

 
2,348

Property, premises, and equipment, at cost, less accumulated depreciation of $12,128 and $11,971
9,037

 
9,360

Deferred tax asset, net
7,666

 
8,011

Prepaid expenses and other assets
548

 
805

Total assets
$
460,387

 
$
462,525

LIABILITIES AND STOCKHOLDERS’ EQUITY 
 

 
 

LIABILITIES
 

 
 

Deposits:
 

 
 

Noninterest-bearing
$
54,474

 
$
52,606

Interest-bearing
293,902

 
292,581

Total deposits
348,376

 
345,187

 
 
 
 
FHLB advances
37,700

 
45,500

Advance payments by borrowers for taxes and insurance
1,903

 
1,195

Supplemental Executive Retirement Plan liability
1,717

 
1,709

Accounts payable and other liabilities
3,915

 
3,083

Total liabilities
393,611

 
396,674

STOCKHOLDERS’ EQUITY
 
 
 
Preferred stock, $0.01 par value per share authorized 5,000,000 shares; no shares issued or outstanding

 

Common stock, $0.01 par value per share, authorized 45,000,000 shares; 2,494,940 issued and outstanding at September 30, 2017 and 2,504,740 issued and outstanding at June 30, 2017, respectively
25

 
25

Additional paid-in capital
22,447

 
22,619

Retained earnings
45,629

 
44,585

Unearned Employee Stock Ownership Plan ("ESOP") shares
(590
)
 
(607
)
Accumulated other comprehensive loss, net of tax
(735
)
 
(771
)
Total stockholders’ equity
66,776

 
65,851

Total liabilities and stockholders’ equity
$
460,387

 
$
462,525

 
See accompanying notes to condensed consolidated financial statements (unaudited).

1



 
ANCHOR BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except share data) (Unaudited)
Three Months Ended September 30,
 
 
 
2017
 
2016
 
Interest income:
 
 
 
 
Loans receivable, including fees
$
5,133

 
$
4,652

 
Securities
34

 
23

 
Mortgage-backed securities
130

 
166

 
Total interest income
5,297

 
4,841

 
Interest expense:
 

 
 

 
Deposits
842

 
619

 
FHLB advances
109

 
149

 
Total interest expense
951

 
768

 
Net interest income before provision for loan losses
4,346

 
4,073

 
Provision for loan losses
75

 
75

 
Net interest income after provision for loan losses
4,271

 
3,998

 
Noninterest income:
 

 
 

 
Deposit service fees
313

 
348

 
Other deposit fees
199

 
194

 
  Other loan fees
228

 
235

 
Gain on sale of loans
110

 
101

 
Bank owned life insurance investment
129

 
132

 
Other income
193

 
147

 
Total noninterest income
1,172

 
1,157

 
Noninterest expense:
 

 
 

 
Compensation and benefits
2,084

 
2,310

 
General and administrative expenses
574

 
736

 
Merger expenses
34

 

 
Real estate owned holding costs
30

 
19

 
Federal Deposit Insurance Corporation ("FDIC") insurance premiums
36

 
69

 
Information technology
537

 
485

 
Occupancy and equipment
433

 
506

 
Deposit services
104

 
111

 
Marketing
91

 
100

 
Loss on sale of property, premises and equipment
5

 

 
Gain on sale of real estate owned

 
(12
)
 
Total noninterest expense
3,928

 
4,324

 
Income before provision for income taxes
1,515

 
831

 
Provision for income taxes
471

 
258

 
Net income
$
1,044

 
$
573

 
Basic earnings per share
$
0.43

 
$
0.24

 
Diluted earnings per share
$
0.43

 
$
0.24

 
Weighted average number of basic shares outstanding
2,421,049

 
2,391,839

 
Weighted average number of diluted shares outstanding
2,432,960

 
2,414,679

See accompanying notes to condensed consolidated financial statements (unaudited).

2


 
ANCHOR BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Dollars in thousands) (Unaudited)
Three Months Ended September 30,
 
 
 
2017
 
2016
 
NET INCOME
$
1,044

 
$
573

 
OTHER COMPREHENSIVE INCOME , net of income tax
 

 
 
 
Unrealized holding gains on available-for-sale securities during the period, net of income tax expense of $19, and $7 respectively
36

 
15

 
Other comprehensive income, net of income tax
36

 
15

 
COMPREHENSIVE INCOME
$
1,080

 
$
588


See accompanying notes to condensed consolidated financial statements (unaudited).


3


 
ANCHOR BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except share data) (Unaudited)
Three Months Ended September 30,
 
 
 
2017
 
2016
 
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
Net income
$
1,044

 
$
573

 
Adjustments to reconcile net income to net cash from operating activities:
 

 
 

 
Depreciation and amortization
158

 
175

 
Net amortization of premiums on securities
70

 
75

 
Provision for loan losses
75

 
75

 
ESOP expense
43

 
44

 
Deferred federal income taxes
326

 
258

 
Stock compensation expense
47

 
224

 
Increase in cash surrender value of life insurance investment
(129
)
 
(132
)
 
Gain on sale of loans
(110
)
 
(101
)
 
Originations of loans held for sale
(1,994
)
 
(6,881
)
 
Proceeds from sale of loans held for sale
3,655

 
6,460

 
Loss on sale of property, premises, and equipment
5

 

 
Gain on sale of real estate owned

 
(12
)
 
Change in operating assets and liabilities:
 

 
 

 
Accrued interest receivable
(12
)
 
13

 
Prepaid expenses and other assets
257

 
920

 
Supplemental Executive Retirement Plan ("SERP")
8

 
3

 
Accounts payable and other liabilities
832

 
285

 
Net cash provided by operating activities
4,275

 
1,979

 
CASH FLOWS FROM INVESTING ACTIVITIES
 

 
 

 
Proceeds from sales, calls and maturities of available-for-sale securities

 
852

 
Principal repayments on mortgage-backed available-for-sale securities
937

 
1,280

 
Principal repayments on mortgage-backed held-to-maturity securities
374

 
275

 
Loan originations, net of undisbursed loan proceeds and principal repayments
(7,179
)
 
(3,700
)
 
Proceeds from sale of real estate owned

 
294

 
Proceeds from sale of property, premises, and equipment, net
160

 

 
Purchase of property, premises, and equipment, net

 
(32
)
 
Redemption of FHLB stock
312

 
20

 
Net cash provided by investing activities
(5,396
)
 
(1,011
)
 
CASH FLOWS FROM FINANCING ACTIVITIES
 

 
 

 
Net increase in deposits
3,189

 
3,312

 
Net change in advance payments by borrowers for taxes and insurance
708

 
777

 
Proceeds from FHLB advances
15,200

 
20,500

 
Repayment of FHLB advances
(23,000
)
 
(21,000
)
 
Repurchase and retirement of common stock

 
(273
)
 
Net share settlement of stock awards
(245
)
 
(277
)
 
Net cash used in financing activities
$
(4,148
)
 
$
3,039

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

4


 
ANCHOR BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands, except share data) (Unaudited)
Three Months Ended September 30,
 
 
 
2017
 
2016
 
NET CHANGE IN CASH AND CASH EQUIVALENTS
$
(5,269
)
 
$
4,007

 
Beginning of period
14,194

 
8,320

 
End of period
$
8,925

 
$
12,327

 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 

 
 

 
Cash paid during the period for:
 
 
 
 
Interest
$
960

 
$
773

 
Income taxes
$
145

 
$
65

 
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES
 
 
 
 
Noncash investing activities:
 

 
 

 
Net loans transferred to real estate owned
$
1,791

 
$
168

 
Unrealized holding gain on available-for-sale securities, net of tax
$
36

 
$
15

 
Loans securitized into mortgage-backed securities
$

 
$
1,071


See accompanying notes to condensed consolidated financial statements (unaudited).

5


ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 - Nature of Business

Anchor Bancorp (the “Company”), a Washington corporation, was formed in connection with the conversion of Anchor Mutual Savings Bank (the “Bank”) from the mutual to the stock form of organization. On January 25, 2011, the Bank completed its conversion from mutual to stock form, changed its name to “Anchor Bank” and became the wholly-owned subsidiary of the Company.

Anchor Bank is a community-based savings bank primarily serving Western Washington through its 10 full-service bank offices (including one Wal-Mart in-store location) within Grays Harbor, Thurston, Lewis, Pierce, and Mason counties, and one loan production office located in King County, Washington.  Anchor Bank’s business consists of attracting deposits from the public and utilizing those deposits to originate loans.
 
Note 2 - Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. It is recommended that these unaudited interim consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended June 30, 2017 (“2017 Form 10-K”). The results of operations for the three months ended September 30, 2017 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2018. Certain prior year amounts have been reclassified to conform to current fiscal year presentation. The reclassifications had no impact on previously reported consolidated net income or equity. The Company has evaluated events and transactions subsequent to September 30, 2017 for potential recognition or disclosure.

Note 3 - Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606). In August 2015, FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606) which postponed the effective date of 2014-09. Subsequently, in March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations. This amendment clarifies that an entity should determine if it is the principal or the agent for each specified good or service promised in a contract with a customer. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The core principle of Topic 606 is that an entity must recognize revenue when it has satisfied a performance obligation of transferring promised goods or services to a customer. The standard is effective for public entities for interim and annual periods beginning after December 15, 2017; early adoption is not permitted. The standard allows for full retrospective adoption for all periods presented or modified retrospective adoption to only the most current period presented in the financial statements. The cumulative effect of initially applying the standard is recognized at the date of the initial application. Our primary source of revenue is interest income, which is recognized as it is earned and is deemed to be in compliance with this ASU. With respect to noninterest income, the Company is in its preliminary stages of identifying and evaluating the revenue streams and underlying revenue contracts within the scope of the guidance. The Company is expecting to begin developing processes and procedures during 2017 to ensure it is fully compliant with these amendments at the date of adoption. To date, the Company has not yet identified any significant changes in the timing of revenue recognition when considering the amended accounting guidance; however, the Company’s implementation efforts are ongoing and such assessments may change prior to the January 1, 2018 implementation date. Accordingly, the Company does not expect implementation of this standard to have a material impact on our consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets. The new standard significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured as fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments. This ASU is effective for fiscal years beginning

6

ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


after December 15, 2017, including interim periods within those fiscal years. The adoption of ASU No. 2016-01 is not expected to have a material impact on the Company's consolidated financial statements. [Management is in the planning stages of developing processes and procedures to comply with the disclosures requirements of this ASU, which could impact the disclosures the Company makes related to fair value of its financial instruments].

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments in this ASU require lessees to recognize the following for all leases (with the exception of short-term) at the commencement date; a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. The amendments in this ASU leave lessor accounting largely unchanged, although certain targeted improvements were made to align lessor accounting with the lessee accounting model. This ASU simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The effect of the adoption will depend on leases at time of adoption. Once adopted, we expect to report higher assets and liabilities as a result of including right-of-use assets and lease liabilities related to certain banking offices and certain equipment under noncancelable operating lease agreements, however, based on current leases the adoption is not expected to have a material impact on the Company's consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC Topic 718, Compensation - Stock Compensation. The ASU includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. The ASU was effective for annual and interim periods beginning after December 15, 2016. The Company adopted this standard effective January 1, 2017. The adoption of ASU No. 2016-09 did not have a material impact on the Company's consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. The standard will take effect for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Once adopted, we expect our allowance for loan losses to increase, however, until our evaluation is complete the magnitude of the increase will not be known.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), a consensus of the FASB’s Emerging Issues Task Force. The ASU is intended to reduce diversity in practice in how certain transactions are presented and classified in the statement of cash flows. The standard will take effect for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The adoption of ASU No. 2016-15 is not expected to have a material impact on the Company's consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash. The ASU amends the required statement of cash flow disclosures to include the change in amounts generally described as restricted cash. The standard will take effect for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The adoption of ASU No. 2016-18 is not expected to have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments-Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings (SEC Update). This ASU amends the Codification for SEC staff announcements made at recent Emerging Issues Task Force (EITF) meetings. The SEC staff view is that a registrant should evaluate ASU updates that have not yet been adopted to determine the appropriate financial disclosures about the potential material effects of the ASU on the financial statements when adopted. If a registrant does not know or cannot reasonably estimate the impact of an ASU, then in addition to making a statement to that effect, the registrant should consider additional qualitative financial statement disclosures to assist the reader in assessing the significance of the impact. The SEC staff expects

7

ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


the additional qualitative disclosures to include a description of the effect of the accounting policies expected to be applied compared to current accounting policies. Also, the registrant should describe the status of its process to implement the new standards and the significant implementation matters yet to be addressed. The amendments specifically addressed recent ASU amendments to Topic 326, Financial Instruments - Credit Losses; Topic 842, Leases; and Topic 606, Revenue from Contracts with Customers; although, the amendments apply to any subsequent amendments to guidance in the ASU. The Company has adopted the amendments in this ASU and appropriate disclosures have been included in this Note for each recently issued accounting standard.

In March 2017, the FASB issued ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The ASU shortens the amortization period for certain callable debt securities held at a premium. The standard will take effect for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The adoption of ASU No. 2017-08 is not expected to have a material impact on the Company's consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, Compensation Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU provides clarity on the guidance related to stock compensation when there has been changes to the terms or conditions of a share-based payment award to which an entity would be required to apply modification accounting under ASC 718. The ASU provides the three following criteria must be met in order to not account for the effect of the modification of terms or conditions: the fair value, the vesting conditions and the classification as an equity or liability instrument of the modified award is the same as the original award immediately before the original award is modified. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. The adoption of ASU No. 2017-09 is not expected to have a material impact on the Company's consolidated financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This ASU amends the hedge accounting recognition and presentation requirements in ASC 815 to (1) improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities and (2) reduce the complexity of and simplify the application of hedge accounting by preparers. The amendments in this ASU permit hedge accounting for hedging relationships involving nonfinancial risk and interest rate risk by removing certain limitations in cash flow and fair value hedging relationships. In addition, the ASU requires an entity to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018 and early adoption is permitted. The adoption of ASU No. 2017-12 is not expected to have a material impact on the Company's consolidated financial statements.


8

ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Note 4 - Earnings Per Share ("EPS")

Basic earnings per common share is the amount of earnings available to each share of common stock outstanding during the reporting period and is equal to net income divided by the weighted average number of shares outstanding during the period, without considering any dilutive items. Unvested share-based awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method described in ASC 260-10-45-60B. Diluted earnings per share is the amount of earnings available to each share of common stock outstanding during the period adjusted to include the effect of potentially dilutive common shares that may be issued upon the vesting of restricted stock awards. Therefore, under the two-class method, the difference in EPS is not significant since the Company did not pay dividends. The following table details the calculation of basic and diluted earnings per share:

 
For the Three Months Ended September 30,
 
2017
 
2016
 
(Dollars in thousands, except share data)
Net income
$
1,044

 
$
573

Earnings allocated to common shareholders
$
1,044

 
$
573

 
 
 
 
Basic weighted-average common shares outstanding
2,421,049

 
2,391,839

Potentially dilutive incremental shares
11,911

 
22,840

Diluted weighted-average common shares outstanding
2,432,960

 
2,414,679

 
 
 
 
Basic earnings per share
$
0.43

 
$
0.24

Diluted earnings per share
$
0.43

 
$
0.24


Shares owned by the Company's ESOP that have not been allocated are not considered to be outstanding for the purpose of computing basic and diluted EPS. As of September 30, 2017 and June 30, 2017 there were 53,649 and 55,369 shares, respectively, which had not been allocated under the Company's ESOP.

Potential dilutive shares are excluded from the computation of earnings per share if their effect is anti-dilutive. For both the three months ended September 30, 2017 and 2016, there were no anti-dilutive shares included in the computation of diluted earnings per share.





















9

ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



Note 5 - Investments

The amortized cost and estimated fair market values of investment securities as of September 30, 2017 and June 30, 2017, were as follows:

September 30, 2017
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
Securities available-for-sale
 
 
 
 
 
 
 
Municipal bonds
$
163

 
$

 
$

 
$
163

Mortgage-backed securities:
 
 
 
 
 
 
 
FHLMC (1)
10,766

 
110

 
(110
)
 
10,766

FNMA (2)
8,970

 

 
(153
)
 
8,817

GNMA (3)
508

 

 
(14
)
 
494

 
$
20,407

 
$
110

 
$
(277
)
 
$
20,240

Securities held-to-maturity
 

 
 

 
 

 
 

Mortgage-backed securities:
 
 
 
 
 
 
 
FHLMC
$
2,100

 
$
50

 
$
(47
)
 
$
2,103

FNMA
1,142

 
68

 
(16
)
 
1,194

GNMA
1,311

 

 
(32
)
 
1,279

 
$
4,553

 
$
118

 
$
(95
)
 
$
4,576

(1) Federal Home Loan Mortgage Corporation ("Freddie Mac")
(2) Federal National Mortgage Association ("Fannie Mae")
(3) Government National Mortgage Association ("Ginnie Mae")     

June 30, 2017
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
Securities available-for-sale
 
 
 
 
 
 
 
Municipal bonds
$
165

 
$

 
$

 
$
165

Mortgage-backed securities:
 
 
 
 
 
 
 
FHLMC 
11,140

 
88

 
(125
)
 
11,103

FNMA
9,532

 

 
(169
)
 
9,363

GNMA 
554

 

 
(15
)
 
539

 
$
21,391

 
$
88

 
$
(309
)
 
$
21,170

Securities held-to-maturity
 

 
 

 
 

 
 

Mortgage-backed securities:
 
 
 
 
 
 
 
FHLMC
$
2,212

 
53

 
(52
)
 
$
2,213

FNMA
1,209

 
71

 
(23
)
 
1,257

GNMA
1,528

 

 
(44
)
 
1,484

 
$
4,949

 
$
124

 
$
(119
)
 
$
4,954


There were 45 and 47 securities in an unrealized loss position at September 30, 2017 and June 30, 2017, respectively. The unrealized losses on investments in mortgage-backed securities relate principally to the general change in interest rates and illiquidity, and not credit quality, that has occurred since the securities' purchase dates, and such unrecognized losses or gains will continue to vary with general interest rate level fluctuations in the future.  We do not intend to sell the temporarily impaired securities and it is not likely that we will be required to sell the securities prior to their maturity. We do expect to recover the

10

ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


entire amortized cost basis of the securities. The fair value of temporarily impaired securities, the amount of unrealized losses, and the length of time these unrealized losses existed as of the dates indicated, were as follows:

 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
September 30, 2017
(In thousands)
Securities available-for-sale
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
FHLMC
$
2,405

 
$
(20
)
 
$
3,013

 
$
(90
)
 
$
5,418

 
$
(110
)
FNMA
3,858

 
(22
)
 
4,752

 
(132
)
 
8,610

 
(154
)
GNMA

 

 
494

 
(13
)
 
494

 
(13
)
 
$
6,263

 
$
(42
)
 
$
8,259

 
$
(235
)
 
$
14,522

 
$
(277
)

 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
September 30, 2017
(In thousands)
Securities held-to-maturity
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
FHLMC
$

 
$

 
$
1,468

 
$
(47
)
 
$
1,468

 
$
(47
)
FNMA

 

 
510

 
(16
)
 
510

 
(16
)
GNMA
835

 
(12
)
 
444

 
(20
)
 
1,279

 
(32
)
 
$
835

 
$
(12
)
 
$
2,422

 
$
(83
)
 
$
3,257

 
$
(95
)

 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
June 30, 2017
 (In thousands)
Securities available-for-sale
 

 
 

 
 

 
 

 
 

 
 

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
FHLMC
$
2,626

 
$
(25
)
 
$
3,185

 
$
(100
)
 
$
5,811

 
$
(125
)
FNMA
4,578

 
(29
)
 
4,563

 
(140
)
 
9,141

 
(169
)
GNMA

 

 
539

 
(15
)
 
539

 
(15
)
 
$
7,204

 
$
(54
)
 
$
8,287

 
$
(255
)
 
$
15,491

 
$
(309
)

 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
June 30, 2017
 (In thousands)
Securities held-to-maturity
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
FHLMC
$

 
$

 
$
1,548

 
$
(52
)
 
$
1,548

 
$
(52
)
FNMA

 

 
539

 
(23
)
 
539

 
(23
)
GNMA
840

 
(13
)
 
645

 
(31
)
 
1,485

 
(44
)
 
$
840

 
$
(13
)
 
$
2,732

 
$
(106
)
 
$
3,572

 
$
(119
)


11

ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



Contractual maturities of securities at September 30, 2017 are listed below. Expected maturities of mortgage-backed securities may differ from contractual maturities because borrowers may have the right to call or prepay the obligations; therefore, these securities are classified separately with no specific maturity date.
September 30, 2017
Amortized
Cost
 
Fair Value
 
(In thousands)
Securities available-for-sale
 
Municipal bonds:
 
 
 
Due after ten years
$
163

 
$
163

Mortgage-backed securities:
 
 
 
FHLMC
10,766

 
10,766

FNMA
8,970

 
8,817

GNMA
508

 
494

 
$
20,407

 
$
20,240

Securities held-to-maturity
 
Mortgage-backed securities:
 
 
 
FHLMC
$
2,100

 
$
2,103

FNMA
1,142

 
1,193

GNMA
1,311

 
1,279

 
$
4,553

 
$
4,575


Sales of securities available-for-sale for the dates indicated are summarized as follows:

 
Three Months Ended September 30,
 
2017
 
2016
 
(In thousands)
Proceeds from maturities, sales and calls
$

 
852



Pledged securities at the dates indicated are summarized as follows:

 
September 30, 2017
 
June 30, 2017
Pledged to secure:
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
 
(In thousands)
Public deposits
$
4,942

 
$
4,960

 
$
5,143

 
$
5,172

FHLB borrowings
920

 
956

 
977

 
1,009

Federal Reserve borrowing line
847

 
835

 
852

 
840








12

ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



Note 6 - Loans Receivable, net

Loans receivable consisted of the following at the dates indicated:
 
 
September 30, 2017
 
June 30,
2017
 
(In thousands)
Real estate:
 
 
 
One-to-four family
$
61,555

 
$
59,735

Multi-family
61,012

 
60,500

Commercial
148,867

 
155,525

Construction
60,963

 
49,151

Land
8,097

 
8,054

Total real estate
340,494

 
332,965

Consumer:
 

 
 

Home equity
13,991

 
13,991

Credit cards
2,535

 
2,596

Automobile
573

 
627

Other consumer
1,484

 
1,524

Total consumer
18,583

 
18,738

 
 
 
 
Business:
 
 
 
Commercial business
29,455

 
31,603

Total loans
388,532

 
383,306

Less:
 

 
 

Deferred loan fees and loan premiums, net
1,294

 
1,292

Allowance for loan losses
4,017

 
4,106

Loans receivable, net
$
383,221

 
$
377,908

 
Allowance for Loan Losses. The allowance for loan losses must be maintained at a level necessary to absorb specific losses on impaired loans and probable losses inherent in the loan portfolio. The assessment includes analysis of several different factors, including delinquency, charge-off rates and the changing risk profile of our loan portfolio, as well as local economic conditions such as unemployment rates, bankruptcies and vacancy rates of business and residential properties.

13

ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended September 30, 2017:

 
One-to- four family
 
Multi-
family
 
Commercial
real estate
 
Construction
 
Land
 
Consumer
(1)
 
Commercial
business
 
Unallocated
 
Three months ended 9/30/17
 
(In thousands)
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
495

 
$
580

 
$
1,566

 
$
651

 
$
120

 
$
378

 
$
316

 
$

 
$
4,106

Provision (benefit) for loan losses
(207
)
 
10

 
168

 
169

 
(1
)
 
(40
)
 
(24
)
 

 
75

Charge-offs

 

 
(200
)
 

 

 
(1
)
 

 

 
(201
)
Recoveries
14

 

 

 
1

 

 
17

 
5

 

 
37

Ending balance
$
302

 
$
590

 
$
1,534

 
$
821

 
$
119

 
$
354

 
$
297

 
$

 
$
4,017

(1) 
Consumer loans include home equity, credit cards, automobile, and other consumer loans. The only consumer loans with impairment are home equity loans.


The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended September 30, 2016:

 
One-to- four family
 
Multi-
family
 
Commercial
real estate
 
Construction
 
Land
 
Consumer
(1)
 
Commercial
business
 
Unallocated
 
Three months ended 9/30/16
 
(In thousands)
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
798

 
$
454

 
$
1,333

 
$
271

 
$
75

 
$
516

 
$
332

 
$

 
$
3,779

Provision (benefit) for loan losses
(91
)
 
9

 
(24
)
 
108

 
35

 
42

 
(4
)
 

 
75

Charge-offs

 

 

 

 

 
(54
)
 

 

 
(54
)
Recoveries
10

 

 

 
2

 

 
9

 
3

 

 
24

Ending balance
$
717

 
$
463

 
$
1,309

 
$
381

 
$
110

 
$
513

 
$
331

 
$

 
$
3,824

(1) 
Consumer loans include home equity, credit cards, automobile, and other consumer loans. The only consumer loans with impairment are home equity loans.


A loan is considered impaired when the Company has determined that it may be unable to collect payments of principal or interest when due under the terms of the loan. In the process of identifying loans as impaired, management takes into consideration factors which include payment history and status, collateral value, financial condition of the borrower, and the probability of collecting scheduled payments in the future. Minor payment delays and insignificant payment shortfalls typically do not result in a loan being classified as impaired. The significance of payment delays and shortfalls is considered by management on a case by case basis, after taking into consideration the totality of circumstances surrounding the loans and the borrowers, including payment history and amounts of any payment shortfall, length and reason for delay, and likelihood of return to stable performance. Impairment is measured on a loan by loan basis for all loans in the portfolio except for the smaller groups of homogeneous consumer loans in the portfolio.


14

ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


The following table presents loans individually evaluated for impairment by class of loans as of September 30, 2017:

 
Recorded Investments
 
Unpaid Principal Balance
 
Related Allowance
 
(In thousands)
With no allowance recorded
 
 
 
 
 
One-to-four family
$
1,613

 
$
1,798

 
$

Home equity
263

 
270

 

Commercial business
353

 
422

 

With an allowance recorded
 

 
 

 
 

One-to-four family
$
2,957

 
$
2,967

 
$
125

Land
308

 
308

 
20

Home equity
260

 
260

 
41

Total
 

 
 

 
 

One-to-four family
$
4,570

 
$
4,765

 
$
125

Land
308

 
308

 
20

Home equity
523

 
530

 
41

Commercial business
353

 
422

 

Total
$
5,754

 
$
6,025

 
$
186


The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2017:

 
Recorded Investments
 
Unpaid Principal Balance
 
Related Allowance
 
(In thousands)
With no allowance recorded
 
 
 
 
 
One-to-four family
$
1,818

 
$
1,991

 
$

Commercial real estate
1,992

 
1,992

 

Home equity
299

 
303

 

Commercial business
606

 
668

 

With an allowance recorded
 

 
 

 
 

One-to-four family
$
3,210

 
$
3,220

 
$
143

Land
311

 
311

 
22

Home equity
262

 
262

 
32

Commercial business
23

 
23

 
1

Total
 

 
 

 
 

One-to-four family
$
5,028

 
$
5,211

 
$
143

Commercial real estate
1,992

 
1,992

 

Land
311

 
311

 
22

Home equity
561

 
565

 
32

Commercial business
629

 
691

 
1

Total
$
8,521

 
$
8,770

 
$
198



15

ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



The following table presents the average recorded investment in loans individually evaluated for impairment and the interest income recognized for the three months ended September 30, 2017 and 2016:

 
Three Months Ended September 30, 2017
 
Three Months Ended September 30, 2016
 
 
 
Average Recorded Investment
 
Interest Income
Recognized
 
Average Recorded Investment
 
Interest Income
Recognized
 
(In thousands)
With no allowance recorded
 
 
 
 
 
 
 
One-to-four family
$
1,716

 
$
3

 
$
3,152

 
$
14

Commercial real estate
996

 

 
433

 

Land

 

 
180

 
1

Home equity
281

 
1

 
71

 

Commercial business
480

 
1

 
108

 
1

With an allowance recorded
 

 
 

 
 
 
 
One-to-four family
$
3,084

 
$
11

 
$
5,967

 
$
16

Land
310

 
7

 
318

 
7

Home equity
261

 
1

 
366

 
1

Commercial business
12

 

 
118

 

Total
 

 
 

 
 
 
 
One-to-four family
$
4,800

 
$
14

 
$
9,119

 
$
30

Commercial real estate
996

 

 
433

 

Land
310

 
7

 
498

 
8

Home equity
543

 
2

 
437

 
1

Commercial business
491

 

 
226

 
1

Total
$
7,140

 
$
23

 
$
10,713

 
$
40








16

ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of September 30, 2017:

 
One-to-four
family
 
Multi-
family
 
Commercial
real estate
 
Construction
 
Land
 
Consumer(1)
 
Commercial
business
 
Unallocated
 
Total
 
(In thousands)
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance
$
302

 
$
590

 
$
1,534

 
$
821

 
$
119

 
$
354

 
$
297

 
$

 
$
4,017

Ending balance: individually evaluated for impairment
125

 

 

 

 
20

 
41

 

 

 
186

Ending balance: collectively evaluated for impairment
$
177

 
$
590

 
$
1,534

 
$
821

 
$
99

 
$
313

 
$
297

 
$

 
$
3,831

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans receivable:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 

Ending balance
$
61,555

 
$
61,012

 
$
148,867

 
$
60,963

 
$
8,097

 
$
18,583

 
$
29,455

 
$

 
$
388,532

Ending balance: individually evaluated for impairment
4,570

 

 

 

 
308

 
523

 
353

 

 
5,754

Ending balance: collectively evaluated for impairment
$
56,985

 
$
61,012

 
$
148,867

 
$
60,963

 
$
7,789

 
$
18,060

 
$
29,102

 
$

 
$
382,778

(1) 
 Consumer loans include home equity, credit cards, auto and other consumer loans.

17

ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2017:
 
One-to-four
family
 
Multi-
family
 
Commercial
real estate
 
Construction
 
Land
 
Consumer(1)
 
Commercial
business
 
Unallocated
 
Total
 
(In thousands)
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance
$
495

 
$
580

 
$
1,566

 
$
651

 
$
120

 
$
378

 
$
316

 
$

 
$
4,106

Ending balance: individually evaluated for impairment
143

 

 

 

 
22

 
32

 
1

 

 
198

Ending balance: collectively evaluated for impairment
$
352

 
$
580

 
$
1,566

 
$
651

 
$
98

 
$
346

 
$
315

 
$

 
$
3,908

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans receivable:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 

Ending balance
$
59,735

 
$
60,500

 
$
155,525

 
$
49,151

 
$
8,054

 
$
18,738

 
$
31,603

 
$

 
$
383,306

Ending balance: individually evaluated for impairment
5,028

 

 
1,992

 

 
311

 
561

 
629

 

 
8,521

Ending balance: collectively evaluated for impairment
$
54,707

 
$
60,500

 
$
153,533

 
$
49,151

 
$
7,743

 
$
18,177

 
$
30,974

 
$

 
$
374,785

(1) 
 Consumer loans include home equity, credit cards, auto, and other consumer loans.

Nonaccrual and Past Due Loans. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual when, in management's opinion, the borrower may be unable to meet payment of obligations as they become due, as well as when required by regulatory provisions.

The following table presents the recorded investment in nonaccrual loans by type of loans as of the dates indicated:

 
September 30, 2017
 
June 30, 2017
 
(In thousands)
One-to-four family
$
968

 
$
1,170

Commercial

 
1,992

Home equity
207

 
242

Commercial business
289

 
300

Total
$
1,464

 
$
3,704


There were no loans past due 90 days or more and still accruing interest at September 30, 2017 and June 30, 2017.
 

18

ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


The following table presents past due loans, net of partial loan charge-offs, by class of loan, as of September 30, 2017:

 
30-59 Days
Past Due
 
60-89 Days
Past Due
 
90 Days Or
More Past Due (1)
 
Total Past
Due
 
Current
 
Total Loans
 
(In thousands)
One-to-four family
$
732

 
$
117

 
$
968

 
$
1,817

 
$
59,738

 
$
61,555

Multi-family

 

 

 

 
61,012

 
61,012

Commercial real estate

 

 

 

 
148,867

 
148,867

Construction

 

 

 

 
60,963

 
60,963

Land

 

 

 

 
8,097

 
8,097

Home equity
41

 

 
207

 
248

 
13,743

 
13,991

Credit cards
5

 
3

 

 
8

 
2,527

 
2,535

Automobile

 

 

 

 
573

 
573

Other consumer
2

 
7

 

 
9

 
1,475

 
1,484

Commercial business

 

 
289

 
289

 
29,166

 
29,455

Total
$
780

 
$
127

 
$
1,464

 
$
2,371

 
$
386,161

 
$
388,532

(1) Includes loans on nonaccrual status.


The following table presents past due loans, net of partial loan charge-offs, by class of loan as of June 30, 2017:
 
30-59 Days
Past Due
 
60-89 Days
Past Due
 
90 Days Or
More Past Due (1)
 
Total Past
Due
 
Current
 
Total
Loans
 
(In thousands)
One-to-four family
$
15

 
$

 
$
1,170

 
$
1,185

 
$
58,550

 
$
59,735

Multi-family

 

 

 

 
60,500

 
60,500

Commercial real estate
187

 

 
1,992

 
2,179

 
153,346

 
155,525

Construction