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EX-32 - EXHIBIT 32 - Westbury Bancorp, Inc.wbb-20151231x10qexx32.htm
EX-31.1 - EXHIBIT 31.1 - Westbury Bancorp, Inc.wbb-20151231x10qexx311.htm
EX-31.2 - EXHIBIT 31.2 - Westbury Bancorp, Inc.wbb-20151231x10qexx312.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 December 31, 2015
Or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For transition period from              to             
 
Commission File Number 001-35871
 
Westbury Bancorp, Inc.
(Exact Name of Registrant as Specified in Charter)
____________________________________________
Maryland
 
46-1834307
(State or Other Jurisdiction
of Incorporation)
 
(I.R.S. Employer
Identification Number)
 
 
 
200 South Main Street, West Bend, Wisconsin
 
53095
(Address of Principal Executive Officers)
 
(Zip Code)
 
(262) 334-5563
Registrant’s telephone number, including area code
 
Not Applicable
(Former name or former address, if changed since last report)
____________________________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  o.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x  No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
¨
 
Accelerated filer
¨
 
 
 
 
 
Non-accelerated filer
¨
 
Smaller reporting company
x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o  No  x
Indicate the number of shares outstanding of each of the Issuer’s classes of common stock as of the latest practicable date.
There were 4,229,061 shares of Common Stock, par value $.01 per share, outstanding as of January 28, 2016.



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




PART I
 
ITEM 1.                                           FINANCIAL STATEMENTS

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

 
December 31,
2015
 
September 30,
2015
 
(Unaudited)
 
 
Assets
 

 
 

Cash and due from banks
$
23,087

 
$
9,963

Interest-earning deposits
16,973

 
6,525

Cash and cash equivalents
40,060

 
16,488

Securities available-for-sale
84,237

 
80,286

Securities held to maturity, at amortized cost ($2,489 and $2,490 fair value at December 31 and September 30, respectively)
2,459

 
2,459

Loans held for sale, at lower of cost or fair value
973

 
431

Loans, net of allowance for loan losses of $4,747 and $4,598 at December 31 and September 30, respectively
496,545

 
493,425

Federal Home Loan Bank stock, at cost
3,350

 
3,350

Foreclosed real estate
168

 
283

Real estate held for investment
2,025

 
2,047

Real estate held for sale
808

 
882

Office properties and equipment, net
13,732

 
13,867

Cash surrender value of bank-owned life insurance
13,913

 
13,167

Mortgage servicing rights
1,136

 
1,210

Deferred tax asset
7,291

 
7,546

Other assets
3,880

 
3,488

Total assets
$
670,577

 
$
638,929

Liabilities and Stockholders’ Equity
 

 
 

Liabilities
 

 
 

Deposits
$
556,144

 
$
531,020

Short-term advances from Federal Home Loan Bank
20,500

 
18,000

Long-term advances from Federal Home Loan Bank
10,000

 

Advance payments by borrowers for property taxes and insurance
146

 
5,382

Other liabilities
4,669

 
5,715

Total liabilities
591,459

 
560,117

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; 5,346,412 and 5,341,114 shares issued at December 31, 2015 and September 30, 2015, respectively
53

 
53

Additional paid-in capital
50,457

 
50,145

Retained earnings
49,753

 
48,714

Unearned Employee Stock Ownership Plan (ESOP) shares
(3,497
)
 
(3,548
)
Accumulated other comprehensive gain (loss)
(238
)
 
352

Less common stock repurchased, 1,040,103 shares at cost, at December 31, 2015 and 1,012,109 at September 30, 2015
(17,410
)
 
(16,904
)
Total stockholders’ equity
79,118

 
78,812

Total liabilities and stockholders’ equity
$
670,577

 
$
638,929

 
See Notes to Unaudited Consolidated Financial Statements.

2


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

 
 

Loans
$
5,117

 
$
4,459

Investments - nontaxable
15

 
17

Investments - taxable
437

 
392

Interest bearing deposits
26

 
12

Total interest and dividend income
5,595

 
4,880

Interest expense:
 

 
 

Deposits
558

 
425

Short-term advances from the Federal Home Loan Bank
8

 
4

Long-term advances from the Federal Home Loan Bank
24

 

Total interest expense
590

 
429

Net interest income before provision for loan losses
5,005

 
4,451

Provision for loan losses
150

 
350

Net interest income after provision for loan losses
4,855

 
4,101

Noninterest income:
 

 
 

Service fees on deposit accounts
1,078

 
1,156

Gain on sales of loans, net
101

 
69

Servicing fee income, net of amortization and impairment
37

 
37

Insurance and securities sales commissions
73

 
58

Gain on sales of securities
2

 
70

Gain on sales of branches and other assets

 
18

Increase in cash surrender value of life insurance
110

 
102

Rental income from real estate operations
113

 
128

Other income
91

 
36

Total noninterest income
1,605

 
1,674

Noninterest expenses:
 

 
 

Salaries and employee benefits
2,316

 
2,381

Commissions
48

 
55

Occupancy
298

 
313

Furniture and equipment
121

 
103

Data processing
747

 
781

Advertising
41

 
60

Real estate held for investment
98

 
103

Net loss from operations and sale of foreclosed real estate
13

 
148

FDIC insurance premiums
104

 
105

Valuation loss on real estate held for sale
47

 

Other expenses
952

 
1,056

Total noninterest expenses
4,785

 
5,105

Income before income tax expense
1,675

 
670

Income tax expense
636

 
223

Net income
$
1,039

 
$
447

Earnings per share:
 

 
 

Basic
$
0.27

 
$
0.10

Diluted
$
0.27

 
$
0.10

See Notes to Unaudited Consolidated Financial Statements.

3


Westbury Bancorp, Inc. and Subsidiary
 
Consolidated Statements of Comprehensive Income
Three Months Ended December 31, 2015 and 2014
(Unaudited)
(In Thousands)
 
 
Three Months Ended 
 December 31,
 
2015
 
2014
Net income
$
1,039

 
$
447

Other comprehensive income, before tax:
 

 
 

Unrealized gains (losses) on available-for-sale securities
(969
)
 
255

Reclassification adjustment for realized gains included in net income
(2
)
 
(70
)
Other comprehensive income (loss), before tax
(971
)
 
185

Income tax expense (benefit) related to items of other comprehensive income
381

 
(73
)
Other comprehensive income (loss), net of tax
(590
)
 
112

Comprehensive income
$
449

 
$
559

 
See Notes to Unaudited Consolidated Financial Statements.


4


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

 
$
53

 
$
50,145

 
$
48,714

 
$
(3,548
)
 
$
352

 
$
(16,904
)
 
$
78,812

Net income

 

 

 
1,039

 

 

 

 
1,039

Other comprehensive loss, net of tax

 

 

 

 

 
(590
)
 

 
(590
)
Repurchase of 27,994 shares of common stock

 

 

 

 

 

 
(506
)
 
(506
)
Exercise of 4,298 stock options

 

 
64

 

 

 

 

 
64

Stock based compensation expense

 

 
208

 

 

 

 

 
208

Allocation, or commitment to be allocated, of 5,142 shares by ESOP

 

 
40

 

 
51

 

 

 
91

Balance, December 31, 2015
$

 
$
53

 
$
50,457

 
$
49,753

 
$
(3,497
)
 
$
(238
)
 
$
(17,410
)
 
$
79,118

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, September 30, 2014
$

 
$
53

 
$
49,164

 
$
45,190

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

Net income

 

 

 
447

 

 

 

 
447

Other comprehensive income, net of tax

 

 

 

 

 
112

 

 
112

Repurchase of 55,061 shares of common stock

 

 

 

 

 

 
(833
)
 
(833
)
Stock based compensation expense

 

 
201

 

 

 

 

 
201

Allocation,or commitment to be allocated, of 5,142 shares by ESOP

 

 
61

 

 
51

 

 

 
112

Balance, December 31, 2014
$

 
$
53

 
$
49,426

 
$
45,637

 
$
(3,703
)
 
$
66

 
$
(4,953
)
 
$
86,526

 
See Notes to Unaudited Consolidated Financial Statements.


5



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

 
 

Net income
$
1,039

 
$
447

Adjustments to reconcile net income to net cash used in operating activities:
 

 
 

Provision for loan losses
150

 
350

Depreciation and amortization
192

 
145

            Depreciation on real estate held for investment
22

 
33

Net amortization of securities premiums and discounts
120

 
149

Amortization and impairment of mortgage servicing rights
74

 
96

Gain on sales of available-for-sale securities
(2
)
 
(70
)
Gain on sales of branches and other assets

 
(18
)
Write-down of real estate held-for-sale
47

 

(Gain) loss on sale of foreclosed real estate
(20
)
 
79

Write-down of foreclosed real estate
26

 
57

Loans originated for sale
(8,957
)
 
(6,819
)
Proceeds from sale of loans
8,516

 
5,132

Gain on sale of loans, net
(101
)
 
(69
)
ESOP compensation expense
91

 
112

Stock based compensation expense
208

 
201

Deferred income taxes
636

 
224

Increase in cash surrender value of life insurance
(110
)
 
(102
)
Net change in:
 

 
 

Other assets
(391
)
 
(243
)
Other liabilities and advance payments by borrowers for property taxes and insurance
(6,282
)
 
(5,880
)
Net cash used in operating activities
(4,742
)
 
(6,176
)
Cash Flows From Investing Activities
 

 
 

Purchases of securities available-for-sale
(12,375
)
 
(8,189
)
Proceeds from sales of securities available-for-sale
5,219

 
12,084

Proceeds from maturities, prepayments, and calls of securities available-for-sale
2,116

 
3,376

Purchases of securities held to maturity

 
(3,025
)
Net increase in loans
(3,270
)
 
(21,967
)
Purchase of bank owned life insurance
(637
)
 

Purchases of office properties and equipment
(57
)
 
(368
)
Proceeds from sales of real estate held-for-sale
27

 

Proceeds from sales of foreclosed real estate
109

 
205

Net cash used in investing activities
(8,868
)
 
(17,884
)
Cash Flows From Financing Activities
 

 
 

Net increase in deposits
25,124

 
17,760

Proceeds from long-term Federal Home Loan Bank advances
10,000

 

Increase in short-term Federal Home Loan Bank advances
2,500

 
14,000

Proceeds from exercise of stock options
64

 

Repurchase of common stock
(506
)
 
(833
)
Net cash provided by financing activities
37,182

 
30,927

Net increase in cash and cash equivalents
23,572

 
6,867

Cash and cash equivalents at beginning
16,488

 
17,608

Cash and cash equivalents at end
$
40,060

 
$
24,475

Supplemental Disclosures of Cash Flow Information
 

 
 

Interest paid (including amounts credited to deposits)
$
589

 
$
428

Supplemental Schedules of Non-cash Investing Activities
 

 
 

Loans receivable transferred to foreclosed real estate
$

 
$
319

 
See Notes to Unaudited Consolidated Financial Statements.

6


Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data)



Note 1.                                 Basis of Presentation

 The accompanying unaudited consolidated financial statements of Westbury Bancorp, Inc. and its wholly-owned subsidiary, Westbury Bank, (the "Bank", and collectively, the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X.  Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Estimates used in the preparation of the financial statements are based on various factors including the current interest rate environment and the general strength of the local economy.  Changes in the overall interest rate environment can significantly affect the Company’s net interest income and the value of its recorded assets and liabilities.  Actual results could differ from those estimates used in the preparation of the financial statements.  Certain prior period amounts have been reclassified to conform to current period presentation.  These reclassifications did not result in any changes to previously reported net income or stockholders’ equity.
 
In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the Company’s financial condition as of December 31, 2015 and September 30, 2015 and the results of operations and cash flows for the interim periods ended December 31, 2015 and 2014.  All interim amounts are unaudited, and the results of operations for the interim periods herein are not necessarily indicative of the results of operations to be expected for the year.  These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended September 30, 2015 filed with the U.S. Securities and Exchange Commission as part of Westbury Bancorp, Inc.’s Annual Report on Form 10-K for the year ended September 30, 2015.
 
The Jumpstart Our Business Startups Act (the JOBS Act), which was signed into law on April 5, 2012, has made numerous changes to the federal securities laws to facilitate access to capital markets. Under the JOBS Act, a company with total annual gross revenues of less than $1.0 billion during its most recently completed fiscal year qualifies as an “emerging growth company.” The Company qualifies as an “emerging growth company” and believes that it will continue to qualify as an “emerging growth company” until five years from the completion of the Company's initial public stock offering in April 2013.

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

Note 2.                                 Recent Accounting Developments
 
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 is intended to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP. ASU 2014-09 is effective for annual reporting periods and interim periods within those annual periods beginning after December 15, 2019. Adoption by the Company is not expected to have a material impact on the consolidated financial statements and related disclosures.

In 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.


7


Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data)


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

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


Note 3.                                 Earnings Per Share
 
Earnings per common share is computed using the two-class method. Basic earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding, adjusted for weighted average unallocated ESOP shares, during the applicable period, excluding outstanding participating securities. Participating securities include non-vested restricted stock awards to the extent holders of these securities receive non-forfeitable dividends or dividend equivalents at the same rate as holders of the Company's common stock. Diluted earnings per share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of stock compensation using the treasury stock method.
 
The following table presents a reconciliation of the number of shares used in the calculation of basic and diluted earnings per common share (in thousands, except share and per share data).
 
 
Three Months Ended
December 31,
 
2015
 
2014
Net income
$
1,039

 
$
447

Basic potential common shares:
 

 
 
Weighted average shares outstanding
4,166,780

 
4,833,308

Weighted average unallocated ESOP shares
(353,122
)
 
(373,692
)
Basic weighted average shares outstanding
3,813,658

 
4,459,616

Dilutive effect of equity awards
30,274

 
15,975

Diluted weighted average shares outstanding
3,843,932

 
4,475,591

Basic income per share
$
0.27

 
$
0.10

Diluted income per share
$
0.27

 
$
0.10



8


Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data)




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

 
$
1

 
$

 
$
25

U.S. Government agency residential mortgage-backed securities
39,027

 
264

 
(316
)
 
38,975

U.S. Government agency collateralized mortgage obligations
1,857

 
6

 
(48
)
 
1,815

U.S. Government agency commercial mortgage-backed securities
16,126

 
3

 
(184
)
 
15,945

Municipal securities
23,709

 
80

 
(157
)
 
23,632

Corporate securities
3,885

 
4

 
(44
)
 
3,845

Total Available for Sale
84,628

 
358

 
(749
)
 
84,237

Held to Maturity
 
 
 
 
 
 
 
Municipal securities
2,459

 
30

 

 
2,489

Total Investment Securities
$
87,087

 
$
388


$
(749
)

$
86,726

 
 
 
 
 
 
 
 
 
September 30, 2015
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Available for Sale
 
 
 
 
 
 
 
U.S. Government and agency securities
$
24

 
$
1

 
$

 
$
25

U.S. Government agency residential mortgage-backed securities
39,380

 
456

 
(144
)
 
39,692

U.S. Government agency collateralized mortgage obligations
1,963

 
18

 
(40
)
 
1,941

U.S. Government agency commercial mortgage-backed securities
13,993

 
121

 
(15
)
 
14,099

Municipal securities
21,494

 
222

 
(49
)
 
21,667

Corporate securities
2,852

 
12

 
(2
)
 
2,862

Total Available for Sale
79,706

 
830

 
(250
)
 
80,286

Held to Maturity
 
 
 
 
 
 
 
Municipal securities
2,459

 
31

 

 
2,490

Total Investment Securities
$
82,165

 
$
861

 
$
(250
)
 
$
82,776



9


Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data)



The amortized cost and fair value of investment securities, by contractual maturity at December 31, 2015 are shown in the following table.  Actual maturities differ from contractual maturities for mortgage-backed securities because the mortgages underlying the securities may be called or repaid without penalty.  Therefore, these securities are not presented in the maturity categories in the table below.
 
 
December 31, 2015
 
Amortized Cost
 
Fair Value
Available for sale:
 
 
 
Due in one year or less
$
2,218

 
$
2,222

Due after one year through five years
10,194

 
10,225

Due after five years through ten years
14,699

 
14,555

Due after ten years
507

 
500

U.S. Government agency collateralized mortgage obligations
1,857

 
1,815

U.S. Government agency residential mortgage-backed securities
39,027

 
38,975

U.S. Government agency commercial mortgage-backed securities
16,126

 
15,945

 
84,628

 
84,237

 
 
 
 
Held to maturity:
 
 
 
Due in one year or less
166

 
166

Due after one year through five years
690

 
693

Due after five years through ten years
954

 
969

Due after ten years
649

 
661

 
2,459

 
2,489

Total
$
87,087

 
$
86,726

 
Proceeds from sales of investment securities during the three months ended December 31, 2015 and 2014, were $5,219 and $12,084, respectively. Gross realized gains, during the three months ended December 31, 2015 and 2014, on these sales amounted to $12 and $111, respectively. Gross realized losses on these sales were $10 and $41, during the three months ended December 31, 2015 and 2014 respectively.

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

10


Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data)



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

 
$

 
$

 
$

 
$

 
$

U.S. Government agency residential mortgage-backed securities
20,528

 
(174
)
 
5,319

 
(142
)
 
25,847

 
(316
)
U.S. Government agency collateralized mortgage obligations

 

 
608

 
(48
)
 
608

 
(48
)
U.S Government agency commercial mortgage-backed securities
14,954

 
(184
)
 

 

 
14,954

 
(184
)
Municipal securities
14,659

 
(151
)
 
149

 
(6
)
 
14,808

 
(157
)
Corporate securities
2,833

 
(44
)
 

 

 
2,833

 
(44
)
 
$
52,974

 
$
(553
)
 
$
6,076

 
$
(196
)
 
$
59,050

 
$
(749
)
 
 
September 30, 2015
 
Less than 12 Months
 
12 Months or Longer
 
Total
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
U.S. Government and agency securities
$

 
$

 
$

 
$

 
$

 
$

U.S. Government agency residential mortgage-backed securities
7,270

 
(59
)
 
6,168

 
(85
)
 
13,438

 
(144
)
U.S. Government agency collateralized mortgage obligations

 

 
627

 
(40
)
 
627

 
(40
)
U.S. Government agency commercial mortgage-backed securities
3,511

 
(15
)
 

 

 
3,511

 
(15
)
Municipal securities
3,661

 
(45
)
 
151

 
(4
)
 
3,812

 
(49
)
Corporate securities
510

 
(2
)
 

 

 
510

 
(2
)
 
$
14,952

 
$
(121
)
 
$
6,946

 
$
(129
)
 
$
21,898

 
$
(250
)
 
At December 31, 2015, the Company's investment portfolio included 8 securities available-for-sale which had been in an unrealized loss position for more than twelve months and 87 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 currently intend to sell these securities prior to any anticipated recovery in fair value.
 
At September 30, 2015, the investment portfolio included 9 securities available-for-sale which had been in an unrealized loss position for greater than twelve months and 22 securities available-for-sale which had been in an unrealized loss position for less than twelve months.


11


Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data)


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

 
 

Single family
$
150,990

 
$
153,141

Multifamily
118,689

 
105,750

Commercial real estate
163,515

 
162,957

Construction and land development
17,163

 
18,831

Total real estate
450,357

 
440,679

Commercial business
31,866

 
38,200

Consumer:
 

 
 

Home equity lines of credit
14,977

 
14,881

Education
3,845

 
4,106

Other
549

 
523

Total consumer
19,371

 
19,510

Total loans
501,594

 
498,389

Less:
 

 
 

Net deferred loan fees
302

 
366

Allowance for loan losses
4,747

 
4,598

Net loans
$
496,545

 
$
493,425


The following tables present the contractual aging of the Company's recorded investment in past due loans by class of loans as of December 31, 2015 and September 30, 2015:
 
December 31, 2015
 
Current
 
30-59 Days
Past Due
 
60-89 Days
Past Due
 
Loans Past
Due 90 Days
or More
 
Total
Single family
 
$
149,929

 
$
696

 
$

 
$
365

 
$
150,990

Multifamily
 
118,689

 

 

 

 
118,689

Commercial real estate
 
163,515

 

 

 

 
163,515

Construction and land development
 
17,163

 

 

 

 
17,163

Commercial business
 
31,860

 
6

 

 

 
31,866

Consumer and other:
 
 

 
 

 
 

 
 

 
 

Home equity lines of credit
 
14,950

 

 

 
27

 
14,977

Education
 
3,675

 
24

 
40

 
106

 
3,845

Other
 
549

 

 

 

 
549

 
 
$
500,330

 
$
726

 
$
40

 
$
498

 
$
501,594

 

12


Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data)


September 30, 2015
 
Current
 
30-59 Days
Past Due
 
60-89 Days
Past Due
 
Loans Past
Due 90 Days
or More
 
Total
Single family
 
$
152,245

 
$
473

 
$
83

 
$
340

 
$
153,141

Multifamily
 
105,750

 

 

 

 
105,750

Commercial real estate
 
162,957

 

 

 

 
162,957

Construction and land development
 
18,827

 
4

 

 

 
18,831

Commercial business
 
38,200

 

 

 

 
38,200

Consumer and other:
 
 

 
 

 
 

 
 

 
 

Home equity lines of credit
 
14,691

 

 

 
190

 
14,881

Education
 
3,782

 
79

 

 
245

 
4,106

Other
 
523

 

 

 

 
523

 
 
$
496,975

 
$
556

 
$
83

 
$
775

 
$
498,389

 
There were no loans past due ninety days or more and still accruing interest as of December 31, 2015 and September 30, 2015.
 
The following table presents the recorded investment in nonaccrual loans by class of loans as of December 31, 2015 and September 30, 2015:
 
 
December 31, 2015
 
September 30,
2015
Single family
$
365

 
$
340

Multifamily

 

Commercial real estate

 

Construction and land development

 

Commercial business

 

Consumer and other:
 
 
 
Home equity lines of credit
39

 
203

Education
146

 
260

Other

 

 
$
550

 
$
803

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

The Company categorizes performing, potential problem, and problem 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 a sub-category of Pass which do not expose the Company to sufficient risk to warrant further classification.

13


Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data)



Special Mention — A special mention asset has characteristics of deterioration in quality exhibited by any number of well-defined weaknesses requiring significant corrective action.  The repayment ability of the borrower has not been validated, or has become marginal or weak, and the loan may have exhibited some overdue payments or payment extensions and/or renewals.
 
Substandard — A substandard asset is an asset with a well-defined weakness that jeopardizes repayment, in whole or in part, of the debt.  These credits are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged.  These assets are characterized by the distinct possibility that the Company will or has sustained some loss of principal and/or interest if the deficiencies are not corrected.

Doubtful — A doubtful asset is an asset that has all the weaknesses inherent in the substandard classification with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.  These credits have a high probability for loss, yet because certain important and reasonably specific pending factors may work toward the strengthening of the asset, its classification of loss is deferred until its more exact status can be determined.
 
Homogeneous loan types are assessed for credit quality based on the contractual aging status of the loan and payment activity.  In certain cases, based upon payment performance, the loan being related with another commercial type loan or for other reasons, a loan may be categorized into one of the risk categories noted above, 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 by the Company and the contractual aging as of December 31, 2015 and September 30, 2015:
 
December 31, 2015
 
Pass
 
Watch
 
Special Mention
 
Substandard
 
Doubtful
 
Total
Single family
 
$
148,286

 
$
937

 
$

 
$
1,767

 
$

 
$
150,990

Multifamily
 
112,272

 
6,417

 

 

 

 
118,689

Commercial real estate
 
159,122

 
3,682

 
407

 
304

 

 
163,515

Construction and land development
 
17,163

 

 

 

 

 
17,163

Commercial business
 
31,803

 

 

 
63

 

 
31,866

Consumer and other:
 
 

 
 

 
 

 
 

 
 

 
 

Home equity lines of credit
 
14,854

 

 

 
123

 

 
14,977

Education
 
3,845

 

 

 

 

 
3,845

Other
 
549

 

 

 

 

 
549

Total
 
$
487,894

 
$
11,036

 
$
407

 
$
2,257

 
$

 
$
501,594

 
September 30, 2015
 
Pass
 
Watch
 
Special Mention
 
Substandard
 
Doubtful
 
Total
Single family
 
$
150,421

 
$
1,135

 
$

 
$
1,585

 
$

 
$
153,141

Multifamily
 
103,117

 
2,633

 

 

 

 
105,750

Commercial real estate
 
159,104

 
3,136

 
410

 
307

 

 
162,957

Construction and land development
 
18,831

 

 

 

 

 
18,831

Commercial business
 
36,561

 

 

 
1,639

 

 
38,200

Consumer and other:
 
 

 
 

 
 

 
 

 
 

 
 

Home equity lines of credit
 
14,636

 

 

 
245

 

 
14,881

Education
 
4,106

 

 

 

 

 
4,106

Other
 
523

 

 

 

 

 
523

 
 
$
487,299

 
$
6,904

 
$
410

 
$
3,776

 
$

 
$
498,389


14


Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data)


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

 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
 
$
1,073

 
$
1,013

 
$
1,604

 
$
330

 
$
498

 
$
80

 
$
4,598

Provision for loan losses
 
(42
)
 
327

 
47

 
14

 
(200
)
 
4

 
150

Loans charged-off
 

 

 

 

 

 
(10
)
 
(10
)
Recoveries
 

 

 
1

 

 
4

 
4

 
9

Ending balance
 
$
1,031

 
$
1,340

 
$
1,652

 
$
344

 
$
302

 
$
78

 
$
4,747

Period-ended amount allocated for:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Individually evaluated for impairment
 
$
23

 
$

 
$

 
$

 
$

 
$
55

 
$
78

Collectively evaluated for impairment
 
1,008

 
1,340

 
1,652

 
344

 
302

 
23

 
4,669

Ending Balance
 
$
1,031

 
$
1,340

 
$
1,652

 
$
344

 
$
302

 
$
78

 
$
4,747

Loans:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Individually evaluated for impairment
 
$
1,605

 
$
1,816

 
$

 
$

 
$

 
$
94

 
$
3,515

Collectively evaluated for impairment
 
149,385

 
116,873

 
163,515

 
17,163

 
31,866

 
19,277

 
498,079

Ending Balance
 
$
150,990

 
$
118,689

 
$
163,515

 
$
17,163

 
$
31,866

 
$
19,371

 
$
501,594

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

 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
 
$
1,072

 
$
757

 
$
1,412

 
$
301

 
$
454

 
$
76

 
$
4,072

Provision for loan losses
 
103

 
175

 
15

 
66

 
(34
)
 
25

 
350

Loans charged-off
 
(161
)
 

 
(48
)
 

 
(14
)
 
(2
)
 
(225
)
Recoveries
 
11

 

 
9

 

 
6

 
1

 
27

Ending balance
 
$
1,025

 
$
932

 
$
1,388

 
$
367

 
$
412

 
$
100

 
$
4,224

Period-ended amount allocated for:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Individually evaluated for impairment
 
$
45

 
$

 
$

 
$

 
$

 
$
58

 
$
103

Collectively evaluated for impairment
 
980

 
932

 
1,388

 
367

 
412

 
42

 
4,121

Ending Balance
 
$
1,025

 
$
932

 
$
1,388

 
$
367

 
$
412

 
$
100

 
$
4,224

Loans:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Individually evaluated for impairment
 
$
1,542

 
$
1,894

 
$
558

 
$

 
$

 
$
360

 
$
4,354

Collectively evaluated for impairment
 
146,525

 
81,087

 
138,996

 
19,127

 
32,477

 
20,154

 
438,366

Ending Balance
 
$
148,067

 
$
82,981

 
$
139,554

 
$
19,127

 
$
32,477

 
$
20,514

 
$
442,720

 


 

15


Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data)


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

 
 

 
 

 
 

 
 

Single family
 
$
1,338

 
$
1,194

 
$

 
$
1,189

 
$
14

Multifamily
 
1,889

 
1,816

 

 
1,824

 
19

Commercial real estate
 

 

 

 

 

Construction and land development
 

 

 

 

 

Commercial business
 

 

 

 

 

Consumer and other
 
117

 
39

 

 
105

 

With an allowance recorded:
 
 

 
 

 
 

 
 

 
 

Single family
 
411

 
411

 
23

 
412

 
3

Multifamily
 

 

 

 

 

Commercial real estate
 

 

 

 

 

Construction and land development
 

 

 

 

 

Commercial business
 

 

 

 

 

Consumer and other
 
55

 
55

 
55

 
55

 
1

 
 
$
3,810

 
$
3,515

 
$
78

 
$
3,585


$
37

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

 
 

 
 

 
 

 
 

Single family
 
$
1,363

 
$
1,148

 
$

 
$
1,274

 
$
11

Multifamily
 
1,998

 
1,894

 

 
3,484

 
20

Commercial real estate
 
629

 
558

 

 
1,118

 
8

Construction and land development
 

 

 

 

 

Commercial business
 

 

 

 

 

Consumer and other
 
401

 
302

 

 
223

 

With an allowance recorded:
 
 

 
 

 
 

 
 

 
 

Single family
 
417

 
394

 
45

 
758

 
3

Multifamily
 

 

 

 
86

 

Commercial real estate
 

 

 

 
90

 

Construction and land development
 

 

 

 
96

 

Commercial business
 

 

 

 

 

Consumer and other
 
58

 
58

 
58

 
60

 
1

 
 
$
4,866

 
$
4,354

 
$
103

 
$
7,189

 
$
43



16


Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data)



The following is a summary of troubled debt restructured loans (TDRs) at December 31, 2015 and September 30, 2015:
 
 
December 31, 2015
 
September 30, 2015
Troubled debt restructurings - accrual
$
3,111

 
$
3,134

Troubled debt restructurings - nonaccrual

 

 
$
3,111

 
$
3,134

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

There were no re-defaults of TDRs that occurred during the three months ended December 31, 2015 and 2014.
 
Certain of the Bank’s executive officers, directors, and their associates are loan customers of the Bank.  As of December 31, 2015 and September 30, 2015, loans of approximately $3,628 and $3,334, respectively, were outstanding to such parties.  These loans were underwritten to the same standards as those used for comparable transactions with other persons and do not involve more than the normal risk of collectability.

An analysis of such loans is as follows:
 
Three Months Ended December 31, 2015
 
 
Balance, beginning
$
3,334

New loans originated

Draws on lines of credit
47

Principal repayments
(122
)
Other1
369

Balance, ending
$
3,628

1Officer, with existing loan, was promoted to executive officer position during the period.

17


Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data)


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

 
December 31, 2015
 
September 30, 2015
 
Amount
 
Percent
 
Amount
 
Percent
Checking Accounts:
 

 
 

 
 

 
 

Noninterest bearing
$
108,370

 
19.48
%
 
$
101,486

 
19.11
%
Interest bearing
137,272

 
24.68
%
 
131,968

 
24.85
%
 
245,642

 
44.16
%
 
233,454

 
43.96
%
Passbook and Statement Savings
125,836

 
22.63
%
 
127,431

 
24.00
%
Variable Rate Money Market Accounts
55,546

 
9.99
%
 
47,876

 
9.02
%
Certificates of Deposit
129,120

 
23.22
%
 
122,259

 
23.02
%
 
$
556,144

 
100.00
%
 
$
531,020

 
100.00
%
 
Certificates of deposit over one hundred thousand dollars totaled $71,736 and $64,155 as of December 31, 2015 and September 30, 2015, respectively. Of these amounts, $10,498 and $8,775 are equal to or greater than two hundred fifty thousand dollars as of December 31, 2015 and September 30, 2015, respectively.
 
Note 7.                                 Regulatory Capital
 
The federal banking agencies have adopted regulations that substantially amend the capital regulations currently applicable to us. These regulations implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act.

Effective January 1, 2015 (with some changes transitioned into full effectiveness over two to four years), the Bank became subject to new capital requirements adopted by the OCC. These new requirements (1) create a new required ratio for common equity Tier 1 ("CETI") capital, (2) increase the leverage and Tier 1 capital ratios, (3) change the risk weight of certain assets for purposes of the risk-based capital ratios, (4) create an additional capital conservation buffer over the required capital ratios and (5) change what qualifies as capital for purposes of meeting these various capital requirements. Beginning in 2016, failure to maintain the required capital conservation buffer limits the ability of the Bank to pay dividends, repurchase shares or pay discretionary bonuses. The Company is exempt from consolidated capital requirements as those requirements do not apply to certain small savings and loan holding companies with assets under $1 billion.

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

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

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

18


Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data)


servicing and deferred tax assets that are not deducted from capital; and increased risk weights (0% to 600%) for equity exposures.

In addition to the minimum CETI, Tier 1 and total capital ratios, the Bank will have to maintain a capital conservation buffer consisting of additional CETI capital greater than 2.5% of risk-weighted assets above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions. This new capital conservation buffer requirement will be phased in beginning in January 2016 at 0.625% of risk-weighted assets and increasing each year until fully implemented in January 2019.

Additionally, the OCC's prompt corrective action standards changed effective January 1, 2015. Under the new standards, in order to be considered well-capitalized, the Bank must have a CETI ratio of 6.5% (new), a Tier 1 ratio of 8.0% (increased from 6.0%), a total risk-based capital ratio of 10.0% (unchanged) and a leverage ratio of 5.0% (unchanged). As of December 31, 2015 the Bank met all these new requirements, including the full capital conservation buffer.
 
The Bank’s actual capital amounts and ratios and those required by the regulatory standards in effect as of the dates presented were as follows:
  
At December 31, 2015
Actual
 
For Capital Adequacy
Purposes
 
To Be Well Capitalized Under Prompt Corrective Action Provisions
 
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
CETI capital (to risk-weighted assets) - Westbury Bank
$
64,178

 
12.09
%
 
$
23,888

 
4.50
%
 
$
34,504

 
6.50
%
Tier 1 capital (to risk-weighted assets) - Westbury Bank
64,178

 
12.09
%
 
31,850

 
6.00
%
 
42,467

 
8.00
%
Total capital (to risk-weighted assets) - Westbury Bank
68,925

 
12.99
%
 
42,448

 
8.00
%
 
53,060

 
10.00
%
Leverage (to adjusted total assets) - Westbury Bank
64,178

 
9.77
%
 
26,276

 
4.00
%
 
32,844

 
5.00
%


 
At September 30, 2015
Actual
 
For Capital Adequacy
Purposes
 
To Be Well Capitalized Under Prompt Corrective Action Provisions
 
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
CET1 capital (to risk-weighted assets) - Westbury Bank
$
64,155

 
12.25
%
 
$
23,567

 
4.50
%
 
$
34,041

 
6.50
%
Tier 1 capital (to risk-weighted assets) - Westbury Bank
64,155

 
12.25
%
 
31,423

 
6.00
%
 
41,897

 
8.00
%
Total capital (to risk-weighted assets) - Westbury Bank
68,753

 
13.12
%
 
41,923

 
8.00
%
 
52,403

 
10.00
%
Leverage (to adjusted total assets) - Westbury Bank
64,155

 
10.01
%
 
25,636

 
4.00
%
 
32,045

 
5.00
%
 

19


Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data)


The following table reconciles the Bank’s stockholders’ equity to regulatory capital as of December 31, 2015 and September 30, 2015:
 
 
December 31,
2015
 
September 30,
2015
Stockholder's equity of the Bank
$
70,087

 
$
70,976

Less: Unrealized (gain) loss on securities
239

 
(352
)
Disallowed investment in subsidiary
(3,296
)
 
(3,296
)
Disallowed deferred tax assets
(2,852
)
 
(3,173
)
Tier 1, CETI and tangible capital
64,178

 
64,155

Plus: Allowable general valuation allowances
4,747

 
4,598

Total capital
$
68,925

 
$
68,753

 
Note 8.                          Commitments
 
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments include commitments to extend credit and involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the accompanying 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.
 
Company management has determined that the following instruments were outstanding, whose contract amounts represent credit risk:
 
 
December 31, 2015
 
September 30,
2015
Commitments to extend mortgage credit:
 

 
 

Fixed rate
$
17,829

 
$
8,443

Adjustable rate
48

 
9,929

Unused commercial loan lines of credit
64,378

 
54,225

Unused home equity line of credit
25,580

 
26,164

Standby letters of credit
763

 
884

Commitment to sell loans
973

 
431


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,

20


Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data)


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 December 31, 2015 and September 30, 2015, no amounts have been recorded as liabilities for the Company’s potential obligations under these guarantees.

Commitments to sell loans are commitments to sell single family mortgage loans to investors on the secondary market.
 
Note 9.                          Fair Value Measurements
 
ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.  ASC Topic 820 requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach.  Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability.  Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.  In that regard, ASC Topic 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
 
Level 1:  Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
 
Level 2:  Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
 
Level 3:  Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the fair value hierarchy, is set forth below.
 
Securities available-for-sale:  The fair value of the Company’s securities available-for-sale is determined using Level 2 inputs, which are derived from readily available pricing sources and third-party pricing services for comparable instruments.  The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, treasury yield curves, trading levels, credit information and credit terms, among other factors. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the fair value hierarchy.
 
Derivatives:  The fair values of the Company’s embedded derivatives related to certain certificates of deposit are determined using inputs that are observable or that can be corroborated by observable market data (such as the S&P 500 Index and the 10- year U.S. Treasury rate) and, therefore, are classified within Level 2 of the fair value hierarchy.
 
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:
 

21


Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data)


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

 
 

 
 

 
 

Securities available-for-sale
 
 

 
 

 
 

 
 

U.S. Government and agency securities
 
$
25

 
$

 
$
25

 
$

U.S. Government agency residential mortgage-backed securities
 
38,975

 

 
38,975

 

U.S. Government agency collateralized mortgage obligations
 
1,815

 

 
1,815

 

U.S. Government agency commercial mortgage-backed securities
 
15,945

 

 
15,945

 

Municipal securities
 
23,632

 

 
23,632

 

Corporate Bonds
 
3,845

 

 
3,845

 

Total securities available-for-sale
 
$
84,237

 
$

 
$
84,237

 
$

Derivatives
 
$
108

 
$

 
$
108

 
$

 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 

 
 
 
 

Derivatives
 
$
108

 
$

 
$
108

 
$


 
 
 
 
Fair Value Measurements
September 30, 2015
 
Total
 
Quoted Prices in
Active Markets  for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant Other
Unobservable
Inputs (Level 3)
Assets
 
 

 
 

 
 

 
 

Securities available-for-sale
 
 

 
 

 
 

 
 

U.S. Government and agency securities
 
$
25

 
$

 
$
25

 
$

U.S. Government agency residential mortgage-backed securities
 
39,692

 

 
39,692

 

U.S. Government agency collateralized mortgage obligations
 
1,941

 

 
1,941

 

U.S. Government agency commercial mortgage-backed securities
 
14,099

 

 
14,099

 

Municipal securities
 
21,667

 

 
21,667

 

Corporate Bonds
 
2,862

 

 
2,862

 

Total securities available-for-sale
 
$
80,286

 
$

 
$
80,286

 
$

Derivatives
 
$
110

 
$

 
$
110

 
$

 
 
 
 
 
 
 
 
 
Liabilities
 
 

 
 

 
 

 
 

Derivatives
 
$
110

 
$

 
$
110

 
$

 
The Company did not have any transfers between Level 1, Level 2, and Level 3 of the fair value hierarchy during the three months ended December 31, 2015.  The Company’s policy for determining transfers between levels occurs at the end of the reporting period when circumstances in the underlying valuation criteria change and, therefore, result in a transfer between levels.
 

22


Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data)


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 $466 and $467 had a valuation allowance of $78 and $77 included in the allowance for loan losses to reflect their fair value as of December 31, 2015 and September 30, 2015, 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 December 31, 2015, mortgage servicing rights with a carrying amount of $1,241 had a valuation allowance of $105 to reflect their fair value of $1,136.  As of September 30, 2015, mortgage servicing rights with a carrying amount of $1,315 had a valuation allowance of $105 to reflect their fair value of $1,210.

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.

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

 
 

 
 

 
 

Impaired loans
 
$
388

 
$

 
$

 
$
388

Foreclosed real estate
 
168

 

 

 
168

Mortgage servicing rights
 
1,136

 

 

 
1,136

Real estate held for sale
 
808

 

 

 
808

 

23


Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data)


 
 
 
 
Fair Value Measurements
September 30, 2015
 
Total
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant Other
Unobservable
Inputs (Level 3)
Assets
 
 

 
 

 
 

 
 

Impaired loans
 
$
390

 
$

 
$

 
$
390

Foreclosed real estate
 
283

 

 

 
283

Mortgage servicing rights
 
1,210

 

 

 
1,210

Real estate held for sale
 
882

 

 

 
882

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

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

24


Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data)


 
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 December 31, 2015 and September 30, 2015.
 
The estimated fair values and related carrying amounts of the Company’s financial instruments as of the dates noted below were as follows:
 
 
December 31, 2015
 
Carrying
Amount
 
Estimated Fair
Value
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant Other
Unobservable
Inputs
(Level 3)
Financial assets:
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
40,060

 
$
40,060

 
$
40,060

 
$

 
$

Securities available for sale
84,237

 
84,237

 

 
84,237

 

Securities held to maturity
2,459

 
2,489

 

 
2,489

 

Loans, net
496,545

 
496,075

 

 

 
496,075

Loans held for sale, net
973

 
973

 

 
973

 

Federal Home Loan Bank stock
3,350

 
3,350

 

 

 
3,350

Mortgage servicing rights
1,136

 
1,136

 

 

 
1,136

Accrued interest receivable
1,950

 
1,950

 
1,950

 

 

Derivative asset
108

 
108

 

 
108

 

Financial liabilities:
 

 
 

 
 

 
 

 
 

Deposits
556,144

 
530,251

 
108,370

 

 
421,881

Short-term advances from Federal Home Loan Bank
20,500

 
20,500

 

 
20,500

 

Long-term advances from Federal Home Loan Bank
10,000

 
9,993

 

 

 
9,993

Advance payments by borrowers for property taxes and insurance
146

 
146

 
146

 

 

Accrued interest payable
6

 
6

 
6

 

 

Derivative liability
108

 
108

 

 
108

 

 

25


Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data)


 
September 30, 2015
 
Carrying
Amount
 
Estimated Fair
Value
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant Other
Unobservable
Inputs
(Level 3)
Financial assets:
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
16,488

 
$
16,488

 
$
16,488

 
$

 
$

Securities available for sale
80,286

 
80,286

 

 
80,286

 

Securities held to maturity
2,459

 
2,490

 

 
2,490

 

Loans, net
493,425

 
493,480

 

 

 
493,480

Loans held for sale, net
431

 
431

 

 
431

 

Federal Home Loan Bank stock
3,350

 
3,350

 

 

 
3,350

Mortgage servicing rights
1,210

 
1,210

 

 

 
1,210

Accrued interest receivable
1,965

 
1,965

 
1,965

 

 

Derivative asset
110

 
110

 

 
110

 

Financial liabilities:
 

 
 

 
 

 
 

 
 

Deposits
531,020

 
508,339

 
101,486

 

 
406,853

Short-term advances from Federal Home Loan Bank
18,000

 
18,000

 

 
18,000

 

Long-term advances from Federal Home Loan Bank

 

 

 

 

Advance payments by borrowers for property taxes and insurance
5,382

 
5,382

 
5,382

 

 

Accrued interest payable
5

 
5

 
5

 

 

Derivative liability
110

 
110

 

 
110

 



26


Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data)


Note 10.                                 Employee Stock Ownership Plan
 
The Bank maintains a leveraged employee stock ownership plan ("ESOP") that covers all employees meeting certain minimum age and service requirements. The ESOP was established in conjunction with the Company's stock offering completed in April 2013 and operates on a plan year ending December 31. The ESOP initially borrowed $4.1 million from the Company and used those funds to acquire 411,403 shares, or 8.0% of the total number of shares issued by the Company in its initial public offering. The shares were acquired at a price of $10.00 per share. The Bank makes annual contributions to the ESOP equal to the ESOP's debt service. The ESOP shares were pledged as collateral for its debt obligations to the Company. As the debt is repaid, shares are released from collateral and allocated to active participants, based on the proportion of debt service paid in the year. The debt repayment and release of shares generally occurs at December 31, the plan year end date. The Company accounts for its ESOP in accordance with ASC 718-40. Accordingly, because the debt is intercompany, it is eliminated in consolidation for presentation in these financial statements. The shares pledged as collateral are reported as unearned ESOP shares in the accompanying balance sheet. Total ESOP shares may be reduced as a result of employees leaving the Company as shares that have previously been released to those exiting employees may be removed from the ESOP and transferred to that employee. As shares are committed to be released from collateral, the Company reports compensation expense equal to the current market price of the released shares, and the released shares become outstanding for EPS computations. During each of the three months ended December 31, 2015 and 2014, 5,142 shares were committed to be released. The total ESOP compensation expense recorded for the three months ended December 31, 2015 and 2014 was $91 and $112, respectively.

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


December 31, 2015
 
September 30, 2015


 

Allocated shares to active participants
32,966

 
34,132

Shares committed to be released
20,570

 
15,428

Unallocated shares
349,693

 
354,835

Total ESOP shares
403,229

 
404,395

Fair value of unallocated shares
$
6,294

 
$
6,323


Note 11. Equity Compensation Plans

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

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

 
Three Months Ended December 31,
 
2015
 
2014
 
 
 
 
Total cost of stock grant plan during the period
$
151

 
$
155

Total cost of stock option plan during the period
57

 
46

Total cost of share-based payment plans during the period
$
208

 
$
201

 
 
 
 
Amount of related income tax benefit recognized in income
$
82

 
$
79


The Company adopted the Westbury Bancorp Inc 2014 Equity Incentive Plan (the "Plan") in 2014. In June 2014, the Company's stockholders approved the Plan which authorized the issuance under the Plan of up to 203,665 restricted stock awards and up to 509,162 stock options. As of December 31, 2015 there were 4,092 restricted stock awards and 101,753 options available for future grants under the Plan.


27


Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data)


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

The following table summarizes stock options outstanding for the three months ended December 31, 2015:
 
Number of Options
Weighted Average Exercise Price
Weighted Average Remaining Contractual Term (in years)
Aggregate Intrinsic Value (in thousands)
Options outstanding as of September 30, 2015
406,409

$
15.68

 
 
Granted
1,000

17.60

 
 
Exercised
4,298

15.20

 
 
Expired or canceled


 
 
Forfeited


 
 
Options outstanding as of December 31, 2015
403,111

$
15.69

8.73
$
932

Options exercisable as of December 31, 2015
60,946

$
15.20

8.50
$
171


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

The following assumptions were used for options granted during the three months ended December 31:
 
2015
 
2014
Risk-free interest rate
1.99
%
 
%
Expected volatility of Company's stock
7.44
%
 
%
Expected dividend yield
%
 
%
Expected life of options (years)
7.5

 
0.0

Weighted average fair value per option of options granted during the period
$
2.89

 
$


The total intrinsic value of options exercised during each of the three months ended December 31, 2015 and 2014 was $10 and $0.

The following is a summary of changes in restricted shares for the three months ended December 31, 2015:
 
Number of Shares
 
Weighted Average Grant Date Fair Value
Shares Outstanding at September 30, 2015
158,052

 
$
15.20

Granted
1,000

 
17.60

Vested

 

Forfeited

 

Shares Outstanding at December 31, 2015
159,052

 
$
15.22




28


Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data)


The total intrinsic value of restricted shares that vested during the three months ended December 31, 2015 and 2014 was $0.

As of December 31, 2015, there was $3.1 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements (including share option and nonvested share awards) granted under the Plan. At December 31, 2015, the weighted-average period over which the unrecognized compensation expense is expected to be recognized was approximately 3.6 years.

29


Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data)



Note 12. Condensed Parent Company Financial Information

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

Balance Sheets
 
 
 
 
 
December 31,
 
September 30,
 
2015
 
2015
Assets
 
 
 
Cash and interest bearing deposits
$
3,324

 
$
1,440

Investments
86

 
115

Loan to ESOP
3,620

 
3,778

Investment in subsidiary
73,220

 
74,201

Other assets
2,127

 
2,660

   Total assets
$
82,377

 
$
82,194

Liabilities and Stockholders' Equity
 
 
 
Total liabilities
$
125

 
$
157

Stockholders' equity
82,252

 
82,037

Total liabilities and stockholders' equity
$
82,377

 
$
82,194



Statements of Operations
 
 
 
 
 
Three Months Ended December 31,
 
2015
 
2014
Interest and other income
$
32

 
$
63

Interest and other expense
121

 
184

Loss before income tax benefit and equity in undistributed net income of subsidiary
(89
)
 
(121
)
Income tax benefit
(18
)
 
(30
)
Loss before equity in undistributed net income of subsidiary
(71
)
 
(91
)
Equity in undistributed net income of subsidiary
1,110

 
538

   Net income
$
1,039

 
$
447



30


Westbury Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands, except per share data)



Statements of Cash Flows
 
 
 
 
 
For Three Months Ended December 31,
 
2015
 
2014
Cash Flows From Operating Activities
 
 
 
  Net income
$
1,039

 
$
447

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Equity in undistributed net income of subsidiary
(1,110
)
 
(538
)
Net change in other liabilities
(32
)
 
15

Net change in other assets
742

 
124

       Net cash provided by operating activities
639

 
48

 
 
 
 
Cash Flows From Investing Activities
 
 
 
  Purchase of securities

 
(376
)
  Sales and maturities of securities
29

 
212

  Payments received on ESOP loan
158

 
153

Dividend received from bank subsidiary
1,500

 

        Net cash provided by (used in) investing activities
1,687

 
(11
)
 
 
 
 
Cash Flows From Financing Activities
 
 
 
Stock options exercised
64

 

Repurchase of common stock
(506
)
 
(833
)
         Net cash used in financing activities
(442
)
 
(833
)
         Net increase (decrease) in cash
1,884

 
(796
)
Cash
 
 
 
   Beginning of period
1,440

 
6,878

   End of period
$
3,324

 
$
6,082



31


ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
This Quarterly Report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “believe,” “contemplate,” “continue,” “intend,” “target” and words of similar meaning.  These forward-looking statements include, but are not limited to:
 
statements of our goals, intentions and expectations;
statements regarding our business plans, prospects, growth and operating strategies;
statements regarding the asset quality of our loan and investment portfolios; and
estimates of our risks and future costs and benefits.
 
These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control.  In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.  We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Quarterly Report.
 
The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
 
our ability to manage our operations under current economic conditions nationally and in our market area;

adverse changes in the financial industry, securities, credit and national and local real estate markets (including real estate values);
significant increases in our loan losses, including as a result of our inability to resolve classified assets, and changes in management’s assumptions in determining the adequacy of the allowance for loan losses;
credit risks of lending activities, including changes in the level and trend of loan delinquencies and charge-offs and in our allowance for loan losses and provision for loan losses;
competition among depository and other financial institutions;
our success in increasing our commercial business, commercial real estate and multifamily lending while maintaining our asset quality;
our success in introducing new financial products;
our ability to attract and maintain deposits;
our ability to retain customer accounts, achieve increased operating efficiencies and enhance 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 allowance for loan losses, write down assets, change our regulatory capital position, limit our ability to borrow funds or maintain or increase deposits;

32


changes in the level of government support of housing finance;
our ability to enter new markets successfully and capitalize on growth opportunities;
changes in consumer spending, borrowing and savings habits;
changes in laws or government regulations or policies affecting financial institutions, including changes in the regulations implementing the Dodd-Frank Act, the JOBS Act and similar future laws, which could result in, among other things, increased deposit insurance premiums and assessments, capital requirements (particularly the new capital regulations), and regulatory fees and compliance costs;
changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board;
changes in our compensation and benefit plans;
our ability to retain key members of our senior management team and to address staffing needs to respond to demand or to implement our strategic plans;
loan delinquencies and changes in the underlying cash flows of our borrowers;
our ability to control costs and expenses, particularly those associated with operating as a publicly traded company;
changes in the financial condition or future prospects of issuers of securities that we own;
the ability of third-party service providers to perform their obligations to us;
the availability, effectiveness and security of our information technology systems and our ability to secure confidential information through the use of our computer and other technology systems and networks;
other economic, competitive, governmental, regulatory and operational factors affecting our operations, pricing, products and services described elsewhere in this annual report; and
the impact of reputational risk created by any of the foregoing developments on such matters such as business generation and retention, funding and liquidity.
Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

33



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

Comparison of Financial Condition at December 31, 2015 and September 30, 2015
 
Total Assets.  Total assets increased by $31.6 million, or 5.0%, to $670.6 million at December 31, 2015 from $638.9 million at September 30, 2015.  The increase in total assets was primarily the result of an increase in cash and cash equivalents of $23.6 million, securities available for sale of $4.0 million, net loans of $3.1 million and cash surrender value of life insurance of $746,000.

Cash and Cash Equivalents. Cash and cash equivalents increased by $23.6 million, or 143.0%, to $40.1 million at December 31, 2015 from $16.5 million at September 30, 2015. The increase was the result of growth in deposit balances near the end of the quarter. The increased cash is expected to be allocated to the Bank's loan and investment portfolios in the upcoming quarter.
 
Net Loans.  Net loans increased by $3.1 million, or 0.6%, to $496.5 million at December 31, 2015 from $493.4 million at September 30, 2015.  Multifamily loans increased by $12.9 million, offset by a decrease in commercial business loans of $6.3 million, construction and land development loans of $1.7 million and single family loans of $2.2 million. The decrease in commercial business loans was the result of seasonal fluctuations in commercial lines of credit and the payoff of a large substandard credit. The decrease in construction and land development loans was the result of the completion of construction and the subsequent transfer of a loan to multifamily loans.

Investment Securities.  Investment securities available for sale increased $4.0 million, or 4.9%, to $84.2 million at December 31, 2015 from $80.3 million at September 30, 2015.  Municipal securities available for sale increased $2.0 million,

34


mortgage-backed securities and collateralized mortgage obligations increased $1.0 million, and corporate bonds increased $983,000. These changes occurred as we invested new deposit balances and repositioned the portfolio through normal portfolio management.

Net unrealized loss on securities increased by $971,000 to $391,000 at December 31, 2015 from a net unrealized gain of $580,000 at September 30, 2015, reflecting the effect of an increase in market interest rates.  At December 31, 2015, investment securities classified as available-for-sale consisted entirely of government-sponsored enterprise mortgage-backed securities, municipal securities, and corporate bonds. At December 31, 2015, investment securities classified as held to maturity consisted entirely of municipal securities.

The outstanding balances of investment securities held to maturity were unchanged at December 31, 2015 from September 30, 2015.
 
Foreclosed Real Estate.  Foreclosed real estate held for sale decreased $115,000, or 40.6%, to $168,000 at December 31, 2015 from $283,000 at September 30, 2015, as we sold $89,000 of foreclosed properties and recorded valuation adjustments of $26,000 during the period.  At December 31, 2015, our foreclosed real estate consisted solely of commercial real estate properties.
 
Cash Surrender Value of Bank-Owned Life Insurance. Cash surrender value of bank-owned life insurance increased $746,000, or 5.7%, to $13.9 million at December 31, 2015 from $13.2 million at September 30, 2015, as we purchased single premium life insurance on our president and CEO for $637,000 during the quarter.

Deferred Tax Asset. The deferred tax asset decreased $255,000, or 3.4%, to $7.3 million at December 31, 2015 from $7.5 million at September 30, 2015, as the asset was reduced by the accrual of income tax expense as the Company recorded taxable income for the period, offset by an increase in the deferred tax asset related to unrealized gains and losses on investment securities available for sale.

Deposits.  Deposits increased $25.1 million, or 4.7%, to $556.1 million at December 31, 2015 from $531.0 million at September 30, 2015.  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 $18.3 million, or 4.5%, to $427.0 million at December 31, 2015 from $408.8 million at September 30, 2015.  In particular, variable rate money market accounts increased by $7.7 million, or 16.0%, to $55.5 million at December 31, 2015 from $47.9 million at September 30, 2015 and noninterest bearing deposits increased by $6.9 million, or 6.8%, to $108.4 million at December 31, 2015 from $101.5 million at September 30, 2015. Certificates of deposit increased $6.9 million, or 5.6%, to $129.1 million at December 31, 2015 from $122.3 million at September 30, 2015.   Growth in certificates of deposit was generated primarily through the use of Internet listing services to attract balances from other financial institutions.

Advances from FHLB. Short-term advances from the FHLB increased by $2.5 million, or 13.9% to $20.5 million at December 31, 2015 from $18.0 million at September 30, 2015. Long-term advances from the FHLB increased by $10.0 million to $10.0 million at December 31, 2015 from $0 at September 30, 2015. In anticipation of rising interest rates, we locked in long-term advances with terms from three to five years during the quarter.
 
Advance Payments By Borrowers For Property Taxes and Insurance.  Advance payments by borrowers for property taxes and insurance decreased by $5.2 million, or 97.3%, to $146,000 at December 31, 2015 from $5.4 million at September 30, 2015 due to seasonal disbursements to customers in December 2015 to enable the payment of mortgagees’ property taxes offset by ongoing monthly payments by borrowers. 
 
Total Stockholders' Equity.  Total stockholders' equity increased $306,000 to $79.1 million at December 31, 2015 from $78.8 million at September 30, 2015.  The increase resulted primarily from net income of $1.0 million, stock based compensation expense of $208,000 and the allocation of ESOP shares of $91,000, offset by the repurchase of 27,994 shares of common stock for $506,000 and a decrease in other comprehensive income of $590,000.

35


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

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Real estate loans:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

One- to four-family
9

 
$
696

 

 
$

 
5

 
$
365

 
14

 
$
1,061

Multi-family

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

Construction and land

 

 

 

 

 

 

 

Total real estate
9

 
696

 

 

 
5

 
365

 
14

 
1,061

Commercial business loans
1

 
6

 

 

 

 

 
1

 
6

Consumer loans:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Home equity lines of credit

 

 

 

 
1

 
27

 
1

 
27

Education
5

 
24

 
5

 
40

 
7

 
106

 
17

 
170

Other consumer loans

 

 

 

 

 

 

 

Total consumer loans
5

 
24

 
5

 
40

 
8

 
133

 
18

 
197

Total
15

 
$
726

 
5

 
$
40

 
13

 
$
498

 
33

 
$
1,264

At September 30, 2015:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Real estate loans:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

One- to four-family
10

 
$
473

 
1

 
$
83

 
5

 
$
340

 
16

 
$
896

Multi-family

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

Construction and land
1

 
4

 

 

 

 

 
1

 
4

Total real estate
11

 
477

 
1

 
83

 
5

 
340

 
17

 
900

Commercial business loans

 

 

 

 

 

 

 

Consumer loans:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Home equity lines of credit

 

 

 

 
3

 
190

 
3

 
190

Education
5

 
79

 

 

 
10

 
245

 
15

 
324

Other consumer loans

 

 

 

 

 

 

 

Total consumer loans
5

 
79

 

 

 
13

 
435

 
18

 
514

Total
16

 
$
556

 
1

 
$
83

 
18

 
$
775

 
35

 
$
1,414




36


 
Classified Assets
 
The following table details the Company’s assets graded Substandard or Special Mention at the dates indicated:
 
 
At December 31,
2015
 
At September 30,
2015
 
(In thousands)
Classified Loans:
 

 
 

Loss
$

 
$

Doubtful

 

Substandard — performing:
 

 
 

Real estate loans:
 

 
 

One- to four-family
1,548

 
1,390

Multi-family

 

Commercial
304

 
307

Construction and land

 

Total real estate loans
1,852

 
1,697

Commercial business loans
63

 
1,639

Consumer loans:
 
 
 

Home equity lines of credit
96

 
55

Other consumer loans

 

Total consumer loans
96

 
55

Total substandard — performing
2,011

 
3,391

Substandard — Nonperforming:
 

 
 

Real estate loans:
 

 
 

One- to four-family
219

 
195

Multi-family

 

Commercial

 

Construction and land

 

Total real estate loans
219

 
195

Commercial business loans

 

Consumer loans:
 

 
 

Home equity lines of credit
27

 
190

Other consumer loans

 

Total consumer loans
27

 
190

Total substandard — nonperforming
246

 
385

Total classified loans
2,257

 
3,776

Foreclosed real estate
168

 
283

Total classified assets
$
2,425

 
$
4,059

Special mention:
 

 
 

Real estate loans:
 

 
 

One- to four-family
$

 
$

Multi-family

 

Commercial
407

 
410

Construction and land

 

Total real estate loans
407

 
410

Commercial business loans

 

Consumer loans:
 

 
 

Home equity lines of credit

 

Other consumer loans

 

Total consumer loans

 

Total special mention
407

 
410

Total classified assets and special mention loans
$
2,832

 
$
4,469


37


Non-Performing Assets
 
The following table sets forth information regarding our non-performing assets and troubled debt restructurings at the dates indicated.  The information reflects net charge-offs but not specific reserves.  Troubled debt restructurings include loans where the borrower is experiencing financial difficulty and for which either a portion of interest or principal has been forgiven or an extension of term granted, or for loans modified at interest rates materially less than current market rates.
 

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

 
 

Real estate loans:
 

 
 

One- to four-family
$
365

 
$
340

Multi family

 

Commercial

 

Construction and land

 

Total real estate
365

 
340

Commercial business loans

 

Consumer loans:
 

 
 

Home equity lines of credit
39

 
203

Education
146

 
260

Other consumer loans

 

Total consumer loans
185

 
463

Total nonaccrual loans (1)
550

 
803

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
550

 
803

Foreclosed assets:
 

 
 

One- to four-family

 
89

Multi-family

 

Commercial real estate
168

 
194

Construction and land

 

Home equity line of credit

 

Total foreclosed assets
168

 
283

Total nonperforming assets
$
718

 
$
1,086

Performing troubled debt restructurings
$
3,111

 
$
3,134

Ratios:
 

 
 

Nonperforming loans to total loans
0.11
%
 
0.16
%
Nonperforming assets to total assets
0.11
%
 
0.17
%
Nonperforming assets and troubled debt restructurings to total assets
0.57
%
 
0.66
%
_______________________
(1) 
There were no troubled debt restructurings that were on non-accrual status at December 31, 2015 or September 30, 2015.

38



The decrease in delinquent loans and non-performing assets at December 31, 2015, from September 30, 2015, was primarily due to our collection efforts and the quality of our underwriting, which resulted in reductions in delinquent and non-performing loans. The reduction in classified assets between these dates resulted primarily from the payoff of a Substandard commercial business relationship as a result of the customer refinancing the debt with another financial institution.
 
Interest income that would have been recorded for the three months ended December 31, 2015, had non-accruing loans been current according to their original terms, amounted to approximately $6,000.  There was no interest related to these loans included in interest income for the three months ended December 31, 2015.
 
Other Loans of Concern.   There were no other loans at December 31, 2015 that are not already disclosed where there is information about possible credit problems of borrowers available to our management that caused management to have serious doubts about the ability of the borrowers to comply with present loan repayment terms and that are reasonably likely to result in disclosure of such loans in the future.
 
Comparison of Operating Results for the Three Months Ended December 31, 2015 and December 31, 2014
 
General.  Net income for the three months ended December 31, 2015 was $1.0 million compared to $447,000 for the three months ended December 31, 2014. The increase in net income of $592,000 was due primarily to increases of $554,000 in net interest income and decreases in noninterest expenses of $320,000 and provision for loan losses of $200,000 offset by an increase in income tax expense of $413,000.
 
Interest and Dividend Income. Interest and dividend income increased $715,000, or 14.7%, to $5.6 million for the three months ended December 31, 2015 from $4.9 million for the three months ended December 31, 2014. This increase was primarily attributable to an increase of $658,000 in interest income on loans receivable and $43,000 in interest and dividend income on investment securities. 

The average balance of interest-earning assets increased $68.9 million, or 13.3%, to $587.6 million for the three months ended December 31, 2015 from $518.7 million for the three months ended December 31, 2014. The yield on average interest-earning assets increased by 5 basis points to 3.81% for the three months ended December 31, 2015 from 3.76% for the three months ended December 31, 2014.

The average balance of loans increased $72.4 million to $495.7 million for the three months ended December 31, 2015 from $423.3 million for the three months ended December 31, 2014. The average yield on loans decreased by 8 basis points to 4.13% for the three months ended December 31, 2015 from 4.21% for the three months ended December 31, 2014.  The decrease in our average yield on loans reflected the growth in our loan portfolio at current market rates and the effects of downward pressure on loan pricing caused by the prolonged low interest rate environment.

The average balance of investment securities decreased by $1.1 million, or 1.3%, to $84.4 million for the three months ended December 31, 2015 from $85.4 million for the three months ended December 31, 2014, while the average yield on investment securities increased by 23 basis points to 2.14% for the three months ended December 31, 2015 from 1.91% for the three months ended December 31, 2014. The increase in the average yield on investment securities was due to the inclusion in the investment portfolio of commercial mortgage-backed securities and corporate securities for the three months ended December 31, 2015. These higher yielding types of securities were not part of the portfolio for the three months ended December 31, 2014.  
 
Interest Expense. Total interest expense increased $161,000, or 37.5%, to $590,000 for the three months ended December 31, 2015 from $429,000 for the three months ended December 31, 2014.  Interest expense on deposit accounts increased $133,000 to $558,000 for the three months ended December 31, 2015 from $425,000 for the three months ended December 31, 2014. 

The average balance of deposits and interest-bearing liabilities increased $92.6 million, or 19.2%, to $575.9 million for the three months ended December 31, 2015 from $483.3 million for the three months ended December 31, 2014. The average cost of deposits and interest-bearing liabilities increased 5 basis points to 0.41% for the three months ended December 31, 2015 from 0.36% for the three months ended December 31, 2014.

The average balance of interest bearing deposits increased $26.9 million to $439.6 million for the three months ended December 31, 2015 from $412.7 million for the three months ended December 31, 2014, and the average cost of interest bearing deposits increased 10 basis points to 0.51% from 0.41%. The increase in the cost of interest bearing deposits was

39


caused by a change in the composition of our interest bearing deposits, with the average balance of higher cost certificates of deposit increasing by $26.6 million and the average balance of lower cost checking, savings and money market accounts increasing by only $269,000. Additionally, the average balance of non-interest bearing demand deposits increased by $48.5 million which helped hold the increase in our overall cost of deposits to only 5 basis points.

Interest expense on FHLB advances increased $28,000 to $32,000 for the three months ended December 31, 2015 from $4,000 for the three months ended December 31, 2014. The increase was due to an increase of $10.2 million in the average balance of short-term FHLB advances to $20.6 million for the three months ended December 31, 2015 from $10.4 million for the three months ended December 31, 2014 and an increase in the average balance of long-term FHLB advances to $7.0 million for the three months ended December 31, 2015 from zero at December 31, 2014.
 
Net Interest Income. Net interest income increased $554,000, or 12.4%, to $5.0 million for the three months ended December 31, 2015 from $4.5 million for the three months ended December 31, 2014.  Average interest-earning assets increased by $68.9 million, or 13.3%, to $587.6 million for the three months ended December 31, 2015, from $518.7 million for the three months ended December 31, 2014. Average deposits and interest-bearing liabilities increased by $92.6 million, or 19.2%, to $575.9 million for the three months ended December 31, 2015, from $483.3 million for the three months ended December 31, 2014.  Our net interest margin decreased 2 basis points to 3.41% for the three months ended December 31, 2015 from 3.43% for the three months ended December 31, 2014.  The decrease in our net interest margin reflected the growth in our loan portfolio at current market rates and the effects of downward pressure on loan pricing caused by the prolonged low interest rate environment. The change in asset mix with growth concentrated in the loan portfolio positively impacted the margin between these periods 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 $150,000 for the three months ended December 31, 2015 compared to $350,000 for the three months ended December 31, 2014.  The decrease in the provision resulted from the improvement in our charge-off experience compared to the prior period, offset by the impact of the growth in the loan portfolio compared to the prior year period. The allowance for loan losses was $4.7 million, or 0.95% of total loans, at December 31, 2015, compared to $4.6 million, or 0.92% of total loans, at September 30, 2015, and $4.2 million, or 0.95% of total loans, at December 31, 2014.  Total nonperforming loans were $550,000, or 0.11% of total loans, at December 31, 2015, compared to $803,000, or 0.16% of total loans, at September 30, 2015, and $1.2 million, or 0.27% of total loans, at December 31, 2014.  As a percentage of nonperforming loans, the allowance for loan losses was 863.1% at December 31, 2015, compared to 572.6% at September 30, 2015, and 350.0% at December 31, 2014.  Total classified loans were $2.3 million at December 31, 2015, compared to $3.8 million at September 30, 2015, and $3.7 million at December 31, 2014.
 
The allowance for loan losses reflects the balance we believe to be appropriate to cover incurred probable losses which were inherent in the loan portfolio at December 31, 2015 and September 30, 2015.
 
Non-Interest Income Non-interest income decreased $69,000, or 4.1%, to $1.6 million for the three months ended December 31, 2015 from $1.7 million for the three months ended December 31, 2014. The decrease was primarily related to decreases in service fees on deposit accounts of $78,000 and gains on sales of investment securities of $68,000, offset by an increase in other income of $55,000 and gains on sales of loans of $32,000

The decrease in service fees on deposit accounts resulted from lower interchange rates paid on debit card transactions and slightly reduced overdraft activity on our checking accounts. The decrease in gains on sales of investment securities resulted from a lower level of sales during the current quarter as compared to the prior year quarter as slower loan growth reduced the need to sell securities to fund growth. The increase in other income resulted from the receipt of a prepayment penalty on the payoff of a commercial real estate loan occurring during the current year quarter. The increase in gain on sales of loans resulted from an increase in the volume of fixed rate mortgage loans sold on the secondary market during the quarter ended December 31, 2015.
 
Non-Interest Expense.  Non-interest expense decreased $320,000, or 6.3%, to $4.8 million for the three months ended December 31, 2015, from $5.1 million for the three months ended December 31, 2014. The decrease was primarily caused by decreases in net loss from operation and sale of foreclosed real estate of $135,000, other expense of $104,000 and salaries and employee benefits of $65,000. These decreases were offset by an increase in the loss on real estate held for sale of $47,000.

The decrease in net loss from operation and sale of foreclosed real estate resulted from the continued low level of other real estate owned. The decrease in salaries and employee benefits resulted primarily from reductions in staffing due to branches closed during fiscal 2015. The decrease in other expense resulted primarily from the elimination of a service contract which was terminated in June 2015. The loss on real estate held for sale resulted from a valuation allowance recorded based on an updated evaluation of the fair value, less cost to sell, of real estate held for sale and a loss on the ultimate sale of a property.

40


 
Provision for Income Taxes.  Income tax expense was $636,000 for the three months ended December 31, 2015, compared to $223,000 for the three months ended December 31, 2014.  The effective tax rate as a percent of pre-tax income was 38.0% and 33.3% for the three months ended December 31, 2015 and 2014, respectively. The increase in the effective tax rate resulted from tax-exempt income (primarily increases in cash surrender value of life insurance and interest on tax-exempt securities) making up a smaller percentage of pretax income in the current period compared to the prior period.

41




 
Analysis of Net Interest Income
 
Net interest income represents the difference between the income we earn on interest-earning assets and the interest expense we pay on interest-bearing liabilities. Net interest income also depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them.  The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated.  Average balances are derived from daily average balances for all periods presented in the table.  Non-accrual loans were included in the computation of average balances, but have been reflected in the tables as loans carrying a zero yield. 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 December 31,
 
 
2015
 
2014
 
 
Average Outstanding Balance
 
Interest
 
Yield/Cost
 
Average Outstanding Balance
 
Interest
 
Yield/Cost
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Loans
 
$
495,742

 
$
5,117

 
4.13
%
 
$
423,319

 
$
4,459

 
4.21
%
Securities
 
84,368

 
452

 
2.14

 
85,437

 
409

 
1.91

Fed funds sold and other interest-earning deposits
 
7,440

 
26

 
1.40

 
9,920

 
12

 
0.48

Total interest-earning assets
 
587,550

 
5,595

 
3.81
%
 
518,676

 
4,880

 
3.76
%
Noninterest-earning assets
 
75,896

 
 
 
 
 
61,696

 
 
 
 
Total assets
 
$
663,446

 
 
 
 
 
$
580,372

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and stockholders' equity:
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing demand deposits
 
$
108,720

 
$

 
%
 
$
60,207

 
$

 
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Checking accounts
 
140,131

 
99

 
0.28

 
167,086

 
103

 
0.25

Passbook and statement savings
 
128,298

 
45

 
0.14

 
122,707

 
49

 
0.16

Variable rate money market
 
47,522

 
50

 
0.42

 
25,889

 
10

 
0.15

Certificates of deposit
 
123,648

 
364

 
1.18

 
97,040

 
263

 
1.08

Total interest bearing deposits
 
439,599

 
558

 
0.51

 
412,722

 
425

 
0.41

      Total deposits
 
548,319

 
558

 
0.41

 
472,929

 
425

 
0.36

 
 
 
 
 
 
 
 
 
 
 
 
 
Short-term FHLB advances
 
20,587

 
8

 
0.16

 
10,353

 
4

 
0.15

Long-term FHLB advances
 
6,956

 
24

 
1.38

 

 

 

Total deposits and interest-bearing liabilities
 
575,862

 
590

 
0.41
%
 
483,282

 
429

 
0.36
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Other liabilities
 
9,107

 
 
 
 
 
9,999

 
 
 
 
Total liabilities
 
584,969

 
 
 
 
 
493,281

 
 
 
 
Stockholders' equity
 
78,477

 
 
 
 
 
87,091

 
 
 
 
Total liabilities and stockholders' equity
 
$
663,446

 
 
 
 
 
$
580,372

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
 
 
 
$
5,005

 
 
 
 
 
$
4,451

 
 
Net interest rate spread
 
 
 
 
 
3.40
%
 
 
 
 
 
3.40
%
Net interest-earning assets
 
$
11,688

 
 
 
 
 
$
35,394

 
 
 
 
Net interest margin
 
 
 
 
 
3.41
%
 
 
 
 
 
3.43
%
Average of interest-earning assets to interest-bearing liabilities
 
 
 
 
 
102.03
%
 
 
 
 
 
107.32
%



42



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-earning demand deposits. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.
 
Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities.  Net cash used in operating activities was $4.7 million and $6.2 million for the three months ended December 31, 2015 and December 31, 2014, respectively.  Net cash used in investing activities, which consists primarily of disbursements for loan originations and the purchase of securities, offset by principal collections on loans, proceeds from the sale of securities and proceeds from maturing securities and pay downs on mortgage-backed securities, was $8.9 million and $17.9 million for the three months ended December 31, 2015 and December 31, 2014, respectively.  During the three months ended December 31, 2015, we purchased $12.4 million and sold $5.2 million in securities held as available-for-sale, and during the three months ended December 31, 2014, we purchased $8.2 million and sold $12.1 million in securities held as available-for-sale.  Net cash provided by financing activities was $37.2 million and $30.9 million for the three months ended December 31, 2015 and December 31, 2014, respectively, and consisted of increases in deposit accounts and FHLB borrowings offset by the purchase of Company stock.
 
At December 31, 2015, Westbury Bank exceeded all of its regulatory capital requirements with Tier 1 leverage capital of $64.2 million, or 9.77% of adjusted total assets, which is above the well-capitalized level of $32.8 million, or 5.00%; Common Equity Tier 1 capital of $64.2 million, or 12.09% of adjusted total assets, which is above the well-capitalized level of $34.5 million, or 6.50%; Tier 1 capital of $64.2 million, or 12.09% of risk-weighted assets, which is above the well-capitalized level of $42.5 million, or 8.00%; and total risk-based capital of $68.9 million, or 12.99% of risk-weighted assets, which is above the well-capitalized level of $53.1 million, or 10.00%.  Accordingly, Westbury Bank was categorized as well-capitalized at December 31, 2015 under all Prompt Corrective Action Provisions, as determined by the OCC, our primary regulator. 
 
At December 31, 2015, we had outstanding commitments to originate loans of $17.9 million, unused commercial lines of credit of $64.4 million, unused home equity lines of credit of $25.6 million, and stand-by letters of credit of $763,000.  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 December 31, 2015 totaled $51.5 million.  Management expects that a substantial portion of the maturing certificates of deposit will be renewed.  However, if a substantial portion of these deposits is not retained, we may utilize FHLB advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.
 
Off-Balance Sheet Arrangements.  In the normal course of operations, we engage in a variety of financial transactions that, in accordance with U.S. Generally Accepted Accounting Principles, are not recorded in our financial statements.  These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk.  Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments, lines of credit and standby letters of credit. These arrangements are not likely to have a material impact on the Company's financial condition or results of operations. We have not engaged in any other off-balance-sheet transactions in the normal course of our lending activities.

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

43



 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Disclosures of quantitative and qualitative market risk are not required by smaller reporting companies, such as the Company.
 

ITEM 4. CONTROLS AND PROCEDURES
 
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that the information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

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

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

PART II
 
ITEM 1. LEGAL PROCEEDINGS
 
We are not involved in any pending legal proceedings as a plaintiff or defendant other than routine legal proceedings occurring in the ordinary course of business, and at December 31, 2015, we were not involved in any legal proceedings, the outcome of which, in our reasonable opinion, would be material to our financial condition or results of operations.
 
ITEM 1A. RISK FACTORS
 
Disclosures of risk factors are not required by smaller reporting companies, such as the Company.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
(a)
Unregistered Sales of Equity Securities.  None.

(b)
Use of Proceeds.  None.
 
(c)
Repurchase of Equity Securities. 

On May 21, 2015, the Company announced that its Board of Directors had authorized the repurchase of up to 200,000 shares of the Company's common stock, representing 4.52% of the Company's then outstanding shares. In connection with this authorization, the Company announced the completion of the previous authorization to purchase 492,695 shares. The shares

44


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 December 31, 2015, 120,670 shares had been purchased under the current plan.

The table below sets forth Westbury Bancorp Inc.'s common stock repurchases during the three months ended December 31. 2015.
 
Period
(a)
Total number of shares purchased
1
(b)
Average price paid per share
(c)
Total number of shares purchased as part of publicly announced plans or programs
(d)
Maximum number of shares that may yet be purchased under the plans or programs
October 1- October 31, 2015
4,531

$
17.54

4,531

100,712

November 1- November 30, 2015
1,095

17.74

1,095

99,617

December 1- December 31, 2015
22,368

18.19

22,368

77,249

Total
27,994

$
18.07

27,994


______________________________________________________________________
(1) All shares were repurchased pursuant to the May 21, 2015 authorization.

 
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.

45



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: January 28, 2016
 
/s/ Greg J. Remus
Greg J. Remus
President and Chief Executive Officer
 
/s/ Kirk J. Emerich
Kirk J. Emerich
Executive Vice President and Chief Financial Officer


46


INDEX TO EXHIBITS
 
Exhibit Number
 
Description
31.1
 
Certification of Greg J. Remus, President and Chief Executive Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a)
31.2
 
Certification of Kirk J. Emerich, Executive Vice President and Chief Financial Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a)
32
 
Certification of Greg J. Remus, President and Chief Executive Officer, and Kirk J. Emerich, Executive Vice President and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101
 
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2015, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Comprehensive Income (Loss); (iv) Consolidated Statements of Changes in Stockholders' Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Unaudited Consolidated Financial Statements
_
* - This certification is not "filed" for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, or incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities and Exchange Act of 1934, as amended.
______________________________________


47