WBB Westbury Bancorp, Inc.

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)

---

---

---

PART I

 

ITEM 1.                                            FINANCIAL STATEMENTS

Westbury Bancorp, Inc. and Subsidiary

Consolidated Balance Sheets

June 30, 2017 and September 30, 2016

(In Thousands, except share data)

	June 30, 2017				September 30, 2016
	(Unaudited)
Assets
Cash and due from banks	$	35,010			$	19,125
Interest-earning deposits	22,512				10,488
Cash and cash equivalents	57,522				29,613
Securities available-for-sale	122,338				93,772
Securities held to maturity, at amortized cost ($2,180 and $2,392 fair value at June 30, 2017 and September 30, 2016, respectively)	2,125				2,293
Loans held for sale, at lower of cost or fair value	1,232				1,881
Loans, net of allowance for loan losses of $5,612 and $5,244 at June 30, 2017 and September 30, 2016, respectively	571,281				533,759
Federal Home Loan Bank stock, at cost	1,316				1,330
Foreclosed real estate	118				99
Office properties and equipment, net	15,854				15,410
Cash surrender value of bank-owned life insurance	14,559				14,233
Mortgage servicing rights	760				800
Deferred tax asset	4,973				5,425
Other assets	3,837				4,010
Total assets	$	795,915			$	702,625
Liabilities and Stockholders’ Equity
Liabilities
Deposits	$	687,486			$	591,977
Long-term advances from Federal Home Loan Bank	20,000				20,000
Advance payments by borrowers for property taxes and insurance	3,481				5,455
Other liabilities	5,157				5,564
Total liabilities	716,124				622,996
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; 5,343,841 and 5,347,641 shares issued at June 30, 2017 and September 30, 2016, respectively	54				54
Additional paid-in capital	52,539				51,463
Retained earnings	54,496				52,185
Unearned Employee Stock Ownership Plan (ESOP) shares	(2,880		)		(3,188		)
Accumulated other comprehensive income (loss)	(610		)		561
Less common stock repurchased, 1,362,209 and 1,249,123 shares at cost, at June 30, 2017 and September 30, 2016, respectively	(23,808		)		(21,446		)
Total stockholders’ equity	79,791				79,629
Total liabilities and stockholders’ equity	$	795,915			$	702,625

 

See Notes to Unaudited Consolidated Financial Statements.

2

---

Table of Contents

Westbury Bancorp, Inc. and Subsidiary
Consolidated Statements of Operations
Three and Nine Months Ended June 30, 2017 and 2016 (Unaudited)
(In Thousands, except per share data)
	Three Months Ended   June 30,								Nine Months Ended   June 30,
	2017				2016				2017				2016
Interest and dividend income:
Loans	$	5,665			$	5,266			$	16,526			$	15,549
Investments - nontaxable	160				45				431				97
Investments - taxable	551				418				1,346				1,320
Interest bearing deposits	66				34				156				97
Total interest and dividend income	6,442				5,763				18,459				17,063
Interest expense:
Deposits	844				605				2,246				1,742
Short-term advances from the Federal Home Loan Bank	—				13				9				36
Long-term advances from the Federal Home Loan Bank	61				59				162				130
Line of credit	1				—				1				—
Total interest expense	906				677				2,418				1,908
Net interest income before provision for loan losses	5,536				5,086				16,041				15,155
Provision for loan losses	50				250				350				525
Net interest income after provision for loan losses	5,486				4,836				15,691				14,630
Noninterest income:
Service fees on deposit accounts	994				975				2,915				3,000
Gain on sales of loans, net	134				187				416				449
Servicing fee income, net of amortization and impairment	(3		)		(90		)		194				(36		)
Insurance and securities sales commissions	49				45				151				177
Gain on sales of securities	19				210				23				221
Gain on sales of other assets	32				—				32				1
Increase in cash surrender value of bank-owned life insurance	104				105				326				325
Rental income from real estate operations	107				102				320				328
Other income	50				105				219				345
Total noninterest income	1,486				1,639				4,596				4,810
Noninterest expenses:
Compensation and employee benefits	2,994				2,545				8,742				7,451
Occupancy, furniture and equipment	577				428				1,736				1,290
Data processing	872				781				2,534				2,300
Accounting, legal and other professional fees	318				261				936				789
FDIC insurance premiums	109				102				312				309
Other expenses	794				1,042				2,360				2,872
Total noninterest expenses	5,664				5,159				16,620				15,011
Income before income tax expense	1,308				1,316				3,667				4,429
Income tax expense	490				410				1,356				1,611
Net income	$	818			$	906			$	2,311			$	2,818
Earnings per share:
Basic	$	0.23			$	0.25			$	0.64			$	0.76
Diluted	$	0.22			$	0.25			$	0.62			$	0.75

See Notes to Unaudited Consolidated Financial Statements.

3

---

Table of Contents

Westbury Bancorp, Inc. and Subsidiary

 

Consolidated Statements of Comprehensive Income

Three and Nine Months Ended June 30, 2017 and 2016

(Unaudited)

(In Thousands)

 

	Three Months Ended   June 30,								Nine Months Ended   June 30,
	2017				2016				2017				2016
Net income	$	818			$	906			$	2,311			$	2,818
Other comprehensive income (loss), before tax:
Unrealized gain (loss) on available-for-sale securities	654				624				(1,904		)		1,229
Reclassification adjustment for realized gains included in net income	(19		)		(210		)		(23		)		(221		)
Other comprehensive income (loss), before tax	635				414				(1,927		)		1,008
Income tax (expense) benefit related to items of other comprehensive income (loss)	(249		)		(163		)		756				(395		)
Other comprehensive income (loss), net of tax	386				251				(1,171		)		613
Comprehensive income	$	1,204			$	1,157			$	1,140			$	3,431

 

See Notes to Unaudited Consolidated Financial Statements.

4

---

Table of Contents

Westbury Bancorp, Inc. and Subsidiary

 

Consolidated Statements of Changes in Stockholders’ Equity

Nine Months Ended June 30, 2017 and 2016

(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, 2016	$	—			$	54			$	51,463			$	52,185			$	(3,188	)		$	561			$	(21,446	)		$	79,629
Net income	—				—				—				2,311				—				—				—				2,311
Other comprehensive loss, net of tax	—				—				—				—				—				(1,171		)		—				(1,171		)
Repurchase of 113,086 common stock shares	—				—				—				—				—				—				(2,362		)		(2,362		)
Exercise of 7,808 stock options	—				—				122				—				—				—				—				122
Stock based compensation expense	—				—				631				—				—				—				—				631
Allocation, or commitment to be allocated, of 30,855 shares by ESOP	—				—				323				—				308				—				—				631
Balance, June 30, 2017	$	—			$	54			$	52,539			$	54,496			$	(2,880	)		$	(610	)		$	(23,808	)		$	79,791
Balance, September 30, 2015	$	—			$	53			$	50,145			$	48,714			$	(3,548	)		$	352			$	(16,904	)		$	78,812
Net income	—				—				—				2,818				—				—				—				2,818
Other comprehensive income, net of tax	—				—				—				—				—				613				—				613
Repurchase of 237,015 common stock shares	—				—				—				—				—				—				(4,342		)		(4,342		)
Exercise of 4,457 stock options	—				1				67				—				—				—				—				68
Stock based compensation expense	—				—				628				—				—				—				—				628
Allocation,or commitment to be allocated, of 25,712 shares by ESOP	—				—				228				—				257				—				—				485
Balance, June 30, 2016	$	—			$	54			$	51,068			$	51,532			$	(3,291	)		$	965			$	(21,246	)		$	79,082

 

See Notes to Unaudited Consolidated Financial Statements.

5

---

Table of Contents

Westbury Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Nine Months Ended June 30, 2017 and 2016 (Unaudited)
(In Thousands)
	Nine Months Ended   June 30,
	2017				2016
Cash Flows From Operating Activities
Net income	$	2,311			$	2,818
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	350				525
Depreciation and amortization	679				573
Depreciation on real estate held for investment	—				66
Net amortization of securities premiums and discounts	554				334
Amortization and impairment of mortgage servicing rights	40				327
Gain on sales of available-for-sale securities	(23		)		(221		)
Gain on sales of other assets	(32		)		(1		)
Write-down of real estate held-for-sale	—				137
(Gain) loss on sale of foreclosed real estate	3				(28		)
Write-down of foreclosed real estate	9				26
Loans originated for sale	(24,265		)		(29,678		)
Proceeds from sale of loans	25,330				28,371
Gain on sale of loans, net	(416		)		(449		)
ESOP compensation expense	631				485
Stock based compensation expense	631				628
Deferred income taxes	1,208				1,610
Increase in cash surrender value of life insurance	(326		)		(325		)
Net change in:
Other assets	205				(553		)
Other liabilities and advance payments by borrowers for property taxes and insurance	(2,361		)		(2,915		)
Net cash provided by operating activities	4,528				1,730
Cash Flows From Investing Activities
Purchases of securities available-for-sale	(40,503		)		(39,340		)
Proceeds from sales of securities available-for-sale	1,417				24,222
Proceeds from maturities, prepayments, and calls of securities available-for-sale	8,062				9,045
Proceeds from maturities, prepayments, and calls of securities held to maturity	168				166
Purchases of real estate held for investment	—				(18		)
Proceeds from sale of real estate held for investment	—				185
Redemption of FHLB stock	14				2,049
Net increase in loans	(37,990		)		(26,503		)
Purchase of bank-owned life insurance	—				(637		)
Purchases of office properties and equipment	(1,143		)		(174		)
Proceeds from sales of real estate held-for-sale	—				27
Proceeds from sales of foreclosed real estate	87				356
Net cash used in investing activities	(69,888		)		(30,622		)
Cash Flows From Financing Activities
Net increase in deposits	95,509				32,495
Proceeds from long-term Federal Home Loan Bank advances	—				20,000
Net proceeds of short-term Federal Home Loan Bank advances	—				(18,000		)
Proceeds from exercise of stock options	122				68
Repurchase of common stock	(2,362		)		(4,342		)
Net cash provided by financing activities	93,269				30,221
Net increase in cash and cash equivalents	27,909				1,329
Cash and cash equivalents at beginning of period	29,613				16,488
Cash and cash equivalents at end of period	$	57,522			$	17,817
Supplemental Disclosures of Cash Flow Information
Interest paid (including amounts credited to deposits)	$	2,417			$	1,908
Supplemental Schedules of Non-cash Investing Activities
Loans receivable transferred to foreclosed real estate	$	118			$	71

 

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 June 30, 2017 and September 30, 2016 and the results of operations and cash flows for the interim periods ended June 30, 2017 and 2016.  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, 2016 filed with the U.S. Securities and Exchange Commission as part of Westbury Bancorp, Inc.’s Annual Report on Form 10-K for the year ended September 30, 2016.

 

The Jumpstart Our Business Startups Act (the "JOBS Act"), which was signed into law on April 5, 2012, 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 the last day of the Company's fiscal year following the fifth anniversary from the completion of the Company's initial public stock offering in April 2013.

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 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 beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. Adoption by the Company is not expected to have a material impact on the consolidated financial statements and related disclosures.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 is intended to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. ASU 2016-01 is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods beginning after December 15, 2019. Adoption by the Company is not expected to have a material impact on the consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key

7

---

Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

(Dollars in Thousands, except per share data)

information about leasing arrangements. ASU 2016-02 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2018. The Company is evaluating the potential impact of ASU 2016-02 on the consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718). ASU 2016-09 is intended to simplify the accounting for share-based payment transactions, including income tax consequences, classification of awards as either assets or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2017 and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted. Adoption by the Company is not expected to have a material impact on the consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). ASU 2016-13 is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity. ASU 2016-13 replaces the "incurred loss impairment methodology" with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2019. The Company is evaluating the potential impact of ASU 2016-13 on the consolidated financial statements and related disclosures.

In March 2017, the FASB issued ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20). ASU 2017-08 is intended to amend the amortization period for certain purchased callable debt securities held at a premium. Under ASU 2017-08, the FASB is shortening the amortization period for the premium to the earliest call date. Under current GAAP, entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. ASU 2017-08 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Adoption by the Company is not expected to have a material impact on the consolidated financial statements and related disclosures.

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718). ASU 2017-09 is intended to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation - Stock Compensation, to a change in the terms or conditions of a share-based payment award. ASU 2017-09 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. 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 are entitled to 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.

8

---

Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

(Dollars in Thousands, except per share data)

 

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 June 30,								Nine Months Ended June 30,
	2017				2016				2017				2016
Net income	$	818			$	906			$	2,311			$	2,818
Basic potential common shares:
Weighted average shares outstanding	3,922,855				3,961,643				3,942,043				4,054,921
Weighted average unallocated ESOP shares	(294,845		)		(335,982		)		(305,541		)		(345,153		)
Basic weighted average shares outstanding	3,628,010				3,625,661				3,636,502				3,709,768
Dilutive effect of equity awards	110,261				43,580				107,819				33,525
Diluted weighted average shares outstanding	3,738,271				3,669,241				3,744,321				3,743,293
Basic income per share	$	0.23			$	0.25			$	0.64			$	0.76
Diluted income per share	$	0.22			$	0.25			$	0.62			$	0.75

9

---

Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

(Dollars in Thousands, except per share data)

Note 4.                                  Investment Securities

 

The amortized cost and fair value of investment securities are summarized as follows:

 

	June 30, 2017
	Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
Available for Sale
U.S. Government and agency securities	$	25			$	—			$	—			$	25
U.S. Government agency residential mortgage-backed securities	54,242				169				(616		)		53,795
U.S. Government agency collateralized mortgage obligations	6,633				36				(113		)		6,556
U.S. Government agency commercial mortgage-backed securities	18,603				34				(119		)		18,518
Municipal securities-tax exempt	31,968				104				(507		)		31,565
Municipal securities-taxable	11,871				58				(50		)		11,879
Total Available for Sale	123,342				401				(1,405		)		122,338
Held to Maturity
Municipal securities-tax exempt	2,125				55				—				2,180
Total Investment Securities	$	125,467			$	456			$	(1,405	)		$	124,518
	September 30, 2016
	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	40,289				504				(43		)		40,750
U.S. Government agency collateralized mortgage obligations	2,674				24				(18		)		2,680
U.S. Government agency commercial mortgage-backed securities	11,376				150				—				11,526
Municipal securities-tax exempt	25,730				51				(99		)		25,682
Municipal securities-taxable	12,756				358				(5		)		13,109
Total Available for Sale	92,849				1,088				(165		)		93,772
Held to Maturity
Municipal securities-tax exempt	2,293				99				—				2,392
Total Investment Securities	$	95,142			$	1,187			$	(165	)		$	96,164

10

---

Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

(Dollars in Thousands, except per share data)

The amortized cost and fair value of investment securities, by contractual maturity, at June 30, 2017 are shown in the following table.  Actual maturities differ from contractual maturities for mortgage-backed securities and collateralized mortgage obligations 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.

 

	June 30, 2017
	Amortized Cost				Fair Value
Available for sale:
Due in one year or less	$	940			$	941
Due after one year through five years	15,431				15,416
Due after five years through ten years	22,593				22,318
Due after ten years	4,900				4,794
U.S. Government agency residential mortgage-backed securities	54,242				53,795
U.S. Government agency collateralized mortgage obligations	6,633				6,556
U.S. Government agency commercial mortgage-backed securities	18,603				18,518
	123,342				122,338
Held to maturity:
Due in one year or less	171				171
Due after one year through five years	717				728
Due after five years through ten years	1,013				1,049
Due after ten years	224				232
	2,125				2,180
Total	$	125,467			$	124,518

 

Proceeds from sales of securities available for sale during the three months ended June 30, 2017 and 2016, were $588 and $15,482 , respectively. Gross realized gains, during the three months ended June 30, 2017 and 2016, on these sales amounted to $19 and $211 , respectively. Gross realized losses on these sales were zero and $1 , during the three months ended June 30, 2017 and 2016, respectively.

Proceeds from sales of securities available for sale during the nine months ended June 30, 2017 and 2016, were $1,417 and $24,222 , respectively. Gross realized gains, during the nine months ended June 30, 2017 and 2016, on these sales amounted to $23 and $234 , respectively. Gross realized losses on these sales were zero and $13 , during the nine months ended June 30, 2017 and 2016, respectively.

Securities with carrying values of $38,886 and $24,364 at June 30, 2017 and September 30, 2016, respectively, were pledged for purposes required or permitted by law.

11

---

Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

(Dollars in Thousands, except per share data)

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:

 

	June 30, 2017
	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	34,258				(563		)		2,612				(53		)		36,870				(616		)
U.S. Government agency collateralized mortgage obligations	5,073				(87		)		492				(26		)		5,565				(113		)
U.S Government agency commercial mortgage-backed securities	10,714				(119		)		—				—				10,714				(119		)
Municipal securities-tax exempt	24,550				(501		)		217				(6		)		24,767				(507		)
Municipal securities-taxable	4,267				(35		)		283				(15		)		4,550				(50		)
Total Available for Sale	$	78,862			$	(1,305	)		$	3,604			$	(100	)		$	82,466			$	(1,405	)
Held to Maturity
Municipal securities-tax exempt	—				—				—				—				—				—
Total Investment Securities	$	78,862			$	(1,305	)		$	3,604			$	(100	)		$	82,466			$	(1,405	)

 

	September 30, 2016
	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	2,726				(5		)		3,020				(38		)		5,746				(43		)
U.S. Government agency collateralized mortgage obligations	—				—				576				(18		)		576				(18		)
U.S. Government agency commercial mortgage-backed securities	—				—				—				—				—				—
Municipal securities-tax exempt	18,314				(99		)		—				—				18,314				(99		)
Municipal securities-taxable	550				(5		)		—				—				550				(5		)
Total Available for Sale	$	21,590			$	(109	)		$	3,596			$	(56	)		$	25,186			$	(165	)
Held to Maturity
Municipal securities-tax exempt	—				—				—				—				—				—
Total Investment Securities	$	21,590			$	(109	)		$	3,596			$	(56	)		$	25,186			$	(165	)

 

At June 30, 2017, the investment portfolio included 7 securities available-for-sale, which had been in an unrealized loss position for greater than twelve months, and 130 securities available-for-sale, which had been in an unrealized loss position for less than twelve months. At September 30, 2016, the investment portfolio included 5 securities available-for-sale, which had been in an unrealized loss position for greater than twelve months, and 58 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. In addition, the Company does not intend to sell these investment securities prior to a period of time sufficient to allow for anticipated recovery. The Company does not have any current requirement to sell its investment in any issuer prior to any anticipated recovery in fair value.

12

---

Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

(Dollars in Thousands, except per share data)

Note 5.                                  Loans

 

A summary of the balances of loans as of the dates indicated follows:

 

	June 30, 2017				September 30, 2016
Real estate:
Single family	$	161,280			$	158,541
Multifamily	129,084				123,623
Commercial real estate non-owner occupied	136,482				117,971
Commercial real estate owner occupied	68,842				63,108
Construction and land development	16,321				16,230
Total real estate	512,009				479,473
Commercial business	47,783				40,836
Consumer:
Home equity lines of credit	13,772				14,969
Education	2,958				3,401
Other	461				462
Total consumer	17,191				18,832
Total loans	576,983				539,141
Less:
Net deferred loan fees	90				138
Allowance for loan losses	5,612				5,244
Net loans	$	571,281			$	533,759

The following tables present the contractual aging of the Company's recorded investment in past due loans by class of loans as of June 30, 2017 and September 30, 2016:

 

June 30, 2017		Current				30-59 Days Past Due				60-89 Days Past Due				Loans Past Due 90 Days or More				Total
Real estate:
Single Family		$	160,730			$	499			$	—			$	51			$	161,280
Multifamily		129,084				—				—				—				129,084
Commercial real estate non-owner occupied		136,482				—				—				—				136,482
Commercial real estate owner occupied		68,842				—				—				—				68,842
Construction and land development		16,279				42				—				—				16,321
Commercial business		47,783				—				—				—				47,783
Consumer and other:
Home equity lines of credit		13,745				—				—				27				13,772
Education		2,838				20				—				100				2,958
Other		461				—				—				—				461
		$	576,244			$	561			$	—			$	178			$	576,983

 

13

---

Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

(Dollars in Thousands, except per share data)

September 30, 2016		Current				30-59 Days Past Due				60-89 Days Past Due				Loans Past Due 90 Days or More				Total
Real estate:
Single Family		$	157,803			$	239			$	426			$	73			$	158,541
Multifamily		123,623				—				—				—				123,623
Commercial real estate non-owner occupied		117,971				—				—				—				117,971
Commercial real estate owner occupied		63,108				—				—				—				63,108
Construction and land development		16,230				—				—				—				16,230
Commercial business		40,836				—				—				—				40,836
Consumer and other:
Home equity lines of credit		14,942				—				—				27				14,969
Education		3,202				11				39				149				3,401
Other		462				—				—				—				462
		$	538,177			$	250			$	465			$	249			$	539,141

 

There were no loans past due ninety days or more and still accruing interest as of June 30, 2017 and September 30, 2016.

 

The following table presents the recorded investment in nonaccrual loans by class of loans as of June 30, 2017 and September 30, 2016:

 

	June 30, 2017				September 30, 2016
Real estate:
Single Family	$	66			$	338
Multifamily	—				—
Commercial real estate non-owner occupied	—				—
Commercial real estate owner occupied	—				—
Construction and land development	—				—
Commercial business	—				—
Consumer and other:
Home equity lines of credit	34				36
Education	100				188
Other	—				—
	$	200			$	562

 

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 underlying loan agreements.  The Company considers current financial information, historical payment experience, credit documentation, public information and current economic trends when catgorizing its loans into risk categories.  Generally, all sizable credits receive a financial review no less than annually to monitor and adjust, if necessary, the credit’s risk profile.  Credits classified as special mention, substandard or doubtful generally receive a review quarterly.

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.

 

14

---

Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

(Dollars in Thousands, except per share data)

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 further 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.

 

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.  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 of our loan portfolio as of June 30, 2017 and September 30, 2016:

 

June 30, 2017		Pass				Watch				Special Mention				Substandard				Doubtful				Total
Real estate:
Single Family		$	160,000			$	—			$	—			$	1,280			$	—			$	161,280
Multifamily		129,084				—				—				—				—				129,084
Commercial real estate non-owner occupied		136,102				380				—				—				—				136,482
Commercial real estate owner occupied		65,948				2,894				—				—				—				68,842
Construction and land development		16,320				—				—				1				—				16,321
Commercial business		44,708				2,025				—				1,050				—				47,783
Consumer and other:
Home equity lines of credit		13,680				—				—				92				—				13,772
Education		2,958				—				—				—				—				2,958
Other		461				—				—				—				—				461
Total		$	569,261			$	5,299			$	—			$	2,423			$	—			$	576,983

 

15

---

Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

(Dollars in Thousands, except per share data)

September 30, 2016		Pass				Watch				Special Mention				Substandard				Doubtful				Total
Real estate:
Single Family		$	156,042			$	744			$	—			$	1,755			$	—			$	158,541
Multifamily		121,878				1,745				—				—				—				123,623
Commercial real estate non-owner occupied		116,880				695				396				—				—				117,971
Commercial real estate owner occupied		59,993				3,115				—				—				—				63,108
Construction and land development		16,228				—				—				2				—				16,230
Commercial business		31,677				8,945				214				—				—				40,836
Consumer and other:
Home equity lines of credit		14,874				—				—				95				—				14,969
Education		3,401				—				—				—				—				3,401
Other		462				—				—				—				—				462
		$	521,435			$	15,244			$	610			$	1,852			$	—			$	539,141

16

---

Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

(Dollars in Thousands, except per share data)

The following tables provide additional detail of the activity in the allowance for loan losses, by portfolio segment, for the three months ended June 30, 2017 and 2016:

 

Three Months Ended June 30, 2017		Single Family				Multifamily				Commercial Real Estate - Non-owner Occupied				Commercial Real Estate - Owner-Occupied				Construction and Land  Development				Commercial Business				Consumer and Other				Total
Allowance for loan losses:
Beginning balance		$	930			$	856			$	1,485			$	1,138			$	339			$	743			$	69			$	5,560
Provision for loan losses		(76		)		322				212				(185		)		(38		)		(182		)		(3		)		50
Loans charged-off		—				—				—				—				(2		)		—				—				(2		)
Recoveries		—				—				—				—				—				2				2				4
Ending balance		$	854			$	1,178			$	1,697			$	953			$	299			$	563			$	68			$	5,612
Period-ended amount allocated for:
Individually evaluated for impairment		$	1			$	—			$	—			$	—			$	—			$	—			$	50			$	51
Collectively evaluated for impairment		853				1,178				1,697				953				299				563				18				5,561
Ending balance		$	854			$	1,178			$	1,697			$	953			$	299			$	563			$	68			$	5,612
Loans:
Individually evaluated for impairment		$	1,407			$	310			$	—			$	—			$	—			$	—			$	83			$	1,800
Collectively evaluated for impairment		159,873				128,774				136,482				68,842				16,321				47,783				17,108				575,183
Ending balance		$	161,280			$	129,084			$	136,482			$	68,842			$	16,321			$	47,783			$	17,191			$	576,983

 

Three Months Ended June 30, 2016		Single Family				Multifamily				Commercial Real Estate - Non-owner Occupied				Commercial Real Estate - Owner-Occupied				Construction and Land  Development				Commercial Business				Consumer and Other				Total
Allowance for loan losses:
Beginning balance		$	1,058			$	1,180			$	1,221			$	580			$	335			$	420			$	69			$	4,863
Provision for loan losses		(7		)		23				156				77				(8		)		5				4				250
Loans charged-off		(59		)		—				—				—				—				—				—				(59		)
Recoveries		—				—				—				—				—				7				1				8
Ending balance		$	992			$	1,203			$	1,377			$	657			$	327			$	432			$	74			$	5,062
Period-ended amount allocated for:
Individually evaluated for impairment		$	1			$	—			$	—			$	—			$	—			$	—			$	53			$	54
Collectively evaluated for impairment		991				1,203				1,377				657				327				432				21				5,008
Ending balance		$	992			$	1,203			$	1,377			$	657			$	327			$	432			$	74			$	5,062
Loans:
Individually evaluated for impairment		$	1,740			$	1,767			$	—			$	—			$	—			$	—			$	90			$	3,597
Collectively evaluated for impairment		151,873				122,032				116,318				58,637				16,949				36,501				18,684				520,994
Ending balance		$	153,613			$	123,799			$	116,318			$	58,637			$	16,949			$	36,501			$	18,774			$	524,591

 

17

---

Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

(Dollars in Thousands, except per share data)

 The following tables provide additional detail of the activity in the allowance for loan losses, by portfolio segment, for the nine months ended June 30, 2017 and 2016:

Nine Months Ended June 30, 2017		Single Family				Multifamily				Commercial Real Estate -Non-owner Occupied				Commercial Real Estate -Owner- Occupied				Construction and Land Development				Commercial Business				Consumer and Other				Total
Allowance for loan losses:
Beginning balance		$	980			$	1,015			$	1,519			$	813			$	344			$	500			$	73			$	5,244
Provision for loan losses		(126		)		163				178				134				(43		)		54				(10		)		350
Loans charged-off		—				—				—				—				(2		)		—				—				(2		)
Recoveries		—				—				—				6				—				9				5				20
Ending balance		$	854			$	1,178			$	1,697			$	953			$	299			$	563			$	68			$	5,612
Period-ended amount allocated for:
Individually evaluated for impairment		$	1			$	—			$	—			$	—			$	—			$	—			$	50			$	51
Collectively evaluated for impairment		853				1,178				1,697				953				299				563				18				5,561
Ending balance		$	854			$	1,178			$	1,697			$	953			$	299			$	563			$	68			$	5,612
Loans:
Individually evaluated for impairment		$	1,407			$	310			$	—			$	—			$	—			$	—			$	83			$	1,800
Collectively evaluated for impairment		159,873				128,774				136,482				68,842				16,321				47,783				17,108				575,183
Ending balance		$	161,280			$	129,084			$	136,482			$	68,842			$	16,321			$	47,783			$	17,191			$	576,983

Nine Months Ended June 30, 2016		Single Family				Multifamily				Commercial Real Estate -Non-owner Occupied				Commercial Real Estate -Owner- Occupied				Construction and Land Development				Commercial Business				Consumer and Other				Total
Allowance for loan losses:
Beginning balance		$	1,073			$	1,013			$	1,091			$	513			$	330			$	498			$	80			$	4,598
Provision for loan losses		(5		)		190				285				143				(3		)		(82		)		(3		)		525
Loans charged-off		(89		)		—				—				—				—				—				(10		)		(99		)
Recoveries		13				—				1				1				—				16				7				38
Ending balance		$	992			$	1,203			$	1,377			$	657			$	327			$	432			$	74			$	5,062
Period-ended amount allocated for:
Individually evaluated for impairment		$	1			$	—			$	—			$	—			$	—			$	—			$	53			$	54
Collectively evaluated for impairment		991				1,203				1,377				657				327				432				21				5,008
Ending balance		$	992			$	1,203			$	1,377			$	657			$	327			$	432			$	74			$	5,062
Loans:
Individually evaluated for impairment		$	1,740			$	1,767			$	—			$	—			$	—			$	—			$	90			$	3,597
Collectively evaluated for impairment		151,873				122,032				116,318				58,637				16,949				36,501				18,684				520,994
Ending balance		$	153,613			$	123,799			$	116,318			$	58,637			$	16,949			$	36,501			$	18,774			$	524,591

18

---

Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

(Dollars in Thousands, except per share data)

The following tables present additional detail of impaired loans, segregated by segment, as of and for the three and nine month periods ended June 30, 2017 and 2016.  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 by loan category.  The interest income recognized column represents all interest income on a loan reported on either a cash or accrual basis after the loan became impaired.

 

														Three months ended								Nine months ended
June 30, 2017		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		$	1,263			$	1,136			$	—			$	1,139			$	12			$	1,237			$	37
Multifamily		310				310				—				1,005				6				1,369				25
Commercial real estate non-owner occupied		—				—				—				—				—				—				—
Commercial real estate owner occupied		—				—				—				—				—				—				—
Construction and land development		4				—				—				—				—				—				—
Commercial business		—				—				—				—				—				—				—
Consumer and other		112				33				—				35				—				35				—
With an allowance recorded:
Single family		271				271				1				272				4				204				14
Multifamily		—				—				—				—				—				—				—
Commercial real estate non-owner occupied		—				—				—				—				—				—				—
Commercial real estate owner occupied		—				—				—				—				—				—				—
Construction and land development		—				—				—				—				—				—				—
Commercial business		—				—				—				—				—				—				—
Consumer and other		50				50				50				51				1				51				2
		$	2,010			$	1,800			$	51			$	2,502			$	23			$	2,896			$	78

 

														Three months ended								Nine months ended
June 30, 2016		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		$	1,601			$	1,430			$	—			$	1,428			$	18			$	1,308			$	55
Multifamily		1,824				1,767				—				1,778				19				1,801				57
Commercial real estate non-owner occupied		—				—				—				—				—				—				—
Commercial real estate owner occupied		—				—				—				—				—				—				—
Construction and land development		4				—				—				—				—				—				—
Commercial business		—				—				—				—				—				—				—
Consumer and other		115				37				—				38				—				71				—
With an allowance recorded:
Single family		310				310				1				311				3				361				11
Multifamily		—				—				—				—				—				—				—
Commercial real estate non-owner occupied		—				—				—				—				—				—				—
Commercial real estate owner occupied		—				—				—				—				—				—				—
Construction and land development		—				—				—				—				—				—				—
Commercial business		—				—				—				—				—				—				—
Consumer and other		53				53				53				54				1				54				2
		$	3,907			$	3,597			$	54			$	3,609			$	41			$	3,595			$	125

19

---

Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

(Dollars in Thousands, except per share data)

The following is a summary of troubled debt restructured loans (TDRs) at June 30, 2017 and September 30, 2016:

 

	June 30, 2017				September 30, 2016
Troubled debt restructurings - accrual	$	1,296			$	3,021
Troubled debt restructurings - nonaccrual	—				—
	$	1,296			$	3,021

 

Modifications of loan terms as a TDR are generally in the form of an extension of payment terms or a lowering of the interest rate, although occasionally the Bank has reduced the outstanding principal balance.

 

There were no loans modified as a TDR during the three or nine months ended June 30, 2017 and 2016.

There were no re-defaults of TDRs that occurred during the three or nine months ended June 30, 2017 and 2016.

 

Certain of the Bank’s directors and executive officers are loan customers of the Bank.  As of June 30, 2017 and September 30, 2016, loans of approximately $9,389 and $7,813 , 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:

	Nine Months Ended June 30, 2017
Balance, beginning	$	7,813
New loans originated	2,728
Draws on lines of credit	56
Principal repayments	(1,208		)
Balance, ending	$	9,389

              

20

---

Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

(Dollars in Thousands, except per share data)

Note 6.                                  Deposits

 

The following table presents the composition of deposits as of:

	June 30, 2017							September 30, 2016
	Amount				Percent			Amount				Percent
Checking Accounts:
Noninterest bearing	$	134,189			19.52	%		$	111,841			18.89	%
Interest bearing	145,005				21.09	%		135,866				22.95	%
	279,194				40.61	%		247,707				41.84	%
Passbook and Statement Savings	141,656				20.61	%		133,155				22.50	%
Variable Rate Money Market Accounts	73,999				10.76	%		64,593				10.91	%
Certificates of Deposit	192,637				28.02	%		146,522				24.75	%
	$	687,486			100.00	%		$	591,977			100.00	%

 

Certificate accounts equal to or over one hundred thousand dollars totaled $127,041 and $89,588 as of June 30, 2017 and September 30, 2016, respectively. Of these amounts, $51,016 and $26,154 are equal to or greater than two hundred fifty thousand dollars as of June 30, 2017 and September 30, 2016, respectively.

 

Note 7.                                Borrowings

The Bank maintains a master contract agreement with the Federal Home Loan Bank of Chicago (FHLB) that provides for borrowing of up to the maximum of 75 percent of the book value of the Bank’s first lien 1-4 family and multifamily real estate loans. The FHLB provides both fixed and floating rate advances. Floating rate advances are tied to short-term market rates of interest, such as LIBOR, Federal Funds or Treasury Bill rates. Fixed rate advances are priced in reference to market rates of interest at the time of the advance, namely the rates that the FHLB pays to borrowers at various maturities. In either case, interest is payable monthly with principal payable at maturity.

Advances are generally secured by a security agreement pledging a portion of the Bank’s residential real estate and multifamily loans. Pledged real estate mortgages, home equity lines of credit, and multifamily loans had a carrying value of $265,870 and $273,826 as of June 30, 2017, and September 30, 2016, respectively.

The Company had FHLB long-term advances with remaining contractual maturities greater than one year of $20,000 at each of June 30, 2017 and September 30, 2016. These advances are fixed rate/floating spread advances. This type of advance pays interest at a fixed rate adjusted quarterly by a spread which equals the difference between the FHLB three month advance index and three month LIBOR.

On January 19, 2017 , the Company entered into a $4,000 unsecured line of credit with a correspondent bank. Interest is payable at a rate of one month LIBOR + 2.40% . As of June 30, 2017, there was no outstanding balance on the line of credit. The line matures on December 31, 2017 .

21

---

Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

(Dollars in Thousands, except per share data)

Borrowings were as follows as of June 30, 2017 and September 30, 2016:

	June 30, 2017						September 30, 2016
	Amount			Weighted Average Cost			Amount			Weighted Average Cost
FHLB advances:
Overnight advances	$	—		—	%		$	—		—	%
Long-term advances by year of maturity:
Year ended September 30, 2019	4,000			0.89			4,000			0.94
Year ended September 30, 2020	3,000			1.10			3,000			1.16
Year ended September 30, 2021	3,000			1.29			3,000			1.34
Year ended September 30, 2022	4,000			0.89			4,000			0.84
Year ended September 30, 2023	4,000			0.99			4,000			0.93
Year ended September 30, 2024	2,000			1.10			2,000			1.04
Total long-term FHLB advances	$	20,000		1.02	%		$	20,000		1.02	%
Line of credit	—			—			—			—

Note 8.                                  Regulatory Capital

 

The Bank is subject to capital requirements adopted by the Office of the Comptroller of the Currency ("OCC"). These requirements include a ratio for common equity Tier 1 ("CETI") capital, a leverage ratio and Tier 1 capital ratios and an additional capital conservation buffer over these required capital ratios. Failure to maintain the required capital conservation buffer limits 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 savings and loan holding companies with assets under $1 billion.

Under the 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.

In addition to the minimum CETI, Tier 1 and total capital ratios, the Bank is required 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 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 capital conservation buffer requirement began to be phased in for the Bank in January 2016 at 0.625% of risk-weighted assets and increases by the same amount each year until fully implemented in January 2019.

The OCC's prompt corrective action standards require the Bank, to be considered "well-capitalized", to maintain a CETI ratio of 6.5%, a Tier 1 ratio of 8.0%, a total risk-based capital ratio of 10.0% and a leverage ratio of 5.0%. As of June 30, 2017, the Bank met all these requirements, including the full capital conservation buffer.

22

---

Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

(Dollars in Thousands, except per share data)

 

The Bank’s actual capital amounts and ratios and those required by the regulatory standards are presented in the following tables. With respect to the capital conservation buffer, we have included the 1.250% increase for 2017 and the 0.625% increase for 2016 in our minimum capital adequacy ratios in the tables below.

  

At June 30, 2017	Actual							For Capital Adequacy Purposes Under Prompt Corrective Action Provisions							For Capital Adequacy Purposes with Capital Buffer							To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount				Ratio			Amount				Ratio			Amount				Ratio			Amount				Ratio
CETI capital (to risk-weighted assets) - Westbury Bank	$	74,148			11.86	%		$	28,135			4.50	%		$	35,951			5.750	%		$	40,640			6.50	%
Tier 1 capital (to risk-weighted assets) - Westbury Bank	74,148				11.86	%		37,514				6.00	%		45,329				7.250	%		50,018				8.00	%
Total capital (to risk-weighted assets) - Westbury Bank	79,760				12.76	%		50,018				8.00	%		57,834				9.250	%		62,523				10.00	%
Leverage (to adjusted total assets) - Westbury Bank	74,148				9.77	%		30,357				4.00	%		N/A				N/A			37,947				5.00	%

 

At September 30, 2016	Actual							For Capital Adequacy Purposes Under Prompt Corrective Action Provisions							For Capital Adequacy Purposes with Capital Buffer							To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount				Ratio			Amount				Ratio			Amount				Ratio			Amount				Ratio
CET1 capital (to risk-weighted assets) - Westbury Bank	$	71,383			12.61	%		$	25,472			4.50	%		$	29,010			5.125	%		$	36,793			6.50	%
Tier 1 capital (to risk-weighted assets) - Westbury Bank	71,383				12.61	%		33,963				6.00	%		37,500				6.625	%		45,283				8.00	%
Total capital (to risk-weighted assets) - Westbury Bank	76,627				13.54	%		45,283				8.00	%		48,821				8.625	%		56,604				10.00	%
Leverage (to adjusted total assets) - Westbury Bank	71,383				10.23	%		27,911				4.00	%		N/A				N/A			34,889				5.00	%

The following table reconciles the Bank’s stockholder's equity to regulatory capital as of June 30, 2017 and September 30, 2016:

 

	June 30, 2017				September 30, 2016
Stockholder's equity of the Bank	$	74,633			$	73,332
Less: Unrealized (gain) loss on securities	611				(561		)
Disallowed deferred tax assets	(1,096		)		(1,388		)
Tier 1, CETI and leverage capital	74,148				71,383
Plus: Allowable general valuation allowances	5,612				5,244
Total capital	$	79,760			$	76,627

 

Note 9.                           Commitments and Contingencies

 

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 accompanying consolidated balance

23

---

Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

(Dollars in Thousands, except per share data)

sheets.  The contractual amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

 

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 off-balance sheet instruments were outstanding whose contract amounts represent credit risk:

 

	June 30, 2017				September 30, 2016
Commitments to extend commercial and residential mortgage credit:
Fixed rate	$	2,438			$	2,013
Adjustable rate	19,505				1,442
Unused commercial loan lines of credit	101,515				68,752
Unused home equity lines of credit	27,689				27,315
Standby letters of credit	1,635				1,076
Commitments to sell loans	1,232				1,881

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 underlying 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.

 

Unfunded commitments under lines of credit are commitments for possible future extensions of credit to existing customers.  These lines of credit 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 June 30, 2017 and September 30, 2016, no amounts have been recorded as liabilities for the Company’s potential obligations under these commitments.

Litigation

In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management, any liabilities resulting from such proceedings would not have a material adverse effect on the Company's consolidated financial statements.

 

Note 10.                           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

24

---

Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

(Dollars in Thousands, except per share data)

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.

 

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 fair value hierarchy, is set forth below.

Financial Instruments Recorded at Fair Value on a Recurring Basis

 

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 inputs are not available, securities are classified within Level 3 of the fair value 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 fair value hierarchy.

 

25

---

Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

(Dollars in Thousands, except per share data)

Assets and liabilities recorded at fair value on a recurring basis

The following table summarizes financial instruments 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
June 30, 2017		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		53,795				—				53,795				—
U.S. Government agency collateralized mortgage obligations		6,556				—				6,556				—
U.S. Government agency commercial mortgage-backed securities		18,518				—				18,518				—
Municipal securities-tax exempt		31,565				—				31,565				—
Municipal securities-taxable		11,879				—				11,879				—
Total securities available-for-sale		$	122,338			$	—			$	122,338			$	—
Derivatives		$	—			$	—			$	—			$	—
Liabilities
Derivatives		$	—			$	—			$	—			$	—

						Fair Value Measurements
September 30, 2016		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		40,750				—				40,750				—
U.S. Government agency collateralized mortgage obligations		2,680				—				2,680				—
U.S. Government agency commercial mortgage-backed securities		11,526				—				11,526				—
Municipal securities-tax exempt		25,682				—				25,682				—
Municipal securities-taxable		13,109				—				13,109				—
Total securities available-for-sale		$	93,772			$	—			$	93,772			$	—
Derivatives		$	98			$	—			$	98			$	—
Liabilities
Derivatives		$	98			$	—			$	98			$	—

26

---

Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

(Dollars in Thousands, except per share data)

 

The Company did not have any transfers between Level 1, Level 2, and Level 3 of the fair value hierarchy during the nine months ended June 30, 2017.  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, therefore, result in a transfer between levels.

 

Financial Instruments Recorded at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain financial 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 $321 and $52 had a valuation allowance of $51 and $52 included in the allowance for loan losses to reflect their fair value as of June 30, 2017 and September 30, 2016, respectively.

 

Foreclosed real estate :  The Company does not record foreclosed real estate owned at 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 June 30, 2017, mortgage servicing rights with a carrying amount of $845 had a valuation allowance of $85 to reflect their fair value of $760 .  As of September 30, 2016, mortgage servicing rights with a carrying amount of $1,012 had a valuation allowance of $212 to reflect their fair value of $800 .

Assets and liabilities recorded at fair value on a non-recurring basis

						Fair Value Measurements
June 30, 2017		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		$	270			$	—			$	—			$	270
Foreclosed real estate		118				—				—				118
Mortgage servicing rights		760				—				—				760

 

27

---

Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

(Dollars in Thousands, except per share data)

						Fair Value Measurements
September 30, 2016		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		$	—			$	—			$	—			$	—
Foreclosed real estate		99				—				—				99
Mortgage servicing rights		800				—				—				800

 

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 accompanying 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 herein 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 accompanying 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 or business 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 :  The fair values 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 of deposit to a schedule of aggregated expected monthly maturities of the outstanding certificates of deposit.

 

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. The carrying amounts of short term FHLB advances reported in the consolidated balance sheets approximated those liabilities' fair values.

 

28

---

Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

(Dollars in Thousands, except per share data)

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 either June 30, 2017 and September 30, 2016.

 

The estimated fair values and related carrying amounts of the Company’s financial instruments as of the dates noted below were as follows:

	June 30, 2017
	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	$	57,522			$	57,522			$	57,522			$	—			$	—
Securities available for sale	122,338				122,338				—				122,338				—
Securities held to maturity	2,125				2,180				—				2,180				—
Loans held for sale, net	1,232				1,232				—				1,232				—
Loans, net	571,281				571,952				—				—				571,952
Federal Home Loan Bank stock	1,316				1,316				—				—				1,316
Mortgage servicing rights	760				760				—				—				760
Accrued interest receivable	2,354				2,354				2,354				—				—
Derivative asset	—				—				—				—				—
Financial liabilities:
Deposits	687,486				648,211				134,189				—				514,022
Short-term advances from Federal Home Loan Bank	—				—				—				—				—
Long-term advances from Federal Home Loan Bank	20,000				18,937				—				—				18,937
Advance payments by borrowers for property taxes and insurance	3,481				3,481				3,481				—				—
Accrued interest payable	6				6				6				—				—
Derivative liability	—				—				—				—				—

 

29

---

Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

(Dollars in Thousands, except per share data)

	September 30, 2016
	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	$	29,613			$	29,613			$	29,613			$	—			$	—
Securities available for sale	93,772				93,772				—				93,772				—
Securities held to maturity	2,293				2,392				—				2,392				—
Loans held for sale, net	1,881				1,881				—				1,881				—
Loans, net	533,759				536,434				—				—				536,434
Federal Home Loan Bank stock	1,330				1,330				—				—				1,330
Mortgage servicing rights	800				800				—				—				800
Accrued interest receivable	2,173				2,173				2,173				—				—
Derivative asset	98				98				—				98				—
Financial liabilities:
Deposits	591,977				574,787				111,841				—				462,946
Short-term advances from Federal Home Loan Bank	—				—				—				—				—
Long-term advances from Federal Home Loan Bank	20,000				19,472				—				—				19,472
Advance payments by borrowers for property taxes and insurance	5,455				5,455				5,455				—				—
Accrued interest payable	5				5				5				—				—
Derivative liability	98				98				—				98				—

Note 11.                                  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 contributions to the ESOP equal to or greater than the ESOP's debt service. Additional principal payments, which serve to pay down the debt and accelerate the release of unallocated ESOP shares to plan participants, may be made by the Bank at the discretion of its Board of Directors. An additional principal payment of $264 was made at December 31, 2016. The ESOP shares were pledged as collateral for its debt obligations to the Company. As the debt is repaid, shares are committed to be released from collateral and allocated to active participants at calendar year end, 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 financial statements. The shares pledged as collateral are reported as unearned ESOP shares in the accompanying 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 released shares, and the released shares become outstanding for earnings per share computations. During the three months ended June 30, 2017 and 2016, 10,285 and 10,285 shares were committed to be released, respectively. The total ESOP compensation expense recorded for the three months ended June 30, 2017 and 2016 was $211 and $202 , respectively. During the nine months ended June 30, 2017 and 2016, 30,855 and 25,712 shares were committed to be released, including 10,285 and 5,142 , respectively, which were released and available for allocation at December 31, 2016 and 2015, respectively, concurrent

30

---

Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

(Dollars in Thousands, except per share data)

with the payment of the annual debt service on the ESOP loan. The total ESOP compensation expense recorded for the nine months ended June 30, 2017 and 2016 was $631 and $485 , respectively.

The ESOP shares as of June 30, 2017 and September 30, 2016 were as follows (in thousands, except share data):

	June 30, 2017				September 30, 2016
Allocated shares to active participants	93,190				52,773
Shares committed to be released	20,570				30,855
Unallocated shares	287,983				318,838
Total ESOP shares	401,743				402,466
Fair value of unallocated shares	$	6,004			$	6,227

Note 12. Compensation Equity 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 June 30,								Nine Months Ended June 30,
	2017				2016				2017				2016
Total cost of stock grant plan during the period	$	150			$	152			$	430			$	454
Total cost of stock option plan during the period	70				59				201				174
Total cost of share-based payment plans during the period	$	220			$	211			$	631			628
Amount of related income tax benefit recognized in income	$	86			$	83			$	247			$	246

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 issuance under the Plan of up to 203,665 restricted stock awards and up to 509,162 stock options. At the Company's annual meeting of stockholders, held on February 15, 2017, the stockholders of the Company approved an amendment to the Plan authorizing 20,000 additional restricted stock awards and an additional 200,000 stock options available for issuance as awards under the Plan. As of June 30, 2017 there were 40,367 restricted stock awards and 199,123 options available for future grants.

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 common shares at the date of grant: those option awards generally vest pro-rata over five years of service and have 10 -year contractual terms. Restricted shares typically vest pro-rata 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.

31

---

Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

(Dollars in Thousands, except per share data)

The following table summarizes stock options outstanding for the three and nine months ended June 30, 2017:

	Number of Options		Weighted Average Exercise Price			Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Options outstanding as of March 31, 2017	454,163		$	16.52
Granted	73,500		19.85
Exercised	(1,912	)	15.20
Expired or canceled	—		—
Forfeited	(33,713	)	15.72
Options outstanding as of June 30, 2017	492,038		$	17.07		7.96	$	1,858
Options exercisable as of June 30, 2017	217,432		$	15.88		7.29	$	1,081

	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, 2016	474,132		$	16.46
Granted	76,250		19.89
Exercised	(7,808	)	15.42
Expired or canceled	(450	)	17.40
Forfeited	(50,086	)	15.79
Options outstanding as of June 30, 2017	492,038		$	17.07		7.96	$	1,858
Options exercisable as of June 30, 2017	217,432		$	15.88		7.29	$	1,081

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. Since options were first awarded in June 2014 and the Company has had a minimal number of options exercised by participants in the Plan, the expected life of options is estimated based on the assumption that options will be exercised evenly throughout their life after vesting and represents the period of time that options granted are expected to remain outstanding.

32

---

Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

(Dollars in Thousands, except per share data)

The following assumptions were used for options granted during the nine months ended June 30:

	2017				2016
Risk-free interest rate	2.02		%		1.28		%
Expected volatility of Company's stock	16.68		%		11.08		%
Expected dividend yield	—		%		—		%
Expected life of options (years)	7.5				7.5
Weighted average fair value per option of options granted during the period	$	4.92			$	3.30

The total intrinsic value of options exercised during each of the nine months ended June 30, 2017 and 2016 was $46 and $11 , respectively. The total intrinsic value of options exercised during each of the three months ended June 30, 2017 and 2016

was $9 and $1 , respectively.

The following is a summary of changes in restricted shares for the three and nine months ended June 30, 2017:

	Number of Shares			Weighted Average Grant Date Fair Value
Shares Outstanding at March 31, 2017	114,439			$	15.61
Granted	4,000			19.85
Vested	35,634			15.20
Forfeited	16,387			15.39
Shares Outstanding at June 30, 2017	66,418			$	16.14

	Number of Shares			Weighted Average Grant Date Fair Value
Shares Outstanding at September 30, 2016	114,883			$	15.20
Granted	11,500			20.93
Vested	36,856			15.20
Forfeited	23,109			15.34
Shares Outstanding at June 30, 2017	66,418			$	16.14

The total intrinsic value of restricted shares that vested during each of the nine months ended June 30, 2017 and 2016 was $734 and $785 , respectively. The total intrinsic value of restricted shares that vested during each of the three months ended June 30, 2017 and 2016 was $707 and $785 , respectively.

As of June 30, 2017, there was $2.0 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 June 30, 2017, the weighted-average period over which the unrecognized compensation expense is expected to be recognized was approximately 3.1 years.

33

---

Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

(Dollars in Thousands, except per share data)

Note 13. Condensed Parent Company Financial Information

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

Balance Sheets
	June 30,				September 30,
	2017				2016
Assets
Cash and interest bearing deposits	$	336			$	251
Investments	38				55
Loan to ESOP	2,991				3,620
Investment in subsidiary	76,541				75,872
Other assets	2,615				2,397
Total assets	$	82,521			$	82,195
Liabilities and Stockholders' Equity
Total liabilities	$	822			$	26
Stockholders' equity	81,699				82,169
Total liabilities and stockholders' equity	$	82,521			$	82,195

Statements of Operations
	Three Months Ended June 30,								Nine Months Ended June 30,
	2017				2016				2017				2016
Interest and other income	$	29			$	34			$	91			$	99
Interest and other expense	149				120				465				371
Loss before income tax benefit and equity in undistributed net income of subsidiary	(120		)		(86		)		(374		)		(272		)
Income tax benefit	(30		)		(17		)		(95		)		(56		)
Loss before equity in undistributed net income of subsidiary	(90		)		(69		)		(279		)		(216		)
Equity in undistributed net income of subsidiary	908				975				2,590				3,034
Net income	$	818			$	906			$	2,311			$	2,818

34

---

Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

(Dollars in Thousands, except per share data)

Statements of Cash Flows
	For Nine Months Ended June 30,
	2017				2016
Cash Flows From Operating Activities
Net income	$	2,311			$	2,818
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed net income of subsidiary	(2,590		)		(3,034		)
Net change in other liabilities	796				(117		)
Net change in other assets	412				692
Net cash provided by operating activities	929				359
Cash Flows From Investing Activities
Sales and maturities of securities	17				51
Payments received on ESOP loan	629				158
Dividend received from bank subsidiary	750				2,300
Net cash provided by investing activities	1,396				2,509
Cash Flows From Financing Activities
Stock options exercised	122				68
Repurchase of common stock	(2,362		)		(4,342		)
Net cash used in financing activities	(2,240		)		(4,274		)
Net increase (decrease) in cash	85				(1,406		)
Cash
Beginning of period	251				1,440
End of period	$	336			$	34

35

---

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 undertake 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 current economic conditions nationally and in our market area;

•	adverse changes in the financial industry, securities, credit and national and local real estate markets (including real estate values);

•	significant increases in our loan losses, including as a result of our inability to resolve classified loans, and changes in 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 charge-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 multifamily lending while maintaining our asset quality;

•

we have in recent periods identified multi-family, commercial real estate and construction loans as areas for lending emphasis. We have had, in particular, higher levels of commercial real estate lending (including non-owner occupied commercial real estate loans) in recent periods. Although we believe we have employed the appropriate management, sales, and administrative personnel (including personnel tasked with managing and monitoring loan concentrations in these areas), as well as installed the appropriate systems and procedures, to support this lending emphasis and higher levels of loans in these categories, these types of loans have historically carried greater risk of payment default than loans to retail borrowers. As the volume of commercial lending in these loan categories increases, our credit risk may increase. Construction loans have the additional risk of potential non-completion of the project. In the event of increased defaults from commercial borrowers or non-completion of construction projects, our provision for loan losses would further increase and loans may be written off and, therefore, earnings would be reduced. In addition, costs associated with the administration of problem loans increase and, therefore, earnings would be further reduced. Further, as the portion of the Company's loans secured by real estate increases (including those related to construction projects), the Company becomes increasingly exposed to fluctuations in real estate values and the real estate markets, as well as being exposed to potential environmental liabilities and related compliance burdens.  If we fail to adequately monitor and evaluate trends in the real estate markets and to assess potential environmental risks, the value of the collateral we hold may be less than expected;

•	our success in introducing new financial products;

•	our ability to attract and maintain deposits;

36

---

•	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;

•	the results of examinations by our regulators, including the possibility that our regulators may, among other things, require us to increase our allowance for loan losses, write down assets, change our regulatory capital position, limit our ability to borrow funds, make dividend payments or maintain or increase deposits;

•	changes in the level of government support of housing finance;

•	our ability to enter new markets successfully and capitalize on growth opportunities;

•	changes in laws or government regulations or policies affecting financial institutions, including changes in the regulations implementing the Dodd-Frank Act, the JOBS Act and similar future laws, which could result in, among other things, increased deposit insurance premiums and assessments, capital requirements, and regulatory fees and compliance costs;

•	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;

•	loan delinquencies and changes in the underlying cash flows of our borrowers;

•	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 our ability to secure confidential information through the use of our computer and other technology systems and networks;

•	other economic, competitive, governmental, regulatory and operational factors affecting our operations, pricing, products and services described elsewhere in this report, including any future changes in tax rates and the resulting impact such changes may have on the value of any deferred tax assets and liabilities and any investment securities recorded in our financial statements; and

•	the impact of reputational risk created by any of the foregoing developments on such matters such as business generation and retention, funding and liquidity.

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.

37

---

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 fiscal year ended September 30, 2016.

 

Overview

Our Business. The Company is a Maryland corporation and the savings and loan holding company for Westbury 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 eight banking offices located in Washington County, Wisconsin and Waukesha County, Wisconsin. We also operate loan production offices in Madison, Wisconsin, located in Dane County, and Appleton, Wisconsin, located in Outagamie County. In addition, although our current operations are not focused in Milwaukee County, Wisconsin, 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. Also, 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, commercial business loans and construction 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 rate cycles. 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 provision for loan losses, non-interest income and non-interest expense. Non-interest income consists primarily of service charges on deposit accounts, loan servicing income, gains 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.

Comparison of Financial Condition at June 30, 2017 and September 30, 2016

 

Total Assets.  Total assets increased by $93.3 million , or 13.3% , to $795.9 million at June 30, 2017 from $702.6 million at September 30, 2016.  The increase in total assets was primarily the result of an increase in cash and cash equivalents of $27.9 million , net loans of $37.5 million and securities available for sale of $28.6 million .

Cash and Cash Equivalents. Cash and cash equivalents increased by $27.9 million , or 94.2% , to $57.5 million at June 30, 2017 from $29.6 million at September 30, 2016. The increase was the result of normal fluctuations in interest-earning deposits and cash and due from banks between those dates.

 

Net Loans.  Net loans increased by $37.5 million , or 7.0% , to $571.3 million at June 30, 2017 from $533.8 million at September 30, 2016.  Non-owner occupied commercial real estate loans increased by $18.5 million , commercial business loans by $6.9 million , owner-occupied commercial real estate loans by $5.7 million , multifamily loans by $5.5 million , single family loans by $2.7 million , and construction and land development loans by $91,000 , which increases were offset by decreases in home equity lines of credit of $1.2 million and education loans of $443,000 . The increases in multifamily loans, commercial loans and commercial real estate loans resulted from our continued efforts to grow these segments of the loan portfolio, particularly loans secured by owner-occupied properties. The increase in construction and land development loans resulted from progress draws related to partial completion of projects during the year to date period. The decrease in home equity lines of credit was due to normal fluctuations in outstanding balances over the year to date period while the decrease in education loans was due to normal principal paydowns while we no longer originate new education loans.

38

---

Investment Securities.  Investment securities available for sale increased $28.6 million , or 30.5% , to $122.3 million at June 30, 2017 from $93.8 million at September 30, 2016. Mortgage-backed securities and collateralized mortgage obligations increased $23.9 million and municipal securities increased $4.7 million between these dates. These changes occurred as we invested a portion of new deposit balances and repositioned the investment portfolio through normal portfolio management.

Net unrealized loss on securities increased by $1.9 million to $1.0 million at June 30, 2017 from a net unrealized gain of $923,000 at September 30, 2016, reflecting the effect of a general increase in market interest rates after the November 2016 U.S. elections.  At June 30, 2017, investment securities classified as available-for-sale consisted entirely of government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations, and municipal securities. At June 30, 2017, investment securities classified as held to maturity consisted entirely of municipal securities.

The outstanding balances of investment securities held to maturity decreased by $168,000 to $2.1 million at June 30, 2017 from $2.3 million at September 30, 2016. The decrease was due to the maturity of a municipal security during the year to date period.

 

Foreclosed Real Estate.  Foreclosed real estate increased $19,000 , or 19.2% , to $118,000 at June 30, 2017 from $99,000 at September 30, 2016, as we transferred $118,000 of foreclosed properties from loans receivable, sold $90,000 of foreclosed properties and recorded valuation adjustments of $9,000 during the nine month period ended June 30, 2017. 

 

Cash Surrender Value of Bank-Owned Life Insurance. Cash surrender value of bank-owned life insurance increased $326,000 , or 2.3% , to $14.6 million at June 30, 2017 from $14.2 million at September 30, 2016 as a result of income credited to the policies during the period.

Deferred Tax Asset. The deferred tax asset decreased $452,000 , or 8.3% , to $5.0 million at June 30, 2017 from $5.4 million at September 30, 2016, due to the accrual of income tax expense as a result of the Company recording taxable income for the period, offset by an increase in the deferred tax asset relating to unrealized losses on investment securities available for sale incurred during the nine months ended June 30, 2017.

Deposits.  Deposits increased $95.5 million , or 16.1% , to $687.5 million at June 30, 2017 from $592.0 million at September 30, 2016.  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 $49.4 million , or 11.1% , to $494.8 million at June 30, 2017 from $445.5 million at September 30, 2016.  In particular, variable rate money market accounts increased by $9.4 million , or 14.6% , to $74.0 million at June 30, 2017 from $64.6 million at September 30, 2016 while noninterest bearing deposits increased by $22.3 million , or 20.0% , to $134.2 million at June 30, 2017 from $111.8 million at September 30, 2016. Certificates of deposit increased $46.1 million , or 31.5% , to $192.6 million at June 30, 2017 from $146.5 million at September 30, 2016.   Growth in certificates of deposit was generated primarily through the use of Internet listing services to attract balances from other financial institutions and through relationships with local municipalities.

Short Term Advances from FHLB . Short-term advances from the FHLB were zero at both June 30, 2017 and September 30, 2016. We anticipate continuing to use short term advances from time to time to manage liquidity.

Long Term Advances from FHLB. Long-term advances from the FHLB were unchanged at $20.0 million at June 30, 2017 and September 30, 2016.

 

Advance Payments By Borrowers For Property Taxes and Insurance.  Advance payments by borrowers for property taxes and insurance decreased by $2.0 million , or 36.2% , to $3.5 million at June 30, 2017 from $5.5 million at September 30, 2016 due to seasonal disbursements to customers in December 2016 to enable the payment of mortgagees’ property taxes offset by ongoing monthly payments by borrowers. 

 

Total Stockholders' Equity.  Total stockholders' equity increased $162,000 to $79.8 million at June 30, 2017 from $79.6 million at September 30, 2016.  The increase resulted primarily from net income of $2.3 million during the nine months ended June 30, 2017, the allocation of ESOP shares of $631,000 , stock based compensation expense of $631,000 and the exercise of 7,808 stock options for $122,000 , offset by a decrease in other comprehensive income of $1.2 million and the repurchase of 113,086 shares of common stock for $2.4 million during the same period.

39

---

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 June 30, 2017:
Real estate loans:
Single family	5			$	499			—			$	—			2			$	51			7			$	550
Multi-family	—			—				—			—				—			—				—			—
Commercial real estate - non-owner occupied	—			—				—			—				—			—				—			—
Commercial real estate - owner occupied	—			—				—			—				—			—				—			—
Construction and land	1			42				—			—				—			—				1			42
Total real estate	6			541				—			—				2			51				8			592
Commercial business loans	—			—				—			—				—			—				—			—
Consumer loans:
Home equity lines of credit	—			—				—			—				1			27				1			27
Education	3			20				—			—				11			100				14			120
Other consumer loans	—			—				—			—				—			—				—			—
Total consumer loans	3			20				—			—				12			127				15			147
Total	9			$	561			—			$	—			14			$	178			23			$	739
At September 30, 2016:
Real estate loans:
Single family	5			$	239			3			$	426			2			$	73			10			$	738
Multi-family	—			—				—			—				—			—				—			—
Commercial real estate - non-owner occupied	—			—				—			—				—			—				—			—
Commercial real estate - owner occupied	—			—				—			—				—			—				—			—
Construction and land	—			—				—			—				—			—				—			—
Total real estate	5			239				3			426				2			73				10			738
Commercial business loans	—			—				—			—				—			—				—			—
Consumer loans:
Home equity lines of credit	—			—				—			—				1			27				1			27
Education	3			11				4			39				7			149				14			199
Other consumer loans	—			—				—			—				—			—				—			—
Total consumer loans	3			11				4			39				8			176				15			226
Total	8			$	250			7			$	465			10			$	249			25			$	964

40

---

 

Classified Assets

 

The following table details the Company’s classified and Special Mention loans and assets as graded by the Company at the dates indicated:

 

	At June 30, 2017				At September 30, 2016
	(In thousands)
Classified Loans:
Doubtful	$	—			$	—
Substandard — performing:
Real estate loans:
Single family	1,214				1,418
Multi-family	—				—
Commercial real estate - non-owner occupied	—				—
Commercial real estate - owner occupied	—				—
Construction and land	1				2
Total real estate loans	1,215				1,420
Commercial business loans	1,050				—
Consumer loans:
Home equity lines of credit	65				68
Other consumer loans	—				—
Total consumer loans	65				68
Total substandard — performing	2,330				1,488
Substandard — Nonperforming:
Real estate loans:
Single family	66				337
Multi-family	—				—
Commercial real estate - non-owner occupied	—				—
Commercial real estate - owner occupied	—				—
Construction and land	—				—
Total real estate loans	66				337
Commercial business loans	—				—
Consumer loans:
Home equity lines of credit	27				27
Other consumer loans	—				—
Total consumer loans	27				27
Total substandard — nonperforming	93				364
Total classified loans	2,423				1,852
Foreclosed real estate	118				99
Total classified assets	$	2,541			$	1,951
Special mention:
Real estate loans:
Single family	$	—			$	—
Multi-family	—				—
Commercial real estate - non-owner occupied	—				396
Commercial real estate - owner occupied	—				—
Construction and land	—				—
Total real estate loans	—				396
Commercial business loans	—				214
Consumer loans:
Home equity lines of credit	—				—
Other consumer loans	—				—
Total consumer loans	—				—
Total special mention	—				610
Total classified assets and special mention loans	$	2,541			$	2,561

41

---

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 June 30, 2017				At September 30, 2016
	(Dollars in thousands)
Nonaccrual loans:
Real estate loans:
Single family	$	66			$	338
Multi family	—				—
Commercial real estate - non-owner occupied	—				—
Commercial real estate - owner occupied	—				—
Construction and land	—				—
Total real estate	66				338
Commercial business loans	—				—
Consumer loans:
Home equity lines of credit	34				36
Education	100				188
Other consumer loans	—				—
Total consumer loans	134				224
Total nonaccrual loans (1)	200				562
Loans greater than 90 days delinquent and still accruing:
Total delinquent loans accruing	—				—
Total non-performing loans	200				562
Foreclosed assets:
Single family	118				99
Multi-family	—				—
Commercial real estate - non-owner occupied	—				—
Commercial real estate - owner occupied	—				—
Construction and land	—				—
Home equity lines of credit	—				—
Total foreclosed assets	118				99
Total nonperforming assets	$	318			$	661
Performing troubled debt restructurings	$	1,296			$	3,021
Ratios:
Nonperforming loans to total loans	0.03		%		0.10		%
Nonperforming assets to total assets	0.04		%		0.09		%
Nonperforming assets and troubled debt restructurings to total assets	0.20		%		0.52		%

_______________________

(1)	There were no troubled debt restructurings that were on non-accrual status at June 30, 2017 or September 30, 2016.

42

---

The increase in Substandard loans during the nine months ended June 30, 2017, resulted primarily from the downgrade of a commercial loan relationship during the period due to deterioration in the borrower's financial condition and performance.

The decrease in delinquent loans and non-performing assets at June 30, 2017, from their balances at September 30, 2016, was due to a number of single family and education loan customers bringing their loans current during the period.

 

Interest income that would have been recorded for the three and nine months ended June 30, 2017, had non-accruing loans been current according to their original terms, amounted to approximately $3,000 and $10,000, respectively.  There was $0 in interest related to these loans included in interest income for the three and nine months ended June 30, 2017, respectively.

 

Other Loans of Concern.    There were no other loans at June 30, 2017 that are not already disclosed where there is information about possible credit problems of borrowers available to our management that would cause management to have serious doubts about the ability of the borrowers to comply with present loan repayment terms and that are reasonably likely to result in disclosure of such loans in the future.

 

Comparison of Operating Results for the Three Months Ended June 30, 2017 and June 30, 2016

 

General.   Net income for the three months ended June 30, 2017 was $818,000 compared to $906,000 for the three months ended June 30, 2016. The decrease in net income of $88,000 was due primarily to increases in noninterest expenses of $505,000 and income tax expense of $80,000 , and a decrease in noninterest income of $153,000 , which were offset by an increase in net interest margin of $450,000 and a decrease in the provision for loan losses of $200,000 .

 

Interest and Dividend Income. Interest and dividend income increased $679,000 , or 11.8% , to $6.4 million for the three months ended June 30, 2017 from $5.8 million for the three months ended June 30, 2016. This increase was attributable to increases of $399,000 in interest income on loans receivable and $280,000 in interest and dividend income on investment securities and interest bearing deposits.

The average balance of interest-earning assets increased $76.7 million , or 12.6% , to $687.3 million for the three months ended June 30, 2017 from $610.6 million for the three months ended June 30, 2016. The yield on average interest-earning assets increased by 1 basis point to 3.80% for the three months ended June 30, 2017 from 3.79% for the three months ended June 30, 2016.

The average balance of loans increased $36.8 million to $554.9 million for the three months ended June 30, 2017 from $518.1 million for the three months ended June 30, 2016. The average yield on loans increased by 1 basis point to 4.08% for the three months ended June 30, 2017 from 4.07% for the three months ended June 30, 2016. 

The average balance of investment securities increased by $36.2 million , or 42.4% , to $121.5 million for the three months ended June 30, 2017 from $85.4 million for the three months ended June 30, 2016, while the average yield on investment securities increased 33 basis points to 2.61% for the three months ended June 30, 2017 compared to 2.28% for the three months ended June 30, 2016. 

 

Interest Expense. Total interest expense increased $229,000 , or 33.8% , to $906,000 for the three months ended June 30, 2017 from $677,000 for the three months ended June 30, 2016.  Interest expense on deposit accounts increased $239,000 to $844,000 for the three months ended June 30, 2017 from $605,000 for the three months ended June 30, 2016.

The average balance of deposits and interest-bearing liabilities increased $71.9 million , or 12.0% , to $672.8 million for the three months ended June 30, 2017 from $600.9 million for the three months ended June 30, 2016. The average cost of deposits and interest-bearing liabilities increased 8 basis points to 0.53% for the three months ended June 30, 2017 from 0.45% for the three months ended June 30, 2016.

The average balance of interest bearing deposits increased $80.4 million to $535.0 million for the three months ended June 30, 2017 from $454.6 million for the three months ended June 30, 2016, and the average cost of interest bearing deposits increased 10 basis points to 0.63% from 0.53% between these same periods. This increase in the cost of interest bearing deposits was caused by a change in the composition of our interest bearing deposits, with the average balance of higher cost certificates of deposit increasing by $53.8 million and the average balance of lower cost checking, savings and money market accounts only increasing by $26.6 million . Additionally, the average balance of non-interest bearing demand deposits increased by $6.7 million which helped hold the increase in our overall cost of deposits to only 9 basis points.

43

---

Interest expense on borrowings decreased $11,000 to $61,000 for the three months ended June 30, 2017 from $72,000 for the three months ended June 30, 2016. The decrease was due to an increase in the average cost of borrowings of 20 basis points to 1.02% for the three months ended June 30, 2017 from 0.82% for the three months ended June 30, 2016 offset by a decrease in the average balance of borrowings of $15.2 million for the three months ended June 30, 2017.

 

Net Interest Income . Net interest income increased $450,000 , or 8.8% , to $5.5 million for the three months ended June 30, 2017 from $5.1 million for the three months ended June 30, 2016.  Our net interest margin decreased by 9 basis points to 3.26% for the three months ended June 30, 2017 from 3.35% for the three months ended June 30, 2016.  Our net interest margin was impacted negatively by an increase in the cost of deposits and interest-bearing liabilities between these periods, offset by a smaller increase in the yield on our loan portfolio and an increase in the yield on our investment portfolio.

 

Provision for Loan Losses.   We recorded a provision for loan losses of $50,000 for the three months ended June 30, 2017 compared to $250,000 for the three months ended June 30, 2016.  The decrease in the provision resulted from continued improvement in our levels of non-performing loans, in addition to continued improvement in our net charge-off performance. The allowance for loan losses was $5.6 million , or 0.97% of total loans, at June 30, 2017, compared to $5.2 million , or 0.97% of total loans, at September 30, 2016, and $5.1 million , or 0.96% of total loans, at June 30, 2016. 

Total nonperforming loans were $200,000 , or 0.03% of total loans, at June 30, 2017, compared to $562,000 , or 0.10% of total loans, at September 30, 2016. As a percentage of nonperforming loans, the allowance for loan losses was 2,806.0% at June 30, 2017, compared to 933.1% at September 30, 2016. 

Total classified loans were $2.4 million at June 30, 2017, compared to $1.9 million at September 30, 2016, and $2.1 million at June 30, 2016.

 

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 June 30, 2017 and September 30, 2016.

 

Non-Interest Income .  Non-interest income decreased $153,000 , or 9.3% , to $1.5 million for the three months ended June 30, 2017 from $1.6 million for the three months ended June 30, 2016. This decrease was primarily related to decreases in gains on sales of loans of $53,000 and gains on sales of securities of $191,000 , offset by increases in servicing fee income of $87,000 and gains on sales of other assets of $32,000 between periods. 

The decrease in gains on sales of loans resulted from a decrease in the volume of fixed rate mortgage loans sold on the secondary market during the quarter ended June 30, 2017. The volume decreased as a result of an increase in long term mortgage rates in response to the actions of the Federal Reserve Board to increase the Fed Funds rate in December 2016, March 2017 and June 2017. The decrease in gains on sales of securities resulted from reduced sales activity in the current period. During the three months ended June 30, 2017, we sold $588,000 of investment securities compared to $15.5 million during the three months ended June 30, 2016. In 2016, we were actively restructuring our investment portfolio. The increase in servicing fee income resulted primarily from the recovery of a portion of the valuation reserve on originated mortgage servicing rights as a result of the increase in market interest rates during the quarter ended June 30, 2017. The gain on sale of other assets resulted from the sale of our wealth management line of business to a third party.

 

Non-Interest Expense.   Non-interest expense increased $505,000 , or 9.8% , to $5.7 million for the three months ended June 30, 2017, from $5.2 million for the three months ended June 30, 2016. This increase was primarily caused by increases in compensation and employee benefits of $449,000 , occupancy, furniture and equipment expense of $149,000 , data processing expense of $91,000 and accounting, legal and other professional fees of $57,000 . These increases were partially offset by a decrease in other expenses of $248,000 between the periods.

The increase in compensation and employee benefits resulted as we paid our former Chairman under the terms of his employment contract upon the termination of that contract during the quarter. The opening of our Madison loan production office in May 2016 and improvements to our information technology and compliance capabilities also resulted in increases to compensation and employee benefits expense and occupancy, furniture and equipment expense between the periods. The increase in data processing expense resulted primarily from increased processing fees related to debit card transactions and increased use of electronic banking services by our commercial banking customers. The increase in accounting, legal and other professional fees resulted from expenses related to the termination of the employment contract of our former Chairman and expenses related to recruiting of commercial lenders. The decrease in other expense resulted primarily from the reduction in real estate held for investment between the periods.

 

44

---

Provision for Income Taxes.   Income tax expense was $490,000 for the three months ended June 30, 2017, compared to $410,000 for the three months ended June 30, 2016.  The effective tax rate as a percent of pre-tax income was 37.5% and 31.2% for the three months ended June 30, 2017 and 2016, respectively. The increase in the effective tax rate between periods was the result of an increase in stock-based compensation expense (ESOP and equity compensation plans) for tax purposes offset by the effect of an increase in the average balance of tax-exempt securities to $33.5 million for the three months ended June 30, 2017 compared to $7.8 million for the three months ended June 30, 2016.

 

Comparison of Operating Results for the Nine Months Ended June 30, 2017 and June 30, 2016

 

General.   Net income for the nine months ended June 30, 2017 was $2.3 million compared to $2.8 million for the nine months ended June 30, 2016. The decrease in net income of $507,000 was due primarily to an increase in noninterest expenses of $1.6 million and a decrease in noninterest income of $214,000 , which were offset by an increase in net interest margin of $886,000 and a decrease in income tax expense of $255,000 and our provision for loan losses of $175,000 .

 

Interest and Dividend Income. Interest and dividend income increased $1.4 million , or 8.2% , to $18.5 million for the nine months ended June 30, 2017 from $17.1 million for the nine months ended June 30, 2016. This increase was attributable to increases of $977,000 in interest income on loans receivable and $419,000 in interest and dividend income on investment securities and interest bearing deposits.

The average balance of interest-earning assets increased $63.8 million , or 10.7% , to $662.2 million for the nine months ended June 30, 2017 from $598.4 million for the nine months ended June 30, 2016. The yield on average interest-earning assets decreased by 5 basis points to 3.76% for the nine months ended June 30, 2017 from 3.81% for the nine months ended June 30, 2016.

The average balance of loans increased $37.2 million to $543.4 million for the nine months ended June 30, 2017 from $506.2 million for the nine months ended June 30, 2016. The average yield on loans decreased by 4 basis points to 4.06% for the nine months ended June 30, 2017 from 4.10% for the nine months ended June 30, 2016.  This decrease in our average yield on loans reflected 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 average balance of investment securities increased by $25.5 million , or 30.0% , to $110.3 million for the nine months ended June 30, 2017 from $84.8 million for the nine months ended June 30, 2016, while the average yield on investment securities increased 11 basis points to 2.42% for the nine months ended June 30, 2017 compared to 2.31% for the nine months ended June 30, 2016. 

 

Interest Expense. Total interest expense increased $510,000 , or 26.7% , to $2.4 million for the nine months ended June 30, 2017 from $1.9 million for the nine months ended June 30, 2016.  Interest expense on deposit accounts increased $504,000 to $2.2 million for the nine months ended June 30, 2017 from $1.7 million for the nine months ended June 30, 2016.

The average balance of deposits and interest-bearing liabilities increased $57.2 million , or 9.7% , to $645.8 million for the nine months ended June 30, 2017 from $588.7 million for the nine months ended June 30, 2016. The average cost of deposits and interest-bearing liabilities increased 7 basis points to 0.50% for the nine months ended June 30, 2017 from 0.43% for the nine months ended June 30, 2016.

The average balance of interest bearing deposits increased $61.8 million to $508.0 million for the nine months ended June 30, 2017 from $446.2 million for the nine months ended June 30, 2016, and the average cost of interest bearing deposits increased 7 basis points to 0.59% from 0.52% between these same periods. This increase in the cost of interest bearing deposits was caused by a change in the composition of our interest bearing deposits, with the average balance of higher cost certificates of deposit increasing by $39.5 million and the average balance of lower cost checking, savings and money market accounts increasing by only $22.3 million . Additionally, the average balance of non-interest bearing demand deposits increased by $6.9 million which helped hold the increase in our overall cost of deposits to only 6 basis points.

Interest expense on borrowings increased $5,000 to $171,000 for the nine months ended June 30, 2017 from $166,000 for the nine months ended June 30, 2016. The increase was due to an increase in the average cost of borrowings of 32 basis points to 0.98% for the nine months ended June 30, 2017 from 0.66% for the nine months ended June 30, 2016. The increase in the average cost was partially offset by a decrease in the average balance of borrowings of $11.5 million for the nine months ended June 30, 2017. This increase in the average cost resulted from an increase in average long-term FHLB advances to $20.0 million for the nine months ended June 30, 2017 from $14.1 million for the nine months ended June 30, 2016.

 

45

---

Net Interest Income . Net interest income increased $886,000 , or 5.8% , to $16.0 million for the nine months ended June 30, 2017 from $15.2 million for the nine months ended June 30, 2016.  Our net interest margin decreased by 12 basis points to 3.27% for the nine months ended June 30, 2017 from 3.39% for the nine months ended June 30, 2016.  Our net interest margin was impacted negatively by a decrease in the yield on our loan portfolio as a result of 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, partially offset by an increase in yield on our investment portfolio. Our net interest margin was also impacted by an increase in the cost of deposits and interest-bearing liabilities between these periods.

 

Provision for Loan Losses.   We recorded a provision for loan losses of $350,000 for the nine months ended June 30, 2017 compared to $525,000 for the nine months ended June 30, 2016.  For additional information regarding our allowance for loan losses and certain related ratios at June 30, 2017, September 30, 2016 and June 30, 2016, see "--Comparison of Operating Results for the Three Months Ended June 30, 2017 and June 30, 2016--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 June 30, 2017 and September 30, 2016.

 

Non-Interest Income .  Non-interest income decreased $214,000 , or 4.45% , to $4.6 million for the nine months ended June 30, 2017 from $4.8 million for the nine months ended June 30, 2016. The decrease was primarily related to decreases in each of gain on sale of securities of $198,000 , service fees on deposit accounts of $85,000 and other income of $126,000 , offset by an increase in servicing fee income of $230,000 between periods. 

The decrease in gains on sales of securities resulted from reduced sales activity in the current period. During the nine months ended June 30, 2017, we sold $1.4 million of investment securities compared to $24.2 million during the nine months ended June 30, 2016. In 2016, we were actively restructuring our investment portfolio. The decrease in service fees on deposit accounts resulted from lower interchange rates received on debit card transactions and slightly reduced overdraft activity on our checking accounts. The decrease in other income occurred because the 2016 period included a large prepayment penalty received on a commercial real estate loan. The increase in servicing fee income resulted primarily from the recovery of a portion of the valuation reserve on originated mortgage servicing rights as a result of the increase in market interest rates during the period.

 

Non-Interest Expense.   Non-interest expense increased $1.6 million , or 10.7% , to $16.6 million for the nine months ended June 30, 2017, from $15.0 million for the nine months ended June 30, 2016. This increase was primarily caused by increases in compensation and employee benefits of $1.3 million , occupancy, furniture and equipment expense of $446,000 , data processing expense of $234,000 and accounting, legal and other professional fees of $147,000 . These increases were partially offset by a decrease in other expenses of $512,000 between the periods.

The increase in compensation and employee benefits resulted from an increase in the accrual for ESOP expense as we made an additional principal payment on our ESOP loan at the end of the ESOP plan year on December 31, 2016 and we intend to make a similar additional principal payment again at the end of calendar year 2017. Additionally, we paid our former Chairman under the terms of his employment contract upon the termination of that contract during the quarter. The opening of our Madison loan production office in May 2016 and improvements to our information technology and compliance capabilities also resulted in increases to compensation and employee benefits expense and occupancy, furniture and equipment expense between the periods. The increase in data processing expense resulted primarily from increased processing fees related to debit card transactions and increased use of electronic banking services by our commercial banking customers. The increase in accounting, legal and other professional fees resulted primarily from expenses related to the termination of the employment contract of our former Chairman and expenses related to recruiting commercial lenders. The decrease in other expense resulted primarily from the reduction in real estate held for investment between the periods.

 

Provision for Income Taxes.   Income tax expense was $1.4 million for the nine months ended June 30, 2017, compared to $1.6 million for the nine months ended June 30, 2016.  The effective tax rate as a percent of pre-tax income was 37.0% and 36.4% for the nine months ended June 30, 2017 and 2016, respectively.

46

---

 

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 for the periods indicated.  Average balances are derived from daily average balances for all periods presented in the table.  Non-accrual loans were included in the computation of average balances, but have been reflected in the tables as loans carrying a zero yield. Tax equivalent yield adjustments have been made as detailed in note (1) below.  The yields set forth below include the effect of loan fees, discounts and premiums that are amortized or accreted to interest income.

		For the Three Months Ended June 30,
		2017											2016
		Average Outstanding Balance				Interest				Yield/Cost			Average Outstanding Balance				Interest				Yield/Cost
Assets:
Loans		$	554,885			$	5,665			4.08	%		$	518,053			$	5,266			4.07	%
Taxable securities		88,049				551				2.50			77,595				418				2.15
Securities exempt from federal income taxes(1)		33,491				242				2.89			7,778				68				3.50
Fed funds sold and other interest-earning deposits		10,901				66				2.42			7,187				34				1.89
Total interest-earning assets		687,326				6,524				3.80	%		610,613				5,786				3.79	%
Noninterest-earning assets		69,370											75,164
Total assets		$	756,696										$	685,777
Liabilities and stockholders' equity:
Non interest-bearing demand deposits		$	117,732			$	—			—	%		$	111,054			$	—			—	%
Checking accounts		136,744				119				0.35			144,786				103				0.28
Passbook and statement savings		139,501				49				0.14			132,237				46				0.14
Variable rate money market		73,515				64				0.35			46,128				51				0.44
Certificates of deposit		185,233				612				1.32			131,477				405				1.23
Total interest-bearing deposits		534,993				844				0.63			454,628				605				0.53
Total deposits		652,725				844				0.52			565,682				605				0.43
Short-term FHLB advances		38				—				1.23			15,264				13				0.34
Long-term FHLB advances		20,000				61				1.00			20,000				59				1.18
Line of credit		40				1				3.84			—				—				—
Total Borrowings		20,078				62				1.02			35,264				72				0.82
Total deposits and interest-bearing liabilities		672,803				906				0.53	%		600,946				677				0.45	%
Other liabilities		7,652											8,375
Total liabilities		680,455											609,321
Stockholders' equity		76,241											76,456
Total liabilities and stockholders' equity		$	756,696										$	685,777
Net interest income						$	5,618										$	5,109
Net interest rate spread										3.26	%										3.34	%
Net interest-earning assets		$	14,523										$	9,667
Net interest margin										3.26	%										3.35	%
Average of interest-earning assets to interest-bearing liabilities										102.16	%										101.61	%

47

---

		For the Nine Months Ended June 30,
		2017											2016
		Average Outstanding Balance				Interest				Yield/Cost			Average Outstanding Balance				Interest				Yield/Cost
Assets:
Loans		$	543,377			$	16,526			4.06	%		$	506,160			$	15,549			4.10	%
Taxable securities		79,658				1,346				2.25			79,321				1,320				2.22
Securities exempt from federal income taxes(1)		30,623				653				2.84			5,493				147				3.57
Fed funds sold and other interest-earning deposits		8,496				156				2.45			7,376				97				1.75
Total interest-earning assets		662,154				18,681				3.76	%		598,350				17,113				3.81	%
Noninterest-earning assets		66,944											75,236
Total assets		$	729,098										$	673,586
Liabilities and stockholders' equity:
Non interest-bearing demand deposits		$	116,012			$	—			—	%		$	109,113			$	—			—	%
Checking accounts		148,105				351				0.32			141,862				298				0.28
Passbook and statement savings		136,007				142				0.14			129,374				135				0.14
Variable rate money market		56,297				157				0.37			46,863				151				0.43
Certificates of deposit		167,592				1,596				1.27			128,111				1,158				1.21
Total interest-bearing deposits		508,001				2,246				0.59			446,210				1,742				0.52
Total deposits		624,013				2,246				0.48			555,323				1,742				0.42
Short-term FHLB advances		1,802				9				0.67			19,208				36				0.25
Long-term FHLB advances		20,000				162				1.01			14,124				130				1.23
Line of credit		26				1				3.61			—				—				—
Total Borrowings		21,828				172				0.98			33,332				166				0.66
Total deposits and interest-bearing liabilities		645,841				2,418				0.50	%		588,655				1,908				0.43	%
Other liabilities		7,661											7,576
Total liabilities		653,502											596,231
Stockholders' equity		75,596											77,355
Total liabilities and stockholders' equity		$	729,098										$	673,586
Net interest income						$	16,263										$	15,205
Net interest rate spread										3.26	%										3.38	%
Net interest-earning assets		$	16,313										$	9,695
Net interest margin										3.27	%										3.39	%
Average of interest-earning assets to interest-bearing liabilities										102.53	%										101.65	%

(1)	Non-taxable investment income is presented on a fully tax equivalent basis assuming a 34% federal tax rate.

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 and Federal Home Loan Bank advances. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments including interest-earning demand deposits. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.

 

48

---

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities.  Net cash provided by operating activities was $4.5 million and $1.7 million for the nine months ended June 30, 2017 and June 30, 2016, 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, proceeds from maturing securities and pay downs on mortgage-backed securities, was $69.9 million and $30.6 million for the nine months ended June 30, 2017 and June 30, 2016, respectively.  During the nine months ended June 30, 2017, we purchased $40.5 million and sold $1.4 million in securities held as available-for-sale, and during the nine months ended June 30, 2016, we purchased $39.3 million and sold $24.2 million in securities held as available-for-sale.  Net cash provided by financing activities was $93.3 million and $30.2 million for the nine months ended June 30, 2017 and June 30, 2016, respectively, and consisted principally of increases in deposit accounts and net FHLB borrowings offset by the purchase of Company stock.

 

At June 30, 2017, Westbury Bank exceeded all of its regulatory capital requirements with Tier 1 leverage capital of $74.1 million , or 9.77% of adjusted total assets, which is above the well-capitalized level of $37.9 million , or 5.00% ; Common Equity Tier 1 capital of $ 74.1 million , or 11.86% of risk-weighted assets, which is above the well-capitalized level of $40.6 million , or 6.50% ; Tier 1 capital of $74.1 million , or 11.86% of risk-weighted assets, which is above the well-capitalized level of $50.0 million , or 8.00% ; and total risk-based capital of $79.8 million , or 12.76% of risk-weighted assets, which is above the well-capitalized level of $62.5 million , or 10.00% .  Accordingly, Westbury Bank was categorized as well-capitalized at June 30, 2017 under all Prompt Corrective Action Provisions as determined by the OCC, our primary regulator. 

 

At June 30, 2017, we had outstanding commitments to originate loans of $21.9 million , unused commercial lines of credit of $101.5 million , unused home equity lines of credit of $27.7 million , and stand-by letters of credit of $1.6 million .  We anticipate that we will have sufficient funds available to meet our current loan origination commitments.  Certificates of deposit that are scheduled to mature in less than one year from June 30, 2017 totaled $101.8 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 GAAP, 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 generally 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 GAAP 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.

49

---

 

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

 

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that the information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply judgment in evaluating the cost-benefit relationship of possible controls and procedures. We have designed our disclosure controls and procedures to reach a level of reasonable assurance of achieving the

desired control objectives.

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 of June 30, 2017. 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 as of June 30, 2017 at reaching a level of reasonable assurance.

 

During the quarter ended June 30, 2017, there have been no changes in the Company’s internal controls over financial reporting (as defined in Rules 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 controls over financial reporting.

50

---

PART II

 

ITEM 1. LEGAL PROCEEDINGS

 

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 June 30, 2017, we were not involved in any legal proceedings, the outcome of which, in our reasonable opinion, 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 9, 2016, the Company announced that its Board of Directors had authorized the repurchase of up to 422,906 shares of the Company's common stock, representing 10.00% of the Company's then outstanding shares. The shares may be purchased under the current repurchase program in the open market or in privately negotiated transactions from time to time depending on market conditions and other factors. As of June 30, 2017, 244,858 shares had been purchased under the current plan.

The table below sets forth Westbury Bancorp Inc.'s common stock repurchases during the three months ended June 30, 2017.

 

Period	(a) Total number of shares purchased (1)		(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
April 1 - April 30, 2017	1,900		$	20.98		1,900		223,568
May 1 - May 31, 2017	2,600		20.14			2,600		220,968
June 1 - June 30, 2017	42,920		20.06			42,920		178,048
Total	47,420		$	20.11		47,420

______________________________________________________________________

(1) All shares were repurchased pursuant to the February 9, 2016 authorization.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

51

---

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.

52

---

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: July 26, 2017

 

/s/ Greg J. Remus

Greg J. Remus

Chairman, President and Chief Executive Officer

/s/ Kirk J. Emerich

Kirk J. Emerich

Executive Vice President and Chief Financial Officer

53

---

INDEX TO EXHIBITS

 

Exhibit Number		Description
10.1		Release Agreement among Westbury Bancorp, Inc., Westbury Bank and Raymond F. Lipman dated as of April 20, 2017.
31.1		Certification of Greg J. Remus, Chairman, President and Chief Executive Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a)
31.2		Certification of Kirk J. Emerich, Executive Vice President and Chief Financial Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a)
32		Certification of Greg J. Remus, Chairman, President and Chief Executive Officer, and Kirk J. Emerich, Executive 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 June 30, 2017, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Changes in Stockholders' Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Unaudited Consolidated Financial Statements

_

* - This certification is not "filed" for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, or incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities and Exchange Act of 1934, as amended.

______________________________________

54