Westbury Bancorp, Inc. - FORM 10-Q

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - Westbury Bancorp, Inc.	Financial_Report.xls
EX-31.2 - EXHIBIT - Westbury Bancorp, Inc.	wbb-20140630x10qexx312.htm
EX-31.1 - EXHIBIT - Westbury Bancorp, Inc.	wbb-20140630x10qexx311.htm
EX-32 - EXHIBIT - Westbury Bancorp, Inc.	wbb-20140630x10qexx32.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________________________________

FORM 10-Q

____________________________________________



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended June 30, 2014



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period from to

Commission File Number 001-35871

Westbury Bancorp, Inc.

(Exact Name of Registrant as Specified in Charter)

____________________________________________



Maryland		46-1834307
(State or Other Jurisdiction of Incorporation)		(I.R.S. Employer Identification Number)

200 South Main Street, West Bend, Wisconsin		53095
(Address of Principal Executive Officers)		(Zip Code)

(262) 334-5563

Registrant’s telephone number, including area code

Not Applicable

(Former name or former address, if changed since last report)

____________________________________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o.

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

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



Large accelerated filer	¨	Accelerated filer	¨

Non-accelerated filer	¨	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the Issuer’s classes of common stock as of the latest practicable date.

There were 5,152,014 shares of Common Stock, par value $.01 per share, outstanding as of August 6, 2014.

WESTBURY BANCORP, INC.

Form 10-Q Quarterly Report

Table of Contents



PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS	2

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	30

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	44

ITEM 4. CONTROLS AND PROCEDURES	44

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS	45

ITEM 1A. RISK FACTORS	45

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	45

ITEM 3. DEFAULTS UPON SENIOR SECURITIES	46

ITEM 4. MINE SAFETY DISCLOSURES	46

ITEM 5. OTHER INFORMATION	46

ITEM 6. EXHIBITS	46

INDEX TO EXHIBITS	48

PART I

ITEM 1. FINANCIAL STATEMENTS

Westbury Bancorp, Inc. and Subsidiary

Consolidated Balance Sheets

June 30, 2014 and September 30, 2013

(Unaudited)

(In Thousands, except share data)



	June 30, 2014			September 30, 2013
Assets
Cash and due from banks	$	13,905		$	25,742
Interest-bearing deposits	14,959			21,923
Cash and cash equivalents	28,864			47,665
Securities available-for-sale	100,203			105,705
Loans held for sale, at lower of cost or fair value	604			1,028
Loans, net of allowance for loan losses of $4,039 and $4,266 at June 30 and September 30, respectively	380,795			342,780
Federal Home Loan Bank stock, at cost	2,670			2,670
Foreclosed real estate	3,004			1,690
Real estate held for investment	3,795			6,172
Real estate held for sale	2,490			—
Office properties and equipment, net	10,472			12,549
Cash surrender value of bank-owned life insurance	12,645			12,358
Mortgage servicing rights	1,719			1,831
Deferred tax asset	5,665			4,995
Other assets	3,551			3,839
Total assets	$	556,477		$	543,282
Liabilities and Stockholders’ Equity
Liabilities
Deposits	$	448,977		$	440,978
Advances from Federal Home Loan Bank	10,500			—
Advance payments by borrowers for property taxes and insurance	3,945			5,700
Other liabilities	4,360			6,002
Total liabilities	467,782			452,680
Stockholders’ Equity
Preferred stock $0.01 par value, 50,000,000 shares authorized; none issued or outstanding	—			—
Common stock $0.01 par value, 100,000,000 shares authorized; 5,346,206 shares issued at June 30, 2014 and 5,142,541 at September 30, 2013	53			51
Additional paid-in capital	48,936			48,800
Retained earnings	44,963			46,625
Unearned Employee Stock Ownership Plan (ESOP) shares	(3,806		)	(4,114		)
Accumulated other comprehensive income (loss)	136			(760		)
Less treasury stock, 105,035 shares at cost, at June 30, 2014	(1,587		)	—
Total stockholders’ equity	88,695			90,602
Total liabilities and stockholders’ equity	$	556,477		$	543,282

See Notes to Unaudited Consolidated Financial Statements.

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Westbury Bancorp, Inc and Subsidiary

Consolidated Statements of Operations
Three and Nine Months Ended June 30, 2014 and 2013 (Unaudited)
(In Thousands, except per share data)
	Three Months Ended June 30,						Nine Months Ended June 30,
	2014			2013			2014			2013
Interest and dividend income:
Loans	$	3,988		$	4,247		$	11,915		$	13,307
Investments - nontaxable	21			9			59			18
Investments - taxable	463			348			1,430			973
Interest bearing deposits	30			30			96			68
Total interest and dividend income	4,502			4,634			13,500			14,366
Interest expense:
Deposits	393			488			1,215			1,623
Advances from the Federal Home Loan Bank	1			—			2			—
Notes payable	—			2			—			46
Total interest expense	394			490			1,217			1,669
Net interest income before provision for loan losses	4,108			4,144			12,283			12,697
Provision for loan losses	—			150			350			1,300
Net interest income after provision for loan losses	4,108			3,994			11,933			11,397
Noninterest income:
Service fees on deposit accounts	1,069			1,026			3,100			3,169
Gain on sales of loans, net	103			468			167			1,941
Servicing fee income, net of amortization and impairment	34			93			352			173
Insurance and securities sales commissions	65			210			259			647
Gain on sales of securities	18			—			42			232
Loss on sales of branches and other assets	(2		)	—			(70		)	(22		)
Increase in cash surrender value of life insurance	99			102			287			315
Rental income from real estate operations	154			152			471			467
Other income	(28		)	(13		)	89			464
Total noninterest income	1,512			2,038			4,697			7,386
Noninterest expenses:
Salaries and employee benefits	2,187			2,268			6,913			6,247
Commissions	71			166			170			602
Occupancy	400			428			1,324			1,306
Furniture and equipment	109			141			368			403
Data processing	820			826			2,534			2,414
Advertising	82			82			174			240
Real estate held for investment	111			133			422			433
Net loss from operations and sale of foreclosed real estate	131			330			581			840
FDIC insurance premiums	167			178			509			626
Valuation loss on real estate held for sale	252			—			2,216			—
Branch realignment	46			—			619			—
Contribution to charitable foundation	—			1,000			—			1,000
Other expenses	1,211			1,266			3,715			3,722
Total noninterest expenses	5,587			6,818			19,545			17,833
Income (loss) before income tax expense (benefit)	33			(786		)	(2,915		)	950
Income tax expense (benefit)	(36		)	(340		)	(1,253		)	229
Net income (loss)	$	69		$	(446	)	$	(1,662	)	$	721
Earnings (loss) per share:
Basic	$	0.01		$	(0.10	)	$	(0.35	)	$	(0.10	)
Diluted	$	0.01		$	(0.10	)	$	(0.35	)	$	(0.10	)

See Notes to Unaudited Consolidated Financial Statements.

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Westbury Bancorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income (Loss)

Three and Nine Months Ended June 30, 2014 and 2013

(Unaudited)

(In Thousands)



	Three Months Ended June 30,						Nine Months Ended June 30,
	2014			2013			2014			2013
Net income (loss)	$	69		$	(446	)	$	(1,662	)	$	721
Other comprehensive income (loss), before tax:
Unrealized gains (losses) on available-for-sale securities	884			(2,258		)	1,496			(2,758		)
Reclassification adjustment for realized gains included in net income	(18		)	—			(42		)	(232		)
Other comprehensive income (loss), before tax	866			(2,258		)	1,454			(2,990		)
Income tax benefit (expense) related to items of other comprehensive income (loss)	(340		)	872			(558		)	1,158
Other comprehensive income (loss), net of tax	526			(1,386		)	896			(1,832		)
Comprehensive income (loss)	$	595		$	(1,832	)	$	(766	)	$	(1,111	)

See Notes to Unaudited Consolidated Financial Statements.

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Westbury Bancorp, Inc. and Subsidiary

Consolidated Statements of Changes in Stockholders’ Equity

Nine Months Ended June 30, 2014 and 2013

(Unaudited)

(In Thousands, except share data)



	Preferred Stock		Common Stock		Additional Paid In Capital			Retained Earnings			Unearned ESOP Shares			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
Balance, September 30, 2012	$	—	$	—	$	—		$	45,687		$	—		$	1,177		$	—		$	46,864
Stock conversion proceeds, net	—		51		48,800			—			—			—			—			48,851
Net income	—		—		—			721			—			—			—			721
Other comprehensive loss, net of tax	—		—		—			—			—			(1,832		)	—			(1,832		)
Purchase of 411,403 shares by ESOP	—		—		—			—			(4,114		)	—			—			(4,114		)
Balance, June 30, 2013	$	—	$	51	$	48,800		$	46,408		$	(4,114	)	$	(655	)	$	—		$	90,490

Balance, September 30, 2013	$	—	$	51	$	48,800		$	46,625		$	(4,114	)	$	(760	)	$	—		$	90,602
Net loss	—		—		—			(1,662		)	—			—			—			(1,662		)
Other comprehensive income, net of tax	—		—		—			—			—			896			—			896
Repurchase of 105,035 shares of common stock	—		—		—			—			—			—			(1,587		)	(1,587		)
Issuance of 203,665 shares of restricted stock	—		2		(2		)	—			—			—			—			—
Stock based compensation expense	—		—		13			—			—			—			—			13
Allocation of 20,570 shares by ESOP	—		—		81			—			206			—			—			287
Commitment to be allocated of 10,285 ESOP shares					44						102						—			146
Balance, June 30, 2014	$	—	$	53	$	48,936		$	44,963		$	(3,806	)	$	136		$	(1,587	)	$	88,695

See Notes to Unaudited Consolidated Financial Statements.

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Westbury Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows
Nine Months Ended June 30, 2014 and 2013 (Unaudited)
(In Thousands)
	Nine Months Ended June 30,
	2014			2013
Cash Flows From Operating Activities
Net income (loss)	$	(1,662	)	$	721
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Provision for loan losses	350			1,300
Depreciation and amortization	552			599
Depreciation on real estate held for investment	122			159
Net amortization of securities premiums and discounts	478			456
Amortization and impairment of mortgage servicing rights	113			360
Capitalization of mortgage servicing rights	(1		)	(301		)
Gain on sales of available-for-sale securities	(42		)	(232		)
Loss on sales of branches and other assets	70			22
Write-down of real estate held-for-sale	2,216			—
Branch realignment	233			—
(Gain) loss on sale of foreclosed real estate	150			(31		)
Write-down of foreclosed real estate	260			355
Loans originated for sale	(9,409		)	(84,539		)
Proceeds from sale of loans	10,000			88,792
Gain on sale of loans, net	(167		)	(1,941		)
ESOP compensation expense	242			92
Stock based compensation expense	13			—
Deferred income taxes (benefit)	(1,227		)	212
Increase in cash surrender value of life insurance	(287		)	(315		)
Net change in:
Other assets	288			993
Other liabilities and advance payments by borrowers for property taxes and insurance	(3,206		)	176
Net cash provided by (used in) operating activities	(914		)	6,878
Cash Flows From Investing Activities
Purchases of securities available-for-sale	(17,699		)	(57,274		)
Proceeds from sales of securities available-for-sale	16,133			11,584
Proceeds from maturities, prepayments, and calls of securities available-for-sale	8,085			9,888
Proceeds from sale of real estate held for investment	—			2,046
Net (increase) decrease in loans	(40,988		)	33,973
Proceeds from sales of office properties and equipment	—			237
Purchases of office properties and equipment	(1,229		)	(214		)
Proceeds from sales of foreclosed real estate	899			2,788
Net cash provided by (used in) investing activities	(34,799		)	3,028
Cash Flows From Financing Activities
Net increase (decrease) in deposits	7,999			(18,587		)
Increase (decrease) in overnight Federal Home Loan Bank borrowings	10,500			—
Proceeds from issuance of common stock, net of costs	—			48,851
Unearned employee stock ownership (ESOP)	—			(4,114		)
Purchase of Company treasury stock	(1,587		)	—
Net change in notes payable	—			(1,254		)
Net cash provided by financing activities	16,912			24,896
Net increase (decrease) in cash and cash equivalents	(18,801		)	34,802
Cash and cash equivalents at beginning	47,665			33,141
Cash and cash equivalents at end	$	28,864		$	67,943
Supplemental Disclosures of Cash Flow Information
Interest paid (including amounts credited to deposits)	$	1,243		$	1,678
Supplemental Schedules of Noncash Investing Activities
Loans receivable transferred to foreclosed real estate	$	2,623		$	2,111
Real estate held for investment transferred to real estate held for sale	2,255			—
Office properties and equipment transferred to real estate held for sale	2,451			—

See Notes to Unaudited Consolidated Financial Statements.

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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, 2014 and September 30, 2013 and the results of operations and cash flows for the interim periods ended June 30, 2014 and 2013. 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, 2013 filed as part of Westbury Bancorp, Inc.’s Annual Report on Form 10-K for the year ended September 30, 2013.

Note 2. Plan of Conversion and Reorganization and Change in Corporate Form

On September 5, 2012, the Board of Directors of WBSB Bancorp, MHC (“MHC”) adopted a plan of conversion and reorganization (“Plan”). The Plan provided for the reorganization of the MHC from a federally chartered mutual holding company into a stock holding Company and an offering by the Company of shares of its common stock to eligible depositors of the Bank and the public. The Company is incorporated under the laws of the State of Maryland and owns all of the outstanding common stock of the Bank. The reorganization was completed with the sale of 5,091,625 shares on April 9, 2013 and shares of the Company's common stock began trading on April 10, 2013.

In addition, in conjunction with the reorganization in April 2013, the Company contributed a total of $1,000 (consisting of 50,916 shares of common stock and $491 in cash) to a charitable foundation that the Bank has established. The foundation was organized as Westbury Bank Charitable Foundation.

The costs of reorganization and issuing the common stock were deducted from the sales proceeds of the offering. The Company recorded $2,574 in reorganization and stock issuance costs as a direct reduction of stockholders' equity in April 2013.

In accordance with federal regulations, at the time of the reorganization, the Company substantially restricted retained earnings by establishing a liquidation account and the Bank established a parallel liquidation account. The liquidation account will be maintained for the benefit of eligible account holders who continue to maintain their accounts at the Bank after the reorganization. The liquidation account will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s interest in the liquidation account. In the event of a complete liquidation of the Bank, and only in such event, each eligible account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the adjusted qualifying account balances then held. The Bank may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount. The reorganization was accounted for as a change in corporate form with the historic basis of the Bank’s assets, liabilities and equity unchanged as a result.

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Note 3. Recent Accounting Developments

In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740) - Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss or a Tax Credit Carrryforward Exists. ASU 2013-11 is intended to clarify the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carrryforward exists. This presentation had not been addressed in Topic 740 and there was diversity in reporting practices in those instances. ASU 2013-11 requires an unrecognized tax benefit to be presented as a liability and not netted against a deferred tax asset. ASU 2013-11 is effective for reporting periods beginning after December 15, 2013. Adoption by the Company is not expected to have an impact on the consolidated financial statements and related disclosures.

In January 2014, the FASB issued ASU 2014-04, Receivables (Topic 310) - Troubled Debt Restructurings by Creditors. ASU 2014-04 is intended to reduce diversity by clarifying when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. ASU 2014-04 is effective for annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015. Adoption by the Company is not expected to have a material impact on the consolidated financial statements and related disclosures.

In June 2014, the FASB issued ASU 2014-11, Transfers and Servicing (Topic 860) - Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. ASU 2014-11 is intended to clarify the accounting for and improve the disclosures related to repurchase-to-maturity transactions and repurchase financings. ASU 2014-11 is effective for the first interim or annual period beginning after December 15, 2014. Adoption by the Company is not expected to have a material impact on the consolidated financial statements and related disclosures.

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

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Note 4. 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 and restricted stock units, though no actual shares of common stock related to restricted stock units are issued until the settlement of such units, to the extent holders of these securities receive non-forfeitable dividends or dividend equivalents at the same rate as holders of the Company's common stock. Diluted earnings per share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of stock compensation using the treasury stock method.

The following table presents a reconciliation of the number of shares used in the calculation of basic and diluted earnings (loss) per common share (in thousands, except share and per share data).



	Three Months Ended June 30,						Nine Months Ended June 30,
	2014			2013*			2014			2013*
Net income (loss)	$	69		$	(486	)	$	(1,662	)	$	(486	)
Basic potential common shares:
Weighted average shares outstanding	5,132,913			5,142,541			5,139,332			5,142,541
Weighted average unallocated ESOP shares	(383,120		)	(411,403		)	(388,605		)	(411,403		)
Basic weighted average shares outstanding	4,749,793			4,731.138			4,750,727			4,731.138
Dilutive effect of equity awards	18			—			6			—
Diluted weighted average shares outstanding	4,749,811			4,731,138			4,750,733			4,731,138
Basic income (loss) per share	$	0.01		$	(0.10	)	$	(0.35	)	$	(0.10	)
Diluted income (loss) per share	$	0.01		$	(0.10	)	$	(0.35	)	$	(0.10	)

________________________

* Earnings per share for the three and nine months ended June 30, 2013 is adjusted to include the loss attributed to the period from April 9, 2013 through June 30, 2013 which was the period subsequent to the initial public offering for the common shares issued.

Note 5. 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 loan to fund the acquisition of stock by the ESOP was made by the Company. The Bank makes annual contributions to the ESOP equal to the ESOP's debt service. The ESOP shares initially were pledged as collateral for its debt. As the debt is repaid, shares are released from collateral and allocated to active participants, based on the proportion of debt service paid in the year. The Company accounts for its ESOP in accordance with ASC 718-40. Accordingly, because the debt is intercompany, it is eliminated in consolidation for presentation in these statements. The shares pledged as collateral are reported as unearned ESOP shares in the balance sheet. As shares are committed to be released from collateral and allocated to active participants, the Company reports compensation expense equal to the current market price of the shares, and the shares become outstanding for EPS computations. During the three months ended June 30, 2014, 5,142 shares, with an average fair value of $14.44 per share, were committed to be released and allocated to active participants resulting in ESOP compensation expense of $74 for the three months ended June 30, 2014. During the nine months ended June 30, 2014, 17,142 shares, with an average fair value of $14.14 per share, were committed to be released and allocated to active participants resulting in ESOP compensation expense of $242 for the nine months ended June 30, 2014. The ESOP compensation expense recorded for the three months and nine months ended June 30, 2013 was $92.

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The ESOP shares as of June 30, 2014 and September 30, 2013 were as follows (in thousands, except share data):



	June 30, 2014		September 30, 2013

Allocated shares	20,570		—
Shares committed to be released and allocated to active participants	10,285		13,713
Unallocated shares	380,548		397,690
Total ESOP shares	411,403		411,403
Fair value of unallocated shares	$	5,750	$	5,663

Note 6. Securities Available-for-Sale

The amortized costs and fair values of securities available-for-sale are summarized as follows:



	June 30, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
U.S. Government and agency securities	$	7,155	$	4	$	(121	)	$	7,038
U.S. Government agency residential mortgage-backed securities	47,450		593		(289		)	47,754
U.S. Government agency collateralized mortgage obligations	7,850		58		(75		)	7,833
Municipal securities	35,511		319		(273		)	35,557
Corporate securities	2,013		10		(2		)	2,021
	$	99,979	$	984	$	(760	)	$	100,203
	September 30, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
U.S. Government and agency securities	$	7,155	$	—	$	(354	)	$	6,801
U.S. Government agency residential mortgage-backed securities	50,447		417		(660		)	50,204
U.S. Government agency collateralized mortgage obligations	7,931		52		(118		)	7,865
Municipal securities	38,861		308		(877		)	38,292
Corporate securities	2,541		2		—			2,543
	$	106,935	$	779	$	(2,009	)	$	105,705

The amortized cost and fair value of securities available-for-sale, by contractual maturity at June 30, 2014 are shown in the following table. Actual maturities differ from contractual maturities for mortgage-backed securities because the mortgages underlying the securities may be called or repaid without penalty. Therefore, these securities are not presented in the maturity categories in the table below.



	June 30, 2014
	Amortized Cost		Fair Value
Due in one year or less	$	3,309	$	3,317
Due after one year through five years	21,838		22,009
Due after five years through ten years	12,343		12,258
Due after ten years	7,189		7,032
U.S. Government agency collateralized mortgage obligations	7,850		7,833
U.S. Government agency residential mortgage-backed securities	47,450		47,754
	$	99,979	$	100,203

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Proceeds from sales of securities available-for-sale during the three months ended June 30, 2014 and 2013, were $1,988 and $0, respectively. Gross realized gains, during the three months ended June 30, 2014 and 2013, on these sales amount to $18 and $0, respectively. There were no gross realized losses for the sales during the three months ended June 30, 2014 and 2013.

Proceeds from sales of securities available-for-sale during the nine months ended June 30, 2014 and 2013, were $16,133 and $11,584, respectively. Gross realized gains, during the nine months ended June 30, 2014 and 2013, on these sales amounted to $188 and $256, respectively. Gross realized losses on these sales were $146 and $24, during the nine months ended June 30, 2014 and 2013, respectively.

There were no securities that were pledged to secure treasury, tax, and loan deposits and other purposes required or permitted by law at June 30, 2014 and September 30, 2013.

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, 2014
	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Government and agency securities	$	—	$	—		$	6,790	$	(121	)	$	6,790	$	(121	)
U.S. Government agency residential mortgage-backed securities	2,623		(10		)	17,068		(279		)	19,691		(289		)
U.S. Government agency collateralized mortgage obligations	1,009		(2		)	2,009		(73		)	3,018		(75		)
Municipal securities	1,371		(6		)	14,754		(267		)	16,125		(273		)
Corporate securities	498		(2		)	—		—			498		(2		)
	$	5,501	$	(20	)	$	40,621	$	(740	)	$	46,122	$	(760	)



	September 30, 2013
	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	$	6,801	$	(354	)	$	—	$	—		$	6,801	$	(354	)
U.S. Government agency residential mortgage-backed securities	31,192		(660		)	—		—			31,192		(660		)
U.S. Government agency collateralized mortgage obligations	3,155		(52		)	1,153		(66		)	4,308		(118		)
Municipal securities	24,658		(785		)	1,758		(92		)	26,416		(877		)
	$	65,806	$	(1,851	)	$	2,911	$	(158	)	$	68,717	$	(2,009	)

At June 30, 2014, the investment portfolio included 73 securities available-for-sale which had been in an unrealized loss position for more than twelve months and 12 securities available-for-sale which had been in an unrealized loss position for less than twelve months. These securities are considered to be acceptable credit risks. Based upon an evaluation of the available evidence, including recent changes in market rates, credit rating information and information obtained from regulatory filings, management believes the decline in fair value for these securities is temporary. The Company does not have any current requirement to sell and does not intend to sell these securities prior to any anticipated recovery in fair value.

At September 30, 2013, the investment portfolio included 13 securities available-for-sale which had been in an unrealized loss position for greater than twelve months and 148 securities available-for-sale which had been in an unrealized loss position for less than twelve months.

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Note 7. Loans

A summary of the balances of loans follows:



	June 30, 2014		September 30, 2013
Real estate:
Single family	$	133,456	$	132,496
Multifamily	71,751		47,178
Commercial real estate	119,429		112,237
Construction and land development	16,035		10,629
Total real estate	340,671		302,540
Commercial business	24,703		25,003
Consumer:
Home equity lines of credit	14,222		13,652
Education	4,769		5,189
Other	687		798
Total consumer	19,678		19,639
Total loans	385,052		347,182
Less:
Net deferred loan fees	218		136
Allowance for loan losses	4,039		4,266
Net loans	$	380,795	$	342,780

The following tables present the contractual aging of the recorded investment in past due loans by class of loans as of June 30, 2014 and September 30, 2013:



June 30, 2014	Current		30-59 Days Past Due		60-89 Days Past Due		Loans Past Due 90 Days or More		Total
Single family	$	130,913	$	918	$	404	$	1,221	$	133,456
Multifamily	71,751		—		—		—		71,751
Commercial real estate	119,095		138		—		196		119,429
Construction and land development	16,029		—		—		6		16,035
Commercial business	24,681		—		—		22		24,703
Consumer and other:
Home equity lines of credit	13,999		74		—		149		14,222
Education	4,646		38		2		83		4,769
Other	687		—		—		—		687
	$	381,801	$	1,168	$	406	$	1,677	$	385,052

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September 30, 2013	Current		30-59 Days Past Due		60-89 Days Past Due		Loans Past Due 90 Days or More		Total
Single family	$	127,631	$	406	$	1,571	$	2,888	$	132,496
Multifamily	47,178		—		—		—		47,178
Commercial real estate	105,683		—		5,485		1,069		112,237
Construction and land development	10,437		—		—		192		10,629
Commercial business	24,976		27		—		—		25,003
Consumer and other:
Home equity lines of credit	13,180		116		90		266		13,652
Education	4,991		64		26		108		5,189
Other	791		2		1		4		798
	$	334,867	$	615	$	7,173	$	4,527	$	347,182

There were no loans past due ninety days or more still accruing interest as of June 30, 2014 and September 30, 2013.

The following table presents the recorded investment in nonaccrual loans by class of loans as of June 30, 2014 and September 30, 2013:



	June 30, 2014		September 30, 2013
Single family	$	1,369	$	4,207
Multifamily	—		2,638
Commercial real estate	353		1,283
Construction and land development	6		192
Commercial business	22		—
Consumer and other:
Home equity lines of credit	166		285
Education	83		134
Other	—		4
	$	1,999	$	8,743

As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management categorizes loans into risk categories based on relevant information about the ability of the borrowers to service their debt and comply with various terms of their loan agreements. The Company considers current financial information, historical payment experience, credit documentation, public information and current economic trends. Generally, all sizeable credits receive a financial review no less than annually to monitor and adjust, if necessary, the credit’s risk profile. Credits classified as watch and special mention generally receive a review more frequently than annually.

The Company categorizes loans into the following risk categories based on relevant information about the ability of borrowers to service their debt:

Pass — A pass asset is well protected by the current worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less costs to acquire and sell in a timely manner, of any underlying collateral.

Watch — A watch asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Watch assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Special Mention — A special mention asset has characteristics of deterioration in quality exhibited by any number of well-defined weaknesses requiring significant corrective action. The repayment ability of the borrower has not been validated, or has become marginal or weak and the loan may have exhibited some overdue payments or payment extensions and/or renewals.

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

Doubtful — A doubtful asset is an asset that has all the weaknesses inherent in the substandard classification with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. These credits have a high probability for loss, yet because certain important and reasonably specific pending factors may work toward the strengthening of the asset, its classification of loss is deferred until its more exact status can be determined.

Homogeneous loan types are assessed for credit quality based on the contractual aging status of the loan and payment activity. In certain cases, based upon payment performance, the loan being related with another commercial type loan or for other reasons, a loan may be categorized into one of the risk categories noted above, unless such loan carries private mortgage insurance (PMI). Such assessment is completed at the end of each reporting period.

The following tables present the risk category of loans evaluated by internal asset classification based on the most recent analysis performed and the contractual aging as of June 30, 2014 and September 30, 2013:



June 30, 2014	Pass		Watch		Special Mention		Substandard		Doubtful		Total
Single family	$	130,272	$	646	$	119	$	2,419	$	—	$	133,456
Multifamily	68,568		—		448		2,735		—		71,751
Commercial real estate	110,457		5,939		1,193		1,840		—		119,429
Construction and land development	16,029		—		—		6		—		16,035
Commercial business	20,930		3,589		73		111		—		24,703
Consumer and other:
Home equity lines of credit	13,997		—		—		225		—		14,222
Education	4,769		—		—		—		—		4,769
Other	685		—		—		2		—		687
Total	$	365,707	$	10,174	$	1,833	$	7,338	$	—	$	385,052



September 30, 2013	Pass		Watch		Special Mention		Substandard		Doubtful		Total
Single family	$	127,395	$	454	$	121	$	4,526	$	—	$	132,496
Multifamily	41,700		2,667		—		2,811		—		47,178
Commercial real estate	93,953		13,713		2,549		2,022		—		112,237
Construction and land development	10,438		—		—		191		—		10,629
Commercial business	21,930		2,140		928		5		—		25,003
Consumer and other:
Home equity lines of credit	13,306		—		—		346		—		13,652
Education	5,189		—		—		—		—		5,189
Other	794		—		—		4		—		798
	$	314,705	$	18,974	$	3,598	$	9,905	$	—	$	347,182

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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, 2014 and 2013:



Three Months Ended June 30, 2014	Single Family			Multifamily		Commercial Real Estate			Construction and Land Development		Commercial Business		Consumer and Other			Total
Allowance for loan losses:
Beginning balance	$	1,413		$	107	$	1,747		$	252	$	279	$	100		$	3,898
Provision for loan losses	59			690		(451		)	32		8		(338		)	—
Loans charged-off	(237		)	—		—			—		—		(6		)	(243		)
Recoveries	26			—		4			10		9		335			384
Ending balance	$	1,261		$	797	$	1,300		$	294	$	296	$	91		$	4,039
Period-ended amount allocated for:
Individually evaluated for impairment	$	113		$	—	$	—		$	—	$	—	$	59		$	172
Collectively evaluated for impairment	1,148			797		1,300			294		296		32			3,867
Ending Balance	$	1,261		$	797	$	1,300		$	294	$	296	$	91		$	4,039
Loans:
Individually evaluated for impairment	$	1,821		$	2,572	$	469		$	—	$	—	$	127		$	4,989
Collectively evaluated for impairment	131,635			69,179		118,960			16,035		24,703		19,551			380,063
Ending Balance	$	133,456		$	71,751	$	119,429		$	16,035	$	24,703	$	19,678		$	385,052



Three Months Ended June 30, 2013	Single Family			Multifamily			Commercial Real Estate			Construction and Land Development			Commercial Business			Consumer and Other			Total
Allowance for loan losses:
Beginning balance	$	1,834		$	501		$	1,894		$	490		$	601		$	60		$	5,380
Provision for loan losses	408			(172		)	546			(284		)	(323		)	(25		)	150
Loans charged-off	(425		)	—			(595		)	—			—			—			(1,020		)
Recoveries	37			1			1			—			5			9			53
Ending balance	$	1,854		$	330		$	1,846		$	206		$	283		$	44		$	4,563
Period-ended amount allocated for:
Individually evaluated for impairment	$	316		$	—		$	17		$	—		$	—		$	—		$	333
Collectively evaluated for impairment	1,538			330			1,829			206			283			44			4,230
Ending Balance	$	1,854		$	330		$	1,846		$	206		$	283		$	44		$	4,563
Loans:
Individually evaluated for impairment	$	3,204		$	2,659		$	1,288		$	192		$	—		$	145		$	7,488
Collectively evaluated for impairment	132,169			43,029			108,941			8,599			21,869			21,040			$	335,647
Ending Balance	$	135,373		$	45,688		$	110,229		$	8,791		$	21,869		$	21,185		$	343,135

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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, 2014 and 2013:



Nine Months Ended June 30, 2014	Single Family			Multifamily		Commercial Real Estate			Construction and Land Development			Commercial Business			Consumer and Other			Total
Allowance for loan losses:
Beginning balance	$	1,873		$	165	$	1,501		$	374		$	211		$	142		$	4,266
Provision for loan losses	(58		)	628		15			(90		)	210			(355		)	350
Loans charged-off	(679		)	—		(232		)	—			(159		)	(34		)	(1,104		)
Recoveries	125			4		16			10			34			338			527
Ending balance	$	1,261		$	797	$	1,300		$	294		$	296		$	91		$	4,039
Period-ended amount allocated for:
Individually evaluated for impairment	$	113		$	—	$	—		$	—		$	—		$	59		$	172
Collectively evaluated for impairment	1,148			797		1,300			294			296			32			3,867
Ending Balance	$	1,261		$	797	$	1,300		$	294		$	296		$	91		$	4,039
Loans:
Individually evaluated for impairment	$	1,821		$	2,572	$	469		$	—		$	—		$	127		$	4,989
Collectively evaluated for impairment	131,635			69,179		118,960			16,035			24,703			19,551			380,063
Ending Balance	$	133,456		$	71,751	$	119,429		$	16,035		$	24,703		$	19,678		$	385,052



Nine Months Ended June 30, 2013	Single Family			Multifamily			Commercial Real Estate			Construction and Land Development			Commercial Business			Consumer and Other			Total
Allowance for loan losses:
Beginning balance	$	1,390		$	712		$	3,249		$	293		$	810		$	236		$	6,690
Provision for loan losses	2,030			(383		)	172			111			(454		)	(176		)	1,300
Loans charged-off	(1,603		)	—			(1,593		)	(198		)	(99		)	(28		)	(3,521		)
Recoveries	37			1			18			—			26			12			94
Ending balance	$	1,854		$	330		$	1,846		$	206		$	283		$	44		$	4,563
Period-ended amount allocated for:
Individually evaluated for impairment	$	316		$	—		$	17		$	—		$	—		$	—		$	333
Collectively evaluated for impairment	1,538			330			1,829			206			283			44			4,230
Ending Balance	$	1,854		$	330		$	1,846		$	206		$	283		$	44		$	4,563
Loans:
Individually evaluated for impairment	$	3,204		$	2,659		$	1,288		$	192		$	—		$	145		$	7,488
Collectively evaluated for impairment	132,169			43,029			108,941			8,599			21,869			21,040			$	335,647
Ending Balance	$	135,373		$	45,688		$	110,229		$	8,791		$	21,869		$	21,185		$	343,135

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, 2014 and 2013. The unpaid principal balance represents the recorded balance prior to any partial charge-offs. The recorded investment represents customer balances net of any partial charge-offs recognized on the loans. The interest income recognized column represents all interest income reported on either a cash or accrual basis after the loan became impaired.

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							Three months ended				Nine months ended
June 30, 2014	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Single family	$	1,685	$	1,136	$	—	$	1,735	$	5	$	1,867	$	17
Multifamily	2,871		2,572		—		2,792		28		3,422		85
Commercial real estate	502		469		—		1,266		8		1,520		25
Construction and land development	—		—		—		—		—		—		—
Commercial business	—		—		—		—		—		—		—
Consumer and other	175		68		—		93		—		112		—
With an allowance recorded:
Single family	1,017		685		113		547		1		554		1
Multifamily	—		—		—		—		—		85		—
Commercial real estate	—		—		—		—		—		95		—
Construction and land development	—		—		—		—		—		48		—
Commercial business	—		—		—		—		—		—		—
Consumer and other	59		59		59		60		1		60		2
	$	6,309	$	4,989	$	172	$	6,493	$	43	$	7,763	$	130



							Three months ended				Nine months ended
June 30, 2013	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Single family	$	2,764	$	2,068	$	—	$	2,595	$	8	$	2,337	$	22
Multifamily	3,013		2,659		—		2,216		—		3,469		—
Commercial real estate	1,107		1,105		—		1,706		—		3,180		—
Construction and land development	192		192		—		193		2		320		7
Commercial business	—		—		—		—		—		—		—
Consumer and other	223		145		—		128		—		107		—
With an allowance recorded:
Single family	1,204		1,136		316		818		6		1,171		18
Multifamily	—		—		—		454		—		468		—
Commercial real estate	186		183		17		1,258		3		1,732		9
Construction and land development	—		—		—		209		—		54		—
Commercial business	—		—		—		—		—		15		—
Consumer and other	—		—		—		—		—		—		—
	$	8,689	$	7,488	$	333	$	9,577	$	19	$	12,853	$	56

The following is a summary of troubled debt restructured loans (TDRs) at June 30, 2014 and September 30, 2013:



	June 30, 2014		September 30, 2013
Troubled debt restructurings - accrual	$	3,535	$	3,166
Troubled debt restructurings - nonaccrual	365		5,385
	$	3,900	$	8,551

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

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The following tables presents information related to loans modified in a TDR, by class, during the three months ended June 30, 2014 and 2013:



	Three Months Ended June 30, 2014
		Unpaid Principal Balance (at End of Period)		Balance in the ALLL
	Number of Modifications	Unpaid Principal Balance (at End of Period)		Prior to Modification		At Period End
Single family	1	$	320	$	—	$	40
Multifamily	—	—		—		—
Commercial real estate	—	—		—		—
Construction and land development	—	—		—		—
Commercial business	—	—		—		—
Consumer and other:
Home equity lines of credit	—	—		—		—
Education	—	—		—		—
Other	—	—		—		—
	1	$	320	$	—	$	40



	Three Months Ended June 30, 2013
		Unpaid Principal Balance (at End of Period)		Balance in the ALLL
	Number of Modifications	Unpaid Principal Balance (at End of Period)		Prior to Modification		At Period End
Single family	—	$	—	$	—	$	—
Multifamily	3	2,659		—		—
Commercial real estate	—	—		—		—
Construction and land development	—	—		—		—
Commercial business	—	—		—		—
Consumer and other:
Home equity lines of credit	—	—		—		—
Education	—	—		—		—
Other	—	—		—		—
	3	$	2,659	$	—	$	—

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The following tables presents information related to loans modified in a TDR, by class, during the nine months ended June 30, 2014 and 2013:



	Nine Months Ended June 30, 2014
		Unpaid Principal Balance (at End of Period)		Balance in the ALLL
	Number of Modifications	Unpaid Principal Balance (at End of Period)		Prior to Modification		At Period End
Single family	2	$	407	$	—	$	40
Multifamily	—	—		—		—
Commercial real estate	—	—		—		—
Construction and land development	—	—		—		—
Commercial business	—	—		—		—
Consumer and other:
Home equity lines of credit	—	—		—		—
Education	—	—		—		—
Other	—	—		—		—
	2	$	407	$	—	$	40



	Nine Months Ended June 30, 2013
		Unpaid Principal Balance (at End of Period)		Balance in the ALLL
	Number of Modifications	Unpaid Principal Balance (at End of Period)		Prior to Modification		At Period End
Single family	1	$	122	$	—	$	—
Multifamily	4	3,081		—		—
Commercial real estate	3	794		—		—
Construction and land development	—	—		—		—
Commercial business	—	—		—		—
Consumer and other:
Home equity lines of credit	—	—		—		—
Education	—	—		—		—
Other	—	—		—		—
	8	$	3,997	$	—	$	—

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The following table presents a summary of loans modified in a TDR during the three months ended June 30, 2014 and 2013 by class and by type of modification:



	Principal and Interest to Interest Only		Interest Rate Reduction				Adjusted Amortization Period		Reduced Principal Balance
Three Months Ended June 30, 2014	Principal and Interest to Interest Only		To Below Market Rate		To Interest Only		Adjusted Amortization Period		Reduced Principal Balance		Other (1)		Total
Single family	$	—	$	—	$	—	$	—	$	320	$	—	$	320
Multifamily	—		—		—		—		—				—
Commercial real estate	—		—		—		—		—		—		—
Construction and land development	—		—		—		—		—		—		—
Commercial business	—		—		—		—		—		—		—
Consumer and other:											0		0
Home equity lines of credit	—		—		—		—		—		—		—
Education	—		—		—		—		—		—		—
Other	—		—		—		—		—		—		—
	$	—	$	—	$	—	$	—	$	320	$	—	$	320



	Principal and Interest to Interest Only		Interest Rate Reduction				Adjusted Amortization Period		Reduced Principal Balance
Three Months Ended June 30, 2013	Principal and Interest to Interest Only		To Below Market Rate		To Interest Only		Adjusted Amortization Period		Reduced Principal Balance		Other (1)		Total
Single family	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Multifamily	—		—		2,659		—		—		—		2,659
Commercial real estate	—		—		—		—		—		—		—
Construction and land development	—		—		—		—		—		—		—
Commercial business	—		—		—		—		—		—		—
Consumer and other:													—
Home equity lines of credit	—		—		—		—		—		—		—
Education	—		—		—		—		—		—		—
Other	—		—		—		—		—		—		—
	$	—	$	—	$	2,659	$	—	$	—	$	—	$	2,659

___________________________________________________________

(1) Other modifications primarily include capitalization of property taxes.

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The following table presents a summary of loans modified in a TDR during the nine months ended June 30, 2014 and 2013 by class and by type of modification:



	Principal and Interest to Interest Only		Interest Rate Reduction				Adjusted Amortization Period		Reduced Principal Balance
Nine Months Ended June 30, 2014	Principal and Interest to Interest Only		To Below Market Rate		To Interest Only		Adjusted Amortization Period		Reduced Principal Balance		Other (1)		Total
Single family	$	—	$	—	$	—	$	—	$	320	$	87	$	407
Multifamily	—		—		—		—		—				—
Commercial real estate	—		—		—		—		—		—		—
Construction and land development	—		—		—		—		—		—		—
Commercial business	—		—		—		—		—		—		—
Consumer and other:											0		0
Home equity lines of credit	—		—		—		—		—		—		—
Education	—		—		—		—		—		—		—
Other	—		—		—		—		—		—		—
	$	—	$	—	$	—	$	—	$	320	$	87	$	407



	Principal and Interest to Interest Only		Interest Rate Reduction				Adjusted Amortization Period		Reduced Principal Balance
NIne Months Ended June 30, 2013	Principal and Interest to Interest Only		To Below Market Rate		To Interest Only		Adjusted Amortization Period		Reduced Principal Balance		Other (1)		Total
Single family	$	—	$	—	$	—	$	—	$	—	$	122	$	122
Multifamily	—		—		2,659		422		—		—		3,081
Commercial real estate	184		—		—		161		—		449		794
Construction and land development	—		—		—		—		—		—		—
Commercial business	—		—		—		—		—		—		—
Consumer and other:
Home equity lines of credit	—		—		—		—		—		—		—
Education	—		—		—		—		—		—		—
Other	—		—		—		—		—		—		—
	$	184	$	—	$	2,659	$	583	$	—	$	571	$	3,997

___________________________________________________________

(1) Other modifications primarily include capitalization of property taxes.

There were no re-defaults of TDR that occurred during the three months or nine months ended June 30, 2014 and 2013.

Certain of the Bank’s officers, employees, directors, and their associates are loan customers of the Bank. As of June 30, 2014 and September 30, 2013, loans of approximately $5,200 and $5,563, 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.

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Note 8. Real Estate Held for Sale and Branch Closings

The Company designated two office properties as available for sale as of March 31, 2014, one of which housed a branch office which was closed in May 2014. The property was designated as held for sale and transferred from real estate held for investment at its fair value of $810 as of March 31, 2014. The second property, an administrative facility, was transferred from office properties and equipment to real estate held for sale at its fair value of $1,932 as of March 31, 2014. The net loss recognized upon transfer during the quarter ended March 31, 2014 was $1,964. The fair values of the properties were reduced by an additional $252 during the three months ending June 30, 2014, based on pending offers to purchase after exposure to the market. The net loss of $252 and $2,216 is reported as valuation loss on real estate held for sale in the statement of operations for the three and nine months ended June 30, 2014, respectively.

During the three months ended June 30, 2014, the Company closed an additional branch office, which was operated in a leased facility for which the lease expired in June 2014. The write-off of undepreciated leasehold improvements was $46 and is reported as branch realignment expense in the statement of operations for the three months ended June 30, 2014. Total expenses of $619 for lease buyouts, write-off of undepreciated leasehold improvements and severance pay for the nine months ended June 30, 2014 were included in branch realignment expense.

Note 9. Deposits

The following table presents the composition of deposits as of:



	June 30, 2014				September 30, 2013
	Amount		Percent		Amount		Percent
Checking Accounts:
Noninterest bearing	$	77,314	17.22	%	$	72,331	16.40	%
Interest bearing	135,975		30.29	%	140,204		31.80	%
	213,289		47.51	%	212,535		48.20	%
Passbook and Statement Savings	123,953		27.60	%	116,986		26.53	%
Variable Rate Money Market Accounts	19,564		4.36	%	21,750		4.93	%
Certificates of Deposit	92,171		20.53	%	89,707		20.34	%
	$	448,977	100.00	%	$	440,978	100.00	%

Certificates of deposit over one hundred thousand dollars totaled $29,540 and $22,013 as of June 30, 2014 and September 30, 2013, respectively.

Note 10. Regulatory Capital

The Bank is subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holdings companies.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and Tier 1 capital (as defined) to average assets (as defined). As of June 30, 2014 and September 30, 2013, the Bank is well capitalized under prompt corrective action regulation.

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The Bank’s actual capital amounts and ratios and those required by the above regulatory standards are as follows:



At June 30, 2014	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total capital (to risk-weighted assets) - Westbury Bank	$	64,726	17.20	%	$	30,105	8.00	%	$	37,631	10.00	%
Tier 1 capital (to risk-weighted assets) - Westbury Bank	60,687		16.13	%	15,049		4.00	%	22,574		6.00	%
Tier 1 capital (to adjusted total assets) - Westbury Bank	60,687		11.38	%	21,331		4.00	%	26,664		5.00	%



At September 30, 2013	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total capital (to risk-weighted assets) - Westbury Bank	$	66,521	18.85	%	$	28,231	8.00	%	$	35,289	10.00	%
Tier 1 capital (to risk-weighted assets) - Westbury Bank	62,255		17.64	%	14,116		4.00	%	21,173		6.00	%
Tier 1 capital (to adjusted total assets) - Westbury Bank	62,255		12.01	%	20,728		4.00	%	25,910		5.00	%

The following table reconciles the Bank’s stockholders’ equity to regulatory capital as of June 30, 2014 and September 30, 2013:



	June 30, 2014			September 30, 2013
Stockholders’ equity of the Bank	$	67,287		$	67,438
Less: Disallowed servicing assets	(172		)	(183		)
Unrealized gain (loss) on securities	(122		)	696
Disallowed investment in subsidiary	(3,296		)	(3,296		)
Disallowed deferred tax assets	(3,010		)	(2,400		)
Tier 1 capital and tangible capital	60,687			62,255
Plus: Allowable general valuation allowances	4,039			4,266
Risk-based capital	$	64,726		$	66,521

Note 11. Commitments

Financial Instruments with Off-Balance Sheet Risk

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

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.

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The following instruments were outstanding whose contract amounts represent credit risk:



	June 30, 2014		September 30, 2013
Commitments to extend mortgage credit:
Fixed rate	$	—	$	372
Adjustable rate	1,082		971
Unused commercial loan and home equity lines of credit	58,840		51,755
Standby letters of credit	314		140
Commitment to sell loans	604		1,028

Commitments to extend credit are agreements to lend funds to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. As some such commitments expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The Company generally extends credit only on a secured basis. Collateral obtained varies but consists primarily of single family residences.

Unfunded commitments under lines of credit are commitments for possible future extensions of credit to existing customers. These lines of credit may be uncollateralized and ultimately may not be drawn upon to the total extent to which the Company is committed.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements, and, generally, have terms of one year or less. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company holds collateral supporting those commitments if deemed necessary. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Company would be required to fund the commitment. The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount shown in the summary above. If the commitment is funded, the Company would be entitled to seek recovery from the customer. At June 30, 2014 and September 30, 2013, no amounts have been recorded as liabilities for the Company’s potential obligations under these guarantees.

Commitments to sell loans are commitments to sell single family mortgage loans to investors on the secondary market.

Note 12. Fair Value Measurements

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

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

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.

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A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

Securities available-for-sale: The fair value of the Company’s securities available-for-sale is determined using Level 2 inputs, which are derived from readily available pricing sources and third-party pricing services for comparable instruments. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, treasury yield curves, trading levels, credit information and credit terms, among other factors. In certain cases where Level 1 or Level 2 are not available, securities are classified within Level 3 of the hierarchy.

Derivatives: The fair values of the Company’s embedded derivatives related to certain certificates of deposit are determined using inputs that are observable or that can be corroborated by observable market data (such as the S&P 500 Index and the 10- year U.S. Treasury rate) and, therefore, are classified within Level 2 of the valuation hierarchy.

Assets and liabilities recorded at fair value on a recurring basis: The following table summarizes assets measured at fair value on a recurring basis, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value as of:



			Fair Value Measurements
June 30, 2014	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Assets
Securities available-for-sale
U.S. Government and agency securities	$	7,038	$	—	$	7,038	$	—
U.S. Government agency residential mortgage-backed securities	47,754		—		47,754		—
U.S. Government agency collateralized mortgage obligations	7,833		—		7,833		—
Municipal securities	35,557				35,557
Corporate Bonds	2,021		—		2,021		—
Total securities available-for-sale	$	100,203	$	—	$	100,203	$	—
Derivatives	$	166	$	—	$	166	$	—
Liabilities
Derivatives	$	166	$	—	$	166	$	—

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			Fair Value Measurements
September 30, 2013	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	$	6,801	$	—	$	6,801	$	—
U.S. Government agency residential mortgage-backed securities	50,204		—		50,204		—
U.S. Government agency collateralized mortgage obligations	7,865		—		7,865		—
Municipal securities	38,292				38,292
Corporate Bonds	2,543		—		2,543		—
Total securities available-for-sale	$	105,705	$	—	$	105,705	$	—
Derivatives	$	408	$	—	$	408	$	—
Liabilities
Derivatives	$	408	$	—	$	408	$	—

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, 2014. The Company’s policy for determining transfers between levels occurs at the end of the reporting period when circumstances in the underlying valuation criteria change and result in a transfer between levels.

Assets recorded at fair value on a nonrecurring basis: The Company may be required, from time to time, to measure certain instruments at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles.

Impaired loans: The Company does not record loans at fair value on a recurring basis. The specific reserves for collateral-dependent impaired loans are based on the fair value of the collateral less estimated costs to sell. The fair value of collateral is determined based on appraisals. In some cases, adjustments were made to the appraised values due to various factors including age of the appraisal, age of comparables included in the appraisal, and known changes in the market and in the collateral. When significant adjustments were based on unobservable inputs, the resulting fair value measurement has been categorized as a Level 3 measurement. Impaired loans with a carrying amount of $744 and $1,726 have a valuation allowance of $172 and $537 included in the allowance for loan losses to reflect their fair value as of June 30, 2014 and September 30, 2013, respectively.

Foreclosed real estate: The Company does not record foreclosed real estate owned at a fair value on a recurring basis. The fair value of foreclosed real estate was determined using Level 3 inputs based on appraisals or broker pricing opinions. In some cases, adjustments were made to these values due to various factors including the age of the appraisal, age of comparables included in the appraisal, and known changes in the market and in collateral. Foreclosed real estate is measured at fair value less estimated costs to sell at the date of foreclosure. Subsequent to foreclosure, additional writedowns may be recorded based on changes to the fair value of the assets.

Mortgage servicing rights: Mortgage servicing rights ("MSRs") do not trade in an active, open market with readily observable prices. While sales of MSRs do occur, the precise terms and conditions typically are not readily available. Accordingly, the Company estimates the fair value of MSRs using discounted cash flow models incorporating numerous assumptions from the perspective of market participants including servicing income, servicing costs, market discount rates, prepayments speeds, and default rates. Due to the nature of the valuation inputs, MSRs are classified within Level 3 of the valuation hierarchy. As of June 30, 2014, mortgage servicing rights with a carrying amount of $1,879 have a valuation allowance of $160 to reflect their fair value of $1,719. As of September 30, 2013, mortgage servicing rights with a carrying amount of $2,152 have a valuation allowance of $321 to reflect their fair value of $1,831.

Real estate held for sale: The Company does not record real estate held for sale at a fair value on a recurring basis. The fair value of real estate held for sale 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. Real estate held for sale is measured at fair value less estimated costs to sell at the time of transfer. Subsequent to transfer, additional writedowns may be recorded based on changes to the fair value of the assets.

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			Fair Value Measurements
June 30, 2014	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Assets
Impaired loans	$	572	$	—	$	—	$	572
Foreclosed real estate	3,004		—		—		3,004
Mortgage servicing rights	1,719		—		—		1,719
Real estate held for sale	2,490		—		—		2,490



			Fair Value Measurements
September 30, 2013	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	$	1,189	$	—	$	—	$	1,189
Foreclosed real estate	1,690		—		—		1,690
Mortgage servicing rights	1,831		—		—		1,831
Real estate held for sale	—		—		—		—

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

Cash and cash equivalents: The carrying amounts of cash and cash equivalents reported in the consolidated balance sheets approximate those assets’ fair values.

Loans: For variable-rate mortgage loans that re-price frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for fixed rate residential mortgage loans are based on quoted market prices for similar loans sold in conjunction with sale transactions, adjusted for differences in loan characteristics. The fair values for commercial real estate loans, rental property mortgage loans, and consumer and other loans are estimated using discounted cash flow analyses and using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.

Loans held for sale: Fair value of loans held for sale are based on commitments on hand from investors or prevailing market prices.

Federal Home Loan Bank stock: The carrying amount of FHLB stock approximates its fair value based on the redemption provisions of the FHLB.

Accrued interest receivable and payable: The carrying amounts of accrued interest receivable and payable approximate their fair values.

Deposits: The fair value disclosed for interest-bearing and non-interest-bearing checking accounts, savings accounts, and money market accounts are equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The fair values of fixed rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates

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currently being offered on certificates 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.

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 June 30, 2014 and September 30, 2013.

The estimated fair values and related carrying amounts of the Company’s financial instruments are as follows:



	June 30, 2014
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	28,864	$	28,864	$	28,864	$	—	$	—
Securities	100,203		100,203		—		100,203		—
Loans, net	380,795		379,628		—		—		379,628
Loans held for sale, net	604		604		—		604		—
Federal Home Loan Bank stock	2,670		2,670		—		—		2,670
Mortgage servicing rights	1,719		1,719		—		—		1,719
Accrued interest receivable	1,677		1,677		1,677		—		—
Derivative asset	166		166		—		166		—
Financial liabilities:
Deposits	448,977		449,035		77,314		—		371,721
Advances from Federal Home Loan Bank	10,500		10,500		10,500		—		—
Advance payments by borrowers for property taxes and insurance	3,945		3,945		3,945		—		—
Accrued interest payable	3		3		3		—		—
Derivative liability	166		166		—		166		—

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	September 30, 2013
	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	$	47,665	$	47,665	$	47,665	$	—	$	—
Securities	105,705		105,705		—		105,705		—
Loans, net	342,780		344,696		—		—		344,696
Loans held for sale, net	1,028		1,028		—		1,028		—
Federal Home Loan Bank stock	2,670		2,670		—		—		2,670
Mortgage servicing rights	1,831		1,831		—		—		1,831
Accrued interest receivable	1,847		1,847		1,847		—		—
Derivative asset	408		408		—		408		—
Financial liabilities:
Deposits	440,978		436,732		72,331		—		364,401
Advances from Federal Home Loan Bank	—		—		—		—		—
Advance payments by borrowers for property taxes and insurance	5,700		5,700		5,700		—		—
Accrued interest payable	29		29		29		—		—
Derivative liability	408		408		—		408		—

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “believe,” “contemplate,” “continue,” “intend,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to:


•	statements of our goals, intentions and expectations;


•	statements regarding our business plans, prospects, growth and operating strategies;


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


•	estimates of our risks and future costs and benefits.

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

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


•	our ability to manage our operations under the current adverse economic conditions nationally and in our market area;


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


•	significant increases in our delinquencies and loan losses, including as a result of our inability to resolve classified or non-performing assets, changes in the underlying cash flows of our borrowers, and management’s assumptions in determining the adequacy of the allowance for loan losses;


•	credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and in our allowance for loan losses and provision for loan losses;


•	competition among depository and other financial institutions;


•	our success in increasing our commercial business, commercial real estate and multi-family lending while maintaining our asset quality;


•	our success in introducing new financial products;


•	our ability to attract and maintain deposits;


•	our ability to achieve increased operating efficiencies and enhanced profitability following the closing of underperforming branch offices;


•	changes in interest rates generally, including changes in the relative differences between short term and long term interest rates and in deposit interest rates, that may affect our net interest margin and funding sources;


•	fluctuations in the demand for loans, which may be affected by the number of unsold homes, land and other properties in our market areas and by declines in the value of real estate in our market area;


•	changes in consumer spending, borrowing and savings habits;


•	further declines in the yield on our assets resulting from the current low interest rate environment;


•	risks related to a high concentration of loans secured by real estate located in our market area;


•	the results of examinations by our regulators, including the possibility that our regulators may, among other things, require us to increase our reserve for loan losses, write down assets, change our regulatory capital position, limit our ability to borrow funds or maintain or increase deposits, or prohibit us from paying dividends, which could adversely affect our dividends and earnings;


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


•	changes in consumer spending, borrowing and savings habits;


•	changes in laws or government regulations or policies affecting financial institutions, including the Dodd-Frank Act and the JOBS Act, which could result in, among other things, increased deposit insurance premiums and

assessments, capital requirements (particularly the new capital regulations), regulatory fees and compliance costs, and changes in the level of government support of housing finance;


•	changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board;


•	changes in our organization, compensation and benefit plans;


•	risks and costs associated with operating as a publicly traded company;


•	changes in the financial condition or future prospects of issuers of securities that we own; and


•	other economic, competitive, governmental, regulatory and operational factors affecting our operations, pricing, products and services.

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.

Critical Accounting Policies

There are no material changes to the critical accounting policies disclosed in Westbury Bancorp, Inc.’s Annual Report on Form 10-K for the period ended September 30, 2013.

Overview

Our Business. Westbury Bank (the "Bank") is a federally-chartered savings bank headquartered in West Bend, Wisconsin. Westbury Bancorp, Inc. (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.

We provide financial services to individuals, families and businesses through our nine banking offices located in Washington County and Waukesha County. We also offer online and mobile banking services, participation in a nationwide ATM network and wealth management services. Although our current operations are not focused in central and southern Milwaukee County, we are affected by conditions in central and southern Milwaukee County because our loan portfolio includes a significant number of loans that are secured by real estate or that have borrowers located in central and southern Milwaukee County. In addition, a number of our customers who reside in Washington or Waukesha Counties are employed in Milwaukee County, and the operations of our commercial customers depend in part on sales of products and services to individuals or other businesses located in Milwaukee County.

Our principal business consists of attracting retail and commercial deposits from the general public in our market area and investing those deposits, together with funds generated from operations, and to a lesser extent, borrowings, in one- to four-family residential real estate loans, commercial and multi-family real estate loans, commercial business loans, and, to a lesser extent, construction loans and consumer loans, including home equity lines of credit and automobile loans. A significant majority of our deposits are transaction accounts, which we believe are less susceptible to large-scale withdrawals than certificates of deposit as a result of changes in interest rates, and which we believe have a lower cost of funds over various interest cycles. At June 30, 2014, approximately 79.5% of our deposits were transaction accounts, which we attribute to successful branding initiatives, especially with respect to younger customers. We also purchase investment securities consisting primarily of government-sponsored mortgage-backed securities, government-sponsored debentures, municipal securities and corporate securities.

Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provisions for loan losses, non-interest income and non-interest expense. Non-interest income currently consists primarily of service charges on deposit accounts, loan servicing income, gain on sales of securities and loans, debit card income, income from bank-owned life insurance and miscellaneous other income. Non-interest expense currently 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.

Effects of the Economic Downturn. As a result of the economic downturn which began in 2008, we experienced an increase in delinquent and classified loans. In response, we have undertaken aggressive initiatives to identify problem assets and to enhance asset quality. These initiatives include increasing provisions to our allowance for loan losses, charging down and writing off non-performing assets, engaging in an intensive review of our loan portfolio and as a result classifying

additional loans, limiting the growth of our loan portfolio, and devoting significant resources to developing and implementing enhanced loan underwriting, administration and collections policies and procedures.

The economic downturn coincided with significant changes in our customers’ banking habits, particularly a decrease in the amount of business conducted at physical branches as customers began to rely on internet banking and other technological advances for their day-to-day transactions. Accordingly, in addition to our asset quality improvement initiatives, we have also undertaken aggressive measures to reduce our expenses and allocate resources to best suit our customers’ banking needs. As part of this process, from 2009 through 2014, we have sold or closed 16 branches, reduced the number of employees, substantially reduced other non-interest expenses (excluding non-recurring losses from the sale of foreclosed real estate), and paid off existing Federal Home Loan Bank advances to reduce interest expenses.

Regulatory Matters - Federal Reserve Bank. In February 2010, each of WBSB Bancorp, MHC and WBSB Bancorp, Inc., the former holding companies of Westbury Bank prior to the conversion, entered into an MOU with their former regulator, the OTS. Following the completion of the conversion, Westbury Bancorp, Inc. committed to comply with the terms of these MOUs. The MOUs provide that the holding company will, among other things:

•

submit a business and capital plan that provides for plans and strategies to (i) increase and maintain consolidated tangible capital at levels commensurate with the risk profile, (ii) achieve net income levels resulting in profitability and adequate debt service, (iii) reduce the debt to capital ratio, and (iv) review all risks associated with business activities on a monthly basis and enhance income to address such risks;


•	not incur, issue, renew or rollover any debt or increase any lines of credit without prior written non-objection of the OTS; and


•	not declare or pay any cash dividends or repurchase or redeem any capital stock without the written non-objection of the OTS.

On September 20, 2013, Westbury Bancorp, Inc., was notified by the Federal Reserve Bank of Chicago that the MOUs were terminated. As a condition of the termination of the MOUs, the Board of Directors was required to adopt a Board Resolution confirming its commitment to obtain written approval from the Federal Reserve Bank prior to effecting any of the following transactions:


•	the declaration or payment of dividends on any class of Westbury Bancorp, Inc. stock;


•	any increase in debt (requests for approval should include a written debt service plan indicating how payments will be made without causing further strain on the depository institutions' capital position); or


•	the redemption of Westbury Bancorp, Inc. stock.

The required Board Resolution was adopted by the Board at its October 2013 meeting.

On April 28, 2014, the Company received correspondence from the Federal Reserve Bank noting that it had no objection to the termination of the Board resolution which required the Company to receive prior written non-objection from the Federal Reserve Bank to declare or pay dividends, issue debt or redeem Company stock. Our Board terminated the resolution at its May 2014 meeting.

Regulatory Matters - OCC. On January 6, 2014, Westbury Bancorp, Inc. received notification from the Office of the Comptroller of the Currency (the “OCC”) that the Formal Written Agreement and Individual Minimum Capital Requirement ("IMCR") between the OCC and the Company’s wholly-owned subsidiary Westbury Bank had been terminated effective December 24, 2013.

The Bank had been subject to the Formal Written Agreement since October 29, 2012 and to a memorandum of understanding that the Formal Written Agreement superseded since February 2010. The Bank had been subject to the IMCR since November 5, 2012.

As a result of the termination of the Formal Written Agreement, the Bank is no longer designated as in “troubled condition” and is designated as an “eligible institution” with respect to expedited processing of applications that it might file. Accordingly, the Bank is no longer required to obtain the approval of the OCC prior to effecting changes in its directors or executive officers, and is no longer subject to restrictions on executive compensation.

In addition, the Bank is no longer subject to restrictions on the declaration or payment of dividends or other restrictions on its activities imposed by the Formal Written Agreement. The Bank also is no longer required to maintain compliance with or report changes to the business and capital plan it had submitted to its regulators, and is no longer subject to additional quarterly reporting requirements imposed by the Formal Written Agreement.

Comparison of Financial Condition at June 30, 2014 and September 30, 2013

Total Assets. Total assets increased by $13.2 million, or 2.4%, to $556.5 million at June 30, 2014 from $543.3 million at September 30, 2013. The increase in total assets was primarily the result of an increase in net loans of $38.0 million and real estate held for sale of $2.5 million, offset by a decrease in cash and cash equivalents of $18.8 million, securities available for sale of $5.5 million, office properties and equipment of $2.1 million and real estate held for investment of $2.4 million.

Net Loans. Net loans increased by $38.0 million, or 11.1%, to $380.8 million at June 30, 2014 from $342.8 million at September 30, 2013. Multifamily loans increased $24.6 million, commercial real estate loans increased $7.2 million, construction and land development loans increased by $5.4 million, and single family loans increased by $1.0 million during the nine months ended June 30, 2014.

The increase in net loans reflects our continuing efforts to grow the commercial real estate, multifamily and commercial loan portfolio by building commercial relationships.

Investment Securities. Investment securities available for sale decreased $5.5 million, or 5.2%, to $100.2 million at June 30, 2014 from $105.7 million at September 30, 2013. Management intends to prudently use a portion of the liquidity in the investment portfolio to fund future growth in the loan portfolio.

Mortgage-backed securities and collateralized mortgage obligations decreased $2.5 million, to $55.6 million at June 30, 2014 from $58.1 million at September 30, 2013 and municipal securities decreased $2.7 million, to $35.6 million at June 30, 2014 from $38.3 million at September 30, 2013. Net unrealized gain on securities improved by $1.5 million to $224,000 at June 30, 2014 from a net unrealized loss of $1.2 million at September 30, 2013, reflecting the effect of a decrease in market interest rates. At June 30, 2014, investment securities classified as available-for-sale consisted entirely of government-sponsored mortgage-backed securities, government-sponsored debentures, municipal securities and corporate securities.

Foreclosed Real Estate. Foreclosed real estate held for sale increased $1.3 million, or 77.8%, to $3.0 million at June 30, 2014 from $1.7 million at September 30, 2013, as we sold $1.0 million of foreclosed properties, foreclosed or obtained deeds on $2.6 million of non-performing loans and recorded valuation adjustments of $260,000 during the period. At June 30, 2014, our foreclosed real estate included primarily one- to four-family residential real estate, multi-family and commercial real estate properties.

Real Estate Held For Sale. Real estate held for sale increased by $2.5 million to $2.5 million at June 30, 2014 from $0 at September 30, 2013. In February 2014, we announced the closing of our Brown Deer and Richfield (leased facility) branch offices. The office building which housed the Brown Deer branch was designated as held for sale and transferred from real estate held for investment at its fair value of $810,000. The previous carrying value of the Brown Deer branch was $2.3 million. Additionally, we determined that due to changes in our mortgage lending business, we no longer needed our home loan center in West Bend. The West Bend office building was designated as held for sale in February 2014 and it was transferred from office properties and equipment to real estate held for sale at its fair value of $1.9 million. The West Bend office's previous carrying value was $2.4 million. The fair values of the two properties were reduced by an additional $252,000 to $2.5 million during the three months ending June 30, 2014 based on pending offers to purchase after exposure to the market.

Deposits. Deposits increased $8.0 million, or 1.8%, to $449.0 million at June 30, 2014 from $441.0 million at September 30, 2013. 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 $5.5 million, or 1.6%, to $356.8 million at June 30, 2014 from $351.3 million at September 30, 2013. Certificates of deposit increased $2.5 million, or 2.7%, to $92.2 million at June 30, 2014 from $89.7 million at September 30, 2013. The increase in certificates of deposit is attributed primarily to the addition of $11.2 million in longer term certificates through Internet-based rate listing services offset by decreases due to retail customers’ decisions not to renew certificates in the current prolonged low interest rate environment. The rates at which the certificates were obtained through the Internet-based rate listing services were no greater than those offered to retail customers in our branch offices.

Advances from FHLB. Advances increased by $10.5 million to $10.5 million at June 30, 2014 from $0 at September 30, 2013 in order to fund current loan growth.

Other Liabilities. Advance payments by borrowers for property taxes and insurance decreased by $1.8 million, or 30.8%, to $3.9 million at June 30, 2014 from $5.7 million at September 30, 2013 due to seasonal disbursements to customers in December to enable the payment of mortgagees’ property taxes.

Total Equity. Total equity decreased $1.9 million, or 2.1%, to $88.7 million at June 30, 2014 from $90.6 million at September 30, 2013. The decrease resulted primarily from our net loss of $1.7 million during the nine months ended June 30, 2014 and the repurchase of 105,035 shares of common stock for $1.6 million, offset by other comprehensive income of $896,000 and the release/allocation of ESOP shares of $433,000.

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, 2014:
Real estate loans:
One- to four-family	11	$	918	4	$	404	12	$	1,221	27	2,543
Multi-family	—	—		—	—		—	—		—	—
Commercial	2	138		—	—		2	196		4	334
Construction and land	—	—		—	—		1	6		1	6
Total real estate	13	1,056		4	404		15	1,423		32	2,883
Commercial business loans	—	—		—	—		2	22		2	22
Consumer loans:
Home equity lines of credit	1	74		—	—		3	149		4	223
Education	6	38		1	2		10	83		17	123
Other consumer loans	—	—		—	—		—	—		—	—
Total consumer loans	7	112		1	2		13	232		21	346
Total	20	$	1,168	5	$	406	30	$	1,677	55	$	3,251
At September 30, 2013:
Real estate loans:
One- to four-family	4	$	406	11	$	1,571	20	$	2,888	35	$	4,865
Multi-family	—	—		—	—		—	—		—	—
Commercial	—	—		4	5,485		2	1,069		6	6,554
Construction and land	—	—		—	—		1	192		1	192
Total real estate	4	406		15	7,056		23	4,149		42	11,611
Commercial business loans	2	27		—	—		—	—		2	27
Consumer loans:
Home equity lines of credit	5	116		4	90		7	266		16	472
Education	5	64		6	26		17	108		28	198
Other consumer loans	1	2		1	1		3	4		5	7
Total consumer loans	11	182		11	117		27	378		49	677
Total	17	$	615	26	$	7,173	50	$	4,527	93	$	12,315

The decrease in delinquent loans at June 30, 2014, compared to September 30, 2013, is primarily attributed to a decrease in commercial real estate delinquencies as a relationship of $5.3 million that was 60 days past due at September 30, 2013 paid in full in October 2013 and a $1.1 million loan secured by a recreation property was transferred to foreclosed real estate in addition to generally improved economic conditions.

Classified Assets

The following table details the Company’s assets graded Substandard or Special Mention as of the date indicated:



	At June 30, 2014		At September 30, 2013
	(In thousands)
Classified Loans:
Loss	—		—
Doubtful	—		—
Substandard — performing:
Real estate loans:
One- to four-family	$	1,050	$	623
Multi-family	2,735		173
Commercial	1,487		738
Construction and land	—		—
Total real estate loans	5,272		1,534
Commercial business loans	89		5
Consumer loans:
Home equity lines of credit	59		61
Other consumer loans	2		—
Total consumer loans	61		61
Total substandard — performing	5,422		1,600
Substandard — Nonperforming:
Real estate loans:
One- to four-family	1,369		3,903
Multi-family	—		2,638
Commercial	353		1,284
Construction and land	6		191
Total real estate loans	1,728		8,016
Commercial business loans	22		—
Consumer loans:
Home equity lines of credit	166		285
Other consumer loans	—		4
Total consumer loans	166		289
Total substandard — nonperforming	1,916		8,305
Total classified loans	7,338		9,905
Foreclosed real estate	3,004		1,690
Total classified assets	$	10,342	$	11,595
Special mention:
Real estate loans:
One- to four-family	$	119	$	121
Multi-family	448		—
Commercial	1,193		2,549
Construction and land	—		—
Total real estate loans	1,760		2,670
Commercial business loans	73		928
Consumer loans:
Home equity lines of credit	—		—
Other consumer loans	—		—
Total consumer loans	—		—
Total special mention	1,833		3,598
Total classified assets and special mention loans	$	12,175	$	15,193

_______________________

The decrease in classified assets of $1.3 million to $10.3 million at June 30, 2014, from $11.6 million at September 30, 2013, was primarily due to the repayment of classified loans. Substandard-nonperforming loans decreased by $6.4 million to $1.9 million at June 30, 2014 compared to $8.3 million at September 30, 2013 due to the reclassification of a multifamily loan relationship for $2.6 million to substandard-performing, as it had performed as agreed for a satisfactory period of time after restructuring, and also for a $1.1 million commercial real estate loan that was transferred to foreclosed real estate. The increase in substandard-performing loans of $3.8 million to $5.4 million at June 30, 2014 from $1.6 million at September 30, 2013 primarily stemmed in part from the reclassification of the $2.6 million multifamily loan relationship and from the downgrade of loans that are contractually current but are exhibiting signs of financial stress.

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, 2014			At September 30, 2013
	(Dollars in thousands)
Nonaccrual loans:
Real estate loans:
One- to four-family	$	1,369		$	4,207
Multi family	—			2,638
Commercial	353			1,283
Construction and land	6			192
Total real estate	1,728			8,320
Commercial business loans	22			—
Consumer loans:
Home equity lines of credit	166			285
Education	83			134
Other consumer loans	—			4
Total consumer loans	249			423
Total nonaccrual loans(1)	1,999			8,743
Loans greater than 90 days delinquent and still accruing:
Real estate loans:
One- to four-family	—			—
Multi-family	—			—
Commercial	—			—
Construction and land	—			—
Total real estate	—			—
Commercial business loans	—			—
Consumer loans:
Home equity lines of credit	—			—
Education	—			—
Other consumer loans	—			—
Total consumer loans	—			—
Total delinquent loans accruing	—			—
Total non-performing loans	1,999			8,743
Foreclosed assets:
One- to four-family	1,175			427
Multi-family	458			551
Commercial real estate	1,276			448
Construction and land	95			264
Total foreclosed assets	3,004			1,690
Total nonperforming assets	$	5,003		$	10,433
Performing troubled debt restructurings	$	3,535		$	3,166
Ratios:
Nonperforming loans to total loans	0.52		%	2.52		%
Nonperforming assets to total assets	0.90		%	1.92		%
Nonperforming assets and troubled debt restructurings to total assets	1.53		%	2.50		%

_______________________


(1)	Includes $365,000 and $5.4 million, respectively, of troubled debt restructurings that were on non-accrual status at June 30, 2014 and September 30, 2013. The decrease is primarily due to $2.6 million in loans that were returned to accrual status and $1.1 million that were transferred to foreclosed real estate.

The decrease in non-performing assets at June 30, 2014, from September 30, 2013, was primarily due to the return to accruing status of a $2.6 million multifamily loan relationship in addition to generally improved economic conditions.

Interest income that would have been recorded for the nine months ended June 30, 2014, had non-accruing loans been current according to their original terms, amounted to $138,000. Interest of approximately $10,000 related to these loans was included in interest income for the nine months ended June 30, 2014.

Other Loans of Concern. There were no other loans at June 30, 2014 that are not already disclosed where there is information about possible credit problems of borrowers that caused management to have serious doubts about the ability of the borrowers to comply with present loan repayment terms and that may result in disclosure of such loans in the future.

Comparison of Operating Results for the Three Months Ended June 30, 2014 and June 30, 2013

General. Net income for the three months ended June 30, 2014 was $69,000 compared to net loss of $446,000 for the three months ended June 30, 2013. The increase in net income of $515,000 was due primarily to decreases of $1.1 million in other expenses of which $1.0 million was related to the contribution to the Westbury Bank Charitable Foundation, $199,000 in net loss from operations and sale of foreclosed real estate, $176,000 in salaries and employee benefits and commissions, and $150,000 in provisions for loan losses, offset by decreases in gain on sale of loans of $365,000, insurance and securities sales commissions of $145,000, income tax benefit of $304,000, interest income from loans of $259,000, and an increase of $298,000 in valuation loss on real estate held for sale and branch realignment expense.

Interest and Dividend Income. Interest and dividend income decreased $132,000, or 2.8%, to $4.5 million for the three months ended June 30, 2014 from $4.6 million for the three months ended June 30, 2013. This decrease was primarily attributable to a $259,000 decrease in interest and fee income on loans receivable offset by a $127,000 increase in interest and dividend income on investment securities and interest-earning deposits. The average balance of loans increased $16.0 million to $363.2 million for the three months ended June 30, 2014 from $347.2 million for the three months ended June 30, 2013. The average yield on loans decreased by 50 basis points to 4.39% for the three months ended June 30, 2014 from 4.89% for the three months ended June 30, 2013. The average balance of investment securities increased by $23.0 million, or 29.4%, to $101.2 million for the three months ended June 30, 2014 from $78.2 million for the three months ended June 30, 2013, while the average yield on investment securities increased by 8 basis points to 1.91% for the three months ended June 30, 2014 from 1.83% for the three months ended June 30, 2013. The decrease in our average yield on loans reflects the growth in our loan portfolio at current market rates and the effects of downward pressure on loan pricing caused by the prolonged low interest rate environment.

Interest Expense. Total interest expense decreased $96,000, or 19.6%, to $394,000 for the three months ended June 30, 2014 from $490,000 for the three months ended June 30, 2013. Interest expense on deposit accounts decreased $95,000 to $393,000 for the three months ended June 30, 2014 from $488,000 for the three months ended June 30, 2013. The decrease was primarily due to a decrease of 6 basis points in the average cost of deposits to 0.35% for the three months ended June 30, 2014 from 0.41% for the three months ended June 30, 2013, reflecting the declining interest rate environment, and a decrease of $21.4 million, or 4.5% in the average balance of deposits to $449.4 million for the three months ended June 30, 2014 from $470.7 million for the three months ended June 30, 2013.

Net Interest Income. Net interest income decreased $36,000, or 0.9%, to $4.1 million for the three months ended June 30, 2014 from $4.1 million for the three months ended June 30, 2013. Average interest-earning assets increased by $11.7 million, or 2.5%, to $482.5 million for the three months ended June 30, 2014, from $470.8 million for the three months ended June 30, 2013. Average deposits and interest-bearing liabilities decreased by $19.7 million, or 4.2%, to $451.9 million for the three months ended June 30, 2014, from $471.7 million for the three months ended June 30, 2013. Our net interest margin decreased 11 basis points to 3.41% for the three months ended June 30, 2014 from 3.52% for the three months ended June 30, 2013. The decrease in our net interest margin reflects the growth in our loan portfolio at current market rates and the effects of downward pressure on loan pricing caused by the prolonged low interest rate environment. The prolonged low interest rate environment also has an adverse impact on our ability to further reduce rates on transaction accounts.

Provision for Loan Losses. We recorded a provision for loan losses of $0 for the three months ended June 30, 2014 compared to $150,000 for the three months ended June 30, 2013. The decrease in the provision corresponds with the decrease in nonperforming loans and net charge-offs compared to the prior year period. The allowance for loan losses was $4.0 million, or 1.0% of total loans, at June 30, 2014, compared to $4.3 million, or 1.2% of total loans, at September 30, 2013, and $4.6 million, or 1.3% of total loans, at June 30, 2013. Total nonperforming loans were $2.0 million at June 30, 2014, compared to $8.7 million at September 30, 2013, and $9.8 million at June 30, 2013. As a percentage of nonperforming loans, the allowance

for loan losses was 202.1% at June 30, 2014, compared to 48.8% at September 30, 2013, and 58.8% at June 30, 2013. Total classified loans were $7.3 million at June 30, 2014, compared to $9.9 million at June 30, 2014, and $13.4 million at June 30, 2013.

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, 2014, September 30, 2013, and June 30, 2013.

Non-Interest Income. Non-interest income decreased $526,000, or 25.8%, to $1.5 million for the three months ended June 30, 2014 from $2.0 million for the three months ended June 30, 2013. The decrease was primarily related to a decrease in gain on sales of loans of $365,000, a decrease in insurance and securities sales commissions of $145,000 and a decrease in servicing fee income of $59,000 offset by an increase in service fees on deposit accounts of $43,000 and a gain on the sale of securities of $18,000. The decrease in gain on sales of loans resulted from significantly reduced demand for fixed rate mortgages during the quarter compared to the prior year as long term interest rates moved up in the interim period. The decrease in insurance and securities sales commissions resulted from the Bank's restructuring of this business line to improve profits. The decrease in servicing fee income resulted from the partial recovery, in the prior year period, of valuation reserves on our mortgage servicing asset as a result of an increase in the expected life of our serviced loan portfolio due to an increase in market interest rates. The increases in service fees on deposit accounts resulted from an increase in debit card interchange income and overdraft fees on checking accounts.

Non-Interest Expense. Non-interest expense decreased $1.2 million, or 18.1%, to $5.6 million for the three months ended June 30, 2014, from $6.8 million for the three months ended June 30, 2013. The decrease was primarily caused by a decrease in other expense of $1.1 million of which $1.0 million was related to the contribution to the Westbury Bank Charitable Foundation, $199,000 in net loss from operation and sale of foreclosed real estate and $176,000 in compensation expense. These reductions were offset by a charge of $252,000 to reduce the carrying value of real estate held for sale to fair value and $46,000 for branch realignment (including write-off of undepreciated leasehold improvements). The decrease in net loss from operation and sale of foreclosed real estate resulted from lower levels of foreclosed real estate, on average during the period, being managed compared to the prior period. The decrease in compensation expense resulted from the closure of two branch offices in May 2014 and a decrease in commissions related to reduced income from insurance and securities sales as we restructure that business line to improve its contribution to profits. The charges to real estate held for sale resulted from additional fair value adjustments based on pending offers to purchase after exposure to the market. Branch realignment related to an office closed upon expiration of our lease on the facility.

Provision for Income Taxes. Income tax benefit was $36,000 for the three months ended June 30, 2014, compared to benefit of $340,000 for the three months ended June 30, 2013. The effective tax rate as a percent of pre-tax income was (109.1)% and 43.3% for the three months ended June 30, 2014 and 2013, respectively. The effective tax rate increased for the three months ended June 30, 2014 because the Company's tax exempt income increases the effective rate when the Company reports minimal pretax income.

Comparison of Operating Results for the Nine Months Ended June 30, 2014 and June 30, 2013

General. Net loss for the nine months ended June 30, 2014 was $1.7 million compared to net income of $721,000 for the nine months ended June 30, 2013. The decrease in net income of $2.4 million was primarily due to a decrease in noninterest income of $2.7 million and net interest income of $414,000 and a charge of $2.2 million to reduce the carrying value of real estate held for sale to fair value, $619,000 for branch realignment (including severance pay accruals and writeoff of undepreciated leasehold improvements), and an increase in compensation expense of $234,000, offset by a decrease in provisions for loan losses of $1.0 million, other expenses of $1.0 million which relates to the contribution to the Westbury Bank Charitable Foundation and income tax expense of $1.5 million.

Interest and Dividend Income. Interest and dividend income decreased $866,000, or 6.0%, to $13.5 million for the nine months ended June 30, 2014 from $14.4 million for the nine months ended June 30, 2013. This decrease was primarily attributable to a $1.4 million decrease in interest and fee income on loans receivable offset by a $526,000 increase in interest and dividend income on investment securities. The average balance of loans decreased $7.5 million, or 2.1%, to $353.2 million for the nine months ended June 30, 2014 from $360.6 million for the nine months ended June 30, 2013. The average yield on loans decreased by 42 basis points to 4.50% for the nine months ended June 30, 2014 from 4.92% for the nine months ended June 30, 2013. The average balance of investment securities increased $37.4 million, or 57.5%, to $102.4 million for the nine months ended June 30, 2014 from $65.0 million for the nine months ended June 30, 2013, while the average yield on investment securities decreased by 9 basis points to 1.94% for the nine months ended June 30, 2014 from 2.03% for the nine months ended June 30, 2013. The decrease in yields on loans and securities reflect the effects of the prolonged low interest rate environment as loans and securities are originated or repriced at lower rates. The increase in average investment balances

resulted from the proceeds from our conversion to stock completed in April 2013. We have worked to prudently increase our loan portfolio and decrease the investment portfolio and cash and cash equivalents during this year. See "--Comparison of Financial Condition at June 30, 2014 and September 30, 2013" above for detailed discussion.

Interest Expense. Total interest expense decreased $452,000, or 27.1%, to $1.2 million for the nine months ended June 30, 2014 from $1.7 million for the nine months ended June 30, 2013. Interest expense on deposit accounts decreased $408,000 to $1.2 million for the nine months ended June 30, 2014 from $1.6 million for the nine months ended June 30, 2013. The decrease was primarily due to a decrease of 10 basis points in the average cost of deposits to 0.36% for the nine months ended June 30, 2014 from 0.46% for the nine months ended June 30, 2013, reflecting the declining interest rate environment, and a decrease of $23.4 million, or 5.0%, in the average balance of deposits to $446.6 million for the nine months ended June 30, 2014 from $470.0 million for the nine months ended June 30, 2013.

Net Interest Income. Net interest income decreased $414,000, or 3.3%, to $12.3 million for the nine months ended June 30, 2014 from $12.7 million for the nine months ended June 30, 2013. Average interest-earning assets increased by $25.0 million, or 5.5%, to $476.0 million for the nine months ended June 30, 2014, from $451.0 million for the nine months ended June 30, 2013. Average deposits and interest-bearing liabilities decreased by $22.2 million, or 4.7%, to $449.0 million for the nine months ended June 30, 2014, from $471.2 million for the nine months ended June 30, 2013. Our net interest margin decreased 31 basis points to 3.44% for the nine months ended June 30, 2014 from 3.75% for the nine months ended June 30, 2013. The decrease in our net interest margin reflects the effects of downward pressure on loan pricing caused by the prolonged low interest rate environment and its adverse impact on our ability to further reduce rates on transaction accounts. The change in asset mix with growth in the investment portfolio also negatively impacted the margin as investment securities generally do not carry yields as high as those on loan products.

Provision for Loan Losses. We recorded a provision for loan losses of $350,000 for the nine months ended June 30, 2014 compared to $1.3 million for the nine months ended June 30, 2013. For additional information regarding our provision for loan losses and certain ratios at June 30, 2014, September 30, 2013 and June 30, 2013, see "--Comparison of Operating Results for the Three Months Ended June 30, 2014 and June 30, 2013--Provision for Loan Losses" above.

Non-Interest Income. Non-interest income decreased $2.7 million, or 36.4%, to $4.7 million for the nine months ended June 30, 2014 from $7.4 million for the nine months ended June 30, 2013. The decrease was primarily related to a decrease in gain on sales of loans of $1.8 million, a decrease in the gain on sales of securities of $190,000, a decrease in other income of $375,000 and a decrease in insurance and securities sales commissions of $388,000 for the nine months ended June 30, 2014, from the nine months ended June 30, 2013. These decreases were offset by an increase in servicing fee income of $179,000 for the nine months ended June 30, 2014, from the nine months ended June 30, 2013. The decrease in gain on sales of loans resulted from significantly reduced demand for fixed rate mortgages during the period. The decrease in the gain on sales of securities resulted as we curtailed our program of managing the balance sheet to maintain capital ratios as our conversion to stock was completed in the 2013 fiscal year. The decrease in insurance and securities sales commissions resulted from the Bank's restructuring of its business line to improve profits. The decrease in other income resulted from a reduction in loan application fees for the period. The increase in servicing fee income resulted from the partial recovery of valuation reserves on our mortgage servicing asset as a result of an increase in the expected life of our serviced loan portfolio due to the increase in market interest rates.

Non-Interest Expense. Non-interest expense increased $1.7 million, or 9.6%, to $19.5 million for the nine months ended June 30, 2014, from $17.8 million for the nine months ended June 30, 2013. The increase was primarily caused by a charge of $2.2 million to reduce the carrying value of real estate held for sale to fair value, $619,000 for branch realignment (including severance pay accruals and writeoff of undepreciated leasehold improvements) and an increase of $234,000 in salaries, employment benefits, and commissions expense. The charges to real estate held for sale and for branch realignment relate to our decision to close two underperforming branch offices and to sell our West Bend home loan center due to changes in our mortgage lending business. The increase in compensation expense resulted primarily from the one-time reversal of a deferred compensation accrual of $350,000 which increased salaries, employment benefits, and commissions expense during the nine months ended June 30, 2013.

Provision for Income Taxes. Income tax benefit was $1.3 million for the nine months ended June 30, 2014, compared to expense of $229,000 for the nine months ended June 30, 2013. The effective tax rate as a percent of pre-tax income was 43.0% and 24.1% for the nine months ended June 30, 2014 and 2013, respectively. The effective tax rate increased for the six months ended June 30, 2014 because tax exempt income increases the effective rate when the Company reports a pretax loss.

Analysis of Net Interest Income

Net interest income represents the difference between the income we earn on interest-earning assets and the interest expense we pay on interest-bearing liabilities. Net interest income also depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them. The following tables set forth average balance sheets, average yields and costs, and certain other information at or for the periods indicated. Average balances are derived from daily average balances for all periods. Non-accrual loans were included in the computation of average balances, but have been reflected in the tables as loans carrying a zero yield. No tax equivalent yield adjustments have been made. The yields set forth below include the effect of loan fees, discounts and premiums that are amortized or accreted to interest income.



	For the Three Months Ended June 30,
	2014						2013
	Average Outstanding Balance		Interest		Yield/Cost		Average Outstanding Balance			Interest		Yield/Cost

Assets:
Loans	$	363,243	$	3,988	4.39	%	$	347,238		$	4,247	4.89	%
Securities	101,169		484		1.91		78,184			357		1.83
Fed funds sold and other interest-earning deposits	18,134		30		0.66		45,416			30		0.26
Total interest-earning assets	482,546		4,502		3.73	%	470,838			4,634		3.94	%
Noninterest-earning assets	66,637						110,168
Total assets	$	549,183					$	581,006

Liabilities and stockholders' equity:
Noninterest-bearing demand deposits	$	20,703	—		—	%	$	19,652		$	—	—	%

Checking accounts	191,007		109		0.23		236,677			$	129	0.22
Passbook and statement savings	123,195		42		0.14		93,642			54		0.23
Variable rate money market	23,625		9		0.15		25,624			10		0.16
Certificates of deposit	90,844		233		1.03		95,129			295		1.24
Total interest bearing deposits	428,671		393		0.37		451,072			488		0.43
Total deposits	449,374		393		0.35		470,724			488		0.41

FHLB advances	2,571		1		0.16		—			—		—
Notes payable	—		—		—		969			2		0.83
Total deposits and interest-bearing liabilities	451,945		394		0.35	%	471,693			490		0.42	%

Other liabilities	6,990						18,430
Total liabilities	458,935						490,123
Stockholders' equity	90,248						90,883
Total liabilities and stockholders' equity	$	549,183					$	581,006

Net interest income			$	4,108						$	4,144
Net interest rate spread					3.38	%						3.52	%
Net interest-earning assets	$	30,601					$	(855	)
Net interest margin					3.41	%						3.52	%
Average of interest-earning assets to interest-bearing liabilities					106.77	%						99.82	%



	For the Nine Months Ended June 30,
	2014						2013
	Average Outstanding Balance		Interest		Yield/Cost		Average Outstanding Balance			Interest		Yield/Cost

Assets:
Loans	$	353,185	$	11,915	4.50	%	$	360,646		$	13,307	4.92	%
Securities	102,420		1,489		1.94		65,044			991		2.03
Fed funds sold and other interest-earning deposits	20,371		96		0.63		25,272			68		0.36
Total interest-earning assets	475,976		13,500		3.78	%	450,962			14,366		4.25	%
Noninterest-earning assets	71,208						94,270
Total assets	$	547,184					$	545,232

Liabilities and stockholders' equity:
Noninterest-bearing demand deposits	$	20,321	—		—	%	$	20,521		$	—	—	%

Checking accounts	191,669		329		0.23		233,008			$	412	0.24
Passbook and statement savings	120,435		129		0.14		95,512			181		0.25
Variable rate money market	25,040		32		0.17		20,499			39		0.25
Certificates of deposit	89,164		725		1.08		100,492			991		1.31
Total interest bearing deposits	426,308		1,215		0.38		449,511			1,623		0.48
Total deposits	446,629		1,215		0.36		470,032			1,623		0.46

FHLB advances	2,325		2		0.11		—			—		—
Notes payable	—		—		—		1,159			46		5.29
Total deposits and interest-bearing liabilities	448,954		1,217		0.36	%	471,191			1,669		0.47	%

Other liabilities	7,442						12,746
Total liabilities	456,396						483,937
Stockholders' equity	90,788						61,295
Total liabilities and stockholders' equity	$	547,184					$	545,232

Net interest income			$	12,283						$	12,697
Net interest rate spread					3.42	%						3.78	%
Net interest-earning assets	$	27,022					$	(20,229	)
Net interest margin					3.44	%						3.75	%
Average of interest-earning assets to interest-bearing liabilities					106.02	%						95.71	%

Liquidity and Capital Resources

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

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by (used in) operating activities was $(0.9) million and $6.9 million for the nine months ended June 30, 2014 and June 30, 2013, respectively. Net cash provided by (used in) investing activities, which consists primarily of disbursements for loan originations and the purchase of securities, offset by principal collections on loans, proceeds from the sale of securities and proceeds from maturing securities and pay downs on mortgage-backed

securities, was $(34.8) million and $3.0 million for the nine months ended June 30, 2014 and June 30, 2013, respectively. During the nine months ended June 30, 2014, we purchased $17.7 million and sold $16.1 million in securities held as available-for-sale, and during the nine months ended June 30, 2013, we purchased $57.3 million and sold $11.6 million in securities held as available-for-sale. Net cash provided by financing activities was $16.9 million and $24.9 million for the nine months ended June 30, 2014 and June 30, 2013, respectively and consisted of increases (decreases) in deposit accounts and the proceeds from issuance of stock in April 2013.

At June 30, 2014, Westbury Bank exceeded all of its regulatory capital requirements with Tier 1 leverage capital of $60.7 million, or 11.38% of adjusted total assets, which is above the required level of $21.3 million, or 4.00%; and total risk-based capital of $64.7 million, or 17.20% of risk-weighted assets, which is above the required level of $30.1 million, or 8.00%. Accordingly, Westbury Bank was categorized as well capitalized at June 30, 2014.

At June 30, 2014, we had outstanding commitments to originate loans of $1.1 million, unused commercial and home equity lines of credit of $58.8 million and stand-by letters of credit of $314,000. We anticipate that we will have sufficient funds available to meet our current loan origination commitments. Certificates of deposit that are scheduled to mature in less than one year from June 30, 2014 totaled $44.7 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 Federal Home Loan Bank advances or the proceeds from our recent stock offering or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

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

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

Impact of Inflation and Changing Prices

The financial statements and related data presented herein have been prepared in accordance with U.S. Generally Accepted Accounting Principles which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Disclosures of quantitative and qualitative market risk are not required by smaller reporting companies, such as the Company.

ITEM 4. CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of June 30, 2014. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

During the quarter ended June 30, 2014, there have been no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934, amended) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS

On December 3, 2012, a civil suit was filed in the United States District Court for the Eastern District of Wisconsin, Civil Action Number 12-CV-1210, by First American Title Insurance Company against Westbury Bank. The plaintiffs seek actual damages of $3.6 million and additional treble or such punitive or other damages as determined by the court, as well as plaintiffs’ fees, costs and expenses. The suit alleges that Westbury Bank should have been aware of the misappropriation of funds deposited into an escrow account maintained by a commercial customer of Westbury Bank, New Horizon Title, LLC. The suit also alleges that Westbury Bank improperly deducted overdraft fees from the escrow account, that Westbury Bank aided and abetted its customer in the misappropriation of escrowed funds and in its customer’s breach of fiduciary duty to plaintiffs and lenders to whom the escrowed funds belonged, that Westbury Bank’s conduct amounted to commercial bad faith under state commercial law and that Westbury Bank was unjustly enriched as a result of its actions.

Westbury Bank believes that the lawsuit is without merit and intends to defend itself vigorously. Based on the information available to Westbury Bank’s litigation counsel at this time, they believe that the claims in this case are legally and factually without merit. Counsel is unable to give an opinion as to the likely outcome. Other than the foregoing, we are not involved in any pending legal proceedings as a plaintiff or defendant other than routine legal proceedings occurring in the ordinary course of business, and at June 30, 2014, we were not involved in any legal proceedings, the outcome of which would be material to our financial condition or results of operations.

ITEM 1A. RISK FACTORS

Disclosures of risk factors are not required by smaller reporting companies, such as the Company.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


(a)	Unregistered Sales of Equity Securities. None.


(b)	Use of Proceeds. None.


(c)	Repurchase of Equity Securities.

The table below sets forth Westbury Bancorp's common stock repurchases during the three months ended June 30, 2014.



Period	(a) Total number of shares (or units) purchased	(b) Average price paid per share (or unit)		(c) Total number of shares (or units) purchased as part of publicly announced plans or programs	(d) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs
April 1 - April 30, 2014	—	$	—	—	—
May 1 - May 31, 2014	4,400	14.24		4,400	245,600
June 1 - June 30, 2014	100,635	15.09		100,635	144,965
Total	105,035	$	15.05	105,035

On May 12, 2014, the Company announced that its Board of Directors had authorized the repurchase of up to 250,000 shares of the Company's common stock, representing 4.9% of the Company's outstanding shares. The shares may be purchased in the open market or in privately negotiated transactions from time to time depending on market conditions and other factors. As of June 30, 2014, 105,035 shares had been purchased.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The exhibits required by Item 601 of Regulation S-K are included with this Form 10-Q and are listed on the “Index to Exhibits” immediately following the Signatures.

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: August 6, 2014

/s/ Raymond F. Lipman

Raymond F. Lipman

President and Chief Executive Officer

/s/ Kirk J. Emerich

Kirk J. Emerich

Senior Vice President and Chief Financial Officer

INDEX TO EXHIBITS



Exhibit Number		Description
3.1		Articles of Incorporation of Westbury Bancorp, Inc.*
3.2		Bylaws of Westbury Bancorp, Inc.*
31.1		Certification of Raymond F. Lipman, President and Chief Executive Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a)
31.2		Certification of Kirk J. Emerich, Senior Vice President and Chief Financial Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a)
32		Certification of Raymond F. Lipman, President and Chief Executive Officer, and Kirk J. Emerich, Senior Vice President and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Comprehensive Income (Loss); (iv) Consolidated Statements of Changes in Stockholders' Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to The Unaudited Consolidated Financial Statements**

_______________________________________


*	Incorporated herein by reference to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-184594).

Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

Attached files

Westbury Bancorp, Inc. Reports

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