10-Q 1 a13-6932_110q.htm 10-Q

Table of Contents

 

 

 

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, 2012

 

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 333-184594

 


 

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  o    No  x.

 

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 o

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

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 100 shares of Common Stock, par value $.01 per share, outstanding as of March 26, 2013.

 

 

 




Table of Contents

 

EXPLANATORY NOTE

 

Westbury Bancorp, Inc., a Maryland corporation, was formed on August 10, 2012 to serve as the stock holding company for Westbury Bank as part of the mutual-to-stock conversion of WBSB Bancorp, MHC, the federally chartered mutual holding company of Westbury Bank. As of December 31, 2012, the conversion had not been completed, and, as of that date, Westbury Bancorp, Inc. had no assets or liabilities, and had not conducted any business other than that of an organizational nature. Accordingly, financial and other information of WBSB Bancorp, MHC on a consolidated basis is included in this Quarterly Report on Form 10-Q.

 



Table of Contents

 

WBSB Bancorp, MHC and Subsidiary

 

Financial Report

December 31, 2012

 



Table of Contents

 

PART I

 

ITEM 1.                                                FINANCIAL STATEMENTS

 

WBSB Bancorp, MHC and Subsidiary

 

Consolidated Balance Sheets

December 31, 2012 and September 30, 2012

(Unaudited)

(In Thousands)

 

 

 

December 31,

 

September 30,

 

 

 

2012

 

2012

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Cash and due from banks

 

$

28,422

 

$

22,688

 

Interest-bearing deposits and short-term notes

 

20,632

 

10,453

 

Cash and cash equivalents

 

49,054

 

33,141

 

 

 

 

 

 

 

Securities available-for-sale

 

57,451

 

64,532

 

Loans held for sale, at lower of cost or market

 

2,217

 

3,022

 

Loans, net of allowance for loan losses of $5,968 and $6,690 at December 31 and September 30, respectively

 

367,757

 

375,899

 

Federal Home Loan Bank stock, at cost

 

2,670

 

2,670

 

Foreclosed real estate

 

1,912

 

2,728

 

Real estate held for investment

 

6,323

 

8,451

 

Office properties and equipment, net

 

12,878

 

13,290

 

Cash surrender value of life insurance

 

12,048

 

11,940

 

Mortgage servicing rights

 

1,764

 

1,893

 

Prepaid FDIC assessment

 

877

 

1,139

 

Deferred tax asset

 

3,763

 

3,974

 

Other assets

 

5,108

 

3,787

 

 

 

 

 

 

 

Total assets

 

$

523,822

 

$

526,466

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

Liabilities

 

 

 

 

 

Deposits

 

$

469,103

 

$

466,758

 

Notes payable

 

1,254

 

1,254

 

Advance payments by borrowers for property taxes and insurance

 

593

 

6,670

 

Other liabilities

 

5,515

 

4,920

 

Total liabilities

 

476,465

 

479,602

 

 

 

 

 

 

 

Equity

 

 

 

 

 

Retained earnings

 

46,528

 

45,687

 

Accumulated other comprehensive income

 

829

 

1,177

 

Total equity

 

47,357

 

46,864

 

 

 

 

 

 

 

Total liabilities and equity

 

$

523,822

 

$

526,466

 

 

See Notes to Unaudited Consolidated Financial Statements.

 

1



Table of Contents

 

WBSB Bancorp, MHC and Subsidiary

 

Consolidated Statements of Operations

Three Months Ended December 31, 2012 and 2011

(Unaudited)

(In Thousands)

 

 

 

Three Months Ended

 

 

 

December 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Interest and dividend income:

 

 

 

 

 

Loans

 

$

4,695

 

$

5,167

 

Investments - nontaxable

 

3

 

25

 

Investments - taxable

 

319

 

480

 

Interest bearing deposits and short term notes

 

19

 

38

 

Total interest and dividend income

 

5,036

 

5,710

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

Deposits

 

600

 

1,002

 

Advances from the Federal Home Loan Bank

 

 

80

 

Notes payable

 

25

 

49

 

Advance payments by borrowers for property taxes and insurance

 

1

 

1

 

Total interest expense

 

626

 

1,132

 

 

 

 

 

 

 

Net interest income before provision for loan losses

 

4,410

 

4,578

 

 

 

 

 

 

 

Provision for loan losses

 

330

 

3,153

 

 

 

 

 

 

 

Net interest income after provision for loan losses

 

4,080

 

1,425

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

Service fees on deposit accounts

 

1,149

 

1,292

 

Gain on sales of loans, net

 

952

 

629

 

Servicing fee income, net of amortization and impairment

 

(128

)

(658

)

Insurance and securities sales commissions

 

223

 

200

 

Gain on sales of securities

 

219

 

74

 

Loss on sales of branches and other assets

 

(22

)

(97

)

Increase in cash surrender value of life insurance

 

108

 

107

 

Rental income from real estate operations

 

159

 

263

 

Other income

 

215

 

225

 

Total noninterest income

 

2,875

 

2,035

 

 

 

 

 

 

 

Noninterest expenses:

 

 

 

 

 

Salaries and employee benefits

 

2,106

 

3,568

 

Commissions

 

247

 

416

 

Occupancy

 

400

 

667

 

Furniture and equipment

 

347

 

338

 

Data processing

 

753

 

707

 

Advertising

 

79

 

99

 

Real estate held for investment

 

141

 

148

 

Net loss from operations and sale of foreclosed real estate

 

265

 

1,068

 

FDIC insurance premiums

 

270

 

259

 

Other expenses

 

1,082

 

693

 

Total noninterest expenses

 

5,690

 

7,963

 

 

 

 

 

 

 

Income (loss) before income tax expense (benefit)

 

1,265

 

(4,503

)

 

 

 

 

 

 

Income tax expense (benefit)

 

424

 

(226

)

 

 

 

 

 

 

Net income (loss)

 

$

841

 

$

(4,277

)

 

See Notes to Unaudited Consolidated Financial Statements.

 

2



Table of Contents

 

WBSB Bancorp, MHC and Subsidiary

 

Consolidated Statements of Comprehensive Income (Loss)

Three Months Ended December 31, 2012 and 2011

(Unaudited)

(In Thousands)

 

 

 

Three Months Ended

 

 

 

December 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Net income (loss)

 

$

841

 

$

(4,277

)

Other comprehensive income (loss), before tax:

 

 

 

 

 

Unrealized appreciation (depreciation) on available-for-sale securities net of taxes

 

(204

)

(48

)

 

 

 

 

 

 

Less: reclassification adjustment for realized gains included in net income, net of taxes

 

(144

)

9

 

 

 

 

 

 

 

 

 

(348

)

(39

)

 

 

 

 

 

 

 

 

$

493

 

$

(4,316

)

 

See Notes to Unaudited Consolidated Financial Statements.

 

3



Table of Contents

 

WBSB Bancorp, MHC and Subsidiary

 

Consolidated Statements of Cash Flows

Three Months Ended December 31, 2012 and 2011

(Unaudited)

(In Thousands)

 

 

 

Three Months Ended

 

 

 

December 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Cash Flows From Operating Activities

 

 

 

 

 

Net income (loss)

 

$

841

 

$

(4,277

)

Adjustments to reconcile net income (loss) to cash provided by operating activities:

 

 

 

 

 

Provision for loan losses

 

330

 

3,153

 

Depreciation and amortization

 

206

 

660

 

Net amortization of securities premiums and discounts

 

154

 

394

 

Amortization and impairment of mortgage servicing rights

 

302

 

830

 

Capitalization of mortgage servicing rights

 

(173

)

(351

)

Gain on sales of available-for-sale securities

 

(219

)

(74

)

Loss on sales of branches and other assets

 

22

 

97

 

(Gain) loss on sale of foreclosed real estate

 

(287

)

243

 

Write-down of foreclosed real estate

 

80

 

(334

)

Loans originated for sale

 

(47,635

)

(45,075

)

Proceeds from sale of loans

 

49,392

 

45,519

 

Gain on sale of loans, net

 

(952

)

(629

)

Deferred income taxes

 

435

 

(540

)

Increase in cash surrender value of life insurance

 

(108

)

(107

)

Net change in:

 

 

 

 

 

Prepaid FDIC insurance assessment

 

262

 

249

 

Other assets

 

489

 

(689

)

Other liabilities

 

(5,482

)

(7,790

)

Net cash used in operating activities

 

(2,343

)

(8,721

)

 

 

 

 

 

 

Cash Flows From Investing Activities

 

 

 

 

 

Purchases of securities available-for-sale

 

(7,737

)

(17,056

)

Proceeds from sales of securities available-for-sale

 

10,303

 

5,261

 

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

 

4,008

 

8,916

 

Net decrease in loans

 

7,476

 

12,908

 

Proceeds from sales of office properties and equipment

 

526

 

1,631

 

Purchases of office properties and equipment

 

(24

)

(349

)

Proceeds from sales of foreclosed real estate

 

1,359

 

119

 

Net cash provided by investing activities

 

15,911

 

11,430

 

 

 

 

 

 

 

Cash Flows From Financing Activities

 

 

 

 

 

Net increase (decrease) in deposits

 

2,345

 

(20,896

)

Repayment of advances from the Federal Home Loan Bank

 

 

(6,000

)

Net change in notes payable

 

 

(37

)

Net cash provided by (used in) financing activities

 

2,345

 

(26,933

)

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

15,913

 

(24,224

)

 

 

 

 

 

 

Cash and cash equivalents at beginning

 

33,141

 

45,721

 

 

 

 

 

 

 

Cash and cash equivalents at end

 

$

49,054

 

$

21,497

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information Interest paid (including amounts credited to deposits)

 

$

628

 

$

1,165

 

 

 

 

 

 

 

Supplemental Schedules of Noncash Investing Activities Loans receivable transferred to foreclosed real estate

 

$

336

 

$

1,701

 

 

See Notes to Unaudited Consolidated Financial Statements.

 

4



Table of Contents

 

WBSB Bancorp, MHC and Subsidiary

 

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands)

 

Note 1.                                 Basis of Presentation

 

The accompanying unaudited consolidated financial statements of WBSB Bancorp, MHC and Subsidiary (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 10-01 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 U.S. generally accepted accounting principles 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.

 

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 position as of December 31, 2012 and September 30, 2012 and the results of operations and cash flows for the interim periods ended December 31, 2012 and 2011.  All interim amounts have not been audited, 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 as of September 30, 2012 filed as part of Westbury Bancorp, Inc.’s Prospectus dated February 11, 2013, as filed with the Securities and Exchange Commission pursuant to Securities Act Rule 424(b)(3) on February 21, 2013.

 

5



Table of Contents

 

WBSB Bancorp, MHC and Subsidiary

 

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands)

 

Note 2.                                 Securities Available-for-Sale

 

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

 

 

 

December 31, 2012

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gains

 

(Losses)

 

Value

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency securities

 

$

2,991

 

$

18

 

$

(1

)

$

3,008

 

U.S. Government agency residential mortgage-backed securities

 

22,989

 

639

 

 

23,628

 

U.S. Government agency collateralized mortgage obligations

 

6,960

 

85

 

(30

)

7,015

 

Municipal securities

 

23,145

 

738

 

(83

)

23,800

 

 

 

 

 

 

 

 

 

 

 

 

 

$

56,085

 

$

1,480

 

$

(114

)

$

57,451

 

 

 

 

September 30, 2012

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gains

 

(Losses)

 

Value

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency securities

 

$

2,994

 

$

17

 

$

(2

)

$

3,009

 

U.S. Government agency residential mortgage-backed securities

 

31,349

 

1,161

 

 

32,510

 

U.S. Government agency collateralized mortgage obligations

 

8,709

 

93

 

(57

)

8,745

 

Municipal securities

 

19,542

 

790

 

(64

)

20,268

 

 

 

 

 

 

 

 

 

 

 

 

 

$

62,594

 

$

2,061

 

$

(123

)

$

64,532

 

 

6



Table of Contents

 

WBSB Bancorp, MHC and Subsidiary

 

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands)

 

Note 2.                                 Securities Available-for-Sale (Continued)

 

The amortized cost and fair value of securities available-for-sale, by contractual maturity at December 31, 2012 and September 30, 2012, are shown in the following tables.  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, 2012

 

 

 

Amortized Cost

 

Fair Value

 

 

 

 

 

 

 

Due in one year or less

 

$

305

 

$

308

 

Due after one year through five years

 

6,967

 

7,110

 

Due after five years through ten years

 

15,635

 

16,123

 

Due after ten years

 

3,229

 

3,267

 

U.S. Government agency collateralized mortgage obligations

 

6,960

 

7,015

 

U.S. Government agency residential mortgage-backed securities

 

22,989

 

23,628

 

 

 

 

 

 

 

 

 

$

56,085

 

$

57,451

 

 

 

 

September 30, 2012

 

 

 

Amortized Cost

 

Fair Value

 

 

 

 

 

 

 

Due in one year or less

 

$

308

 

$

310

 

Due after one year through five years

 

4,624

 

4,737

 

Due after five years through ten years

 

14,987

 

15,548

 

Due after ten years

 

2,617

 

2,682

 

U.S. Government agency collateralized mortgage obligations

 

8,709

 

8,745

 

U.S. Government agency residential mortgage-backed securities

 

31,349

 

32,510

 

 

 

 

 

 

 

 

 

$

62,594

 

$

64,532

 

 

Proceeds from sales of securities available-for-sale during the three months ended December 31, 2012 and 2011, were $10,303 and $5,261, respectively.  Gross realized gains, during the three months ended December 31, 2012 and 2011, on these sales amounted to $244 and $78, respectively.  Gross realized losses on these sales were $25 and $4, during the three months ended December 31, 2012 and 2011, respectively.

 

Securities with carrying values of $0 and $6,173 at December 31, 2012 and December 31, 2011, respectively, were pledged to secure treasury, tax, and loan deposits and other purposes required or permitted by law.

 

7



Table of Contents

 

WBSB Bancorp, MHC and Subsidiary

 

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands)

 

Note 2.                                 Securities Available-for-Sale (Continued)

 

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, 2012

 

 

 

Less than 12 Months

 

12 Months or Longer

 

Total

 

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

 

 

Value

 

Loss

 

Value

 

Loss

 

Value

 

Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency securities

 

$

1,000

 

$

(2

)

$

 

$

 

$

1,000

 

$

(2

)

U.S. Government agency collateralized mortgage obligations

 

976

 

(2

)

689

 

(28

)

1,665

 

(30

)

Municipal securities

 

3,799

 

(77

)

307

 

(6

)

4,106

 

(83

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

5,775

 

$

(81

)

$

996

 

$

(34

)

$

6,771

 

$

(115

)

 

 

 

September 30, 2012

 

 

 

Less than 12 Months

 

12 Months or Longer

 

Total

 

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

 

 

Value

 

Loss

 

Value

 

Loss

 

Value

 

Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency securities

 

$

998

 

$

(2

)

$

 

$

 

$

998

 

$

(2

)

U.S. Government agency collateralized mortgage obligations

 

2,932

 

(57

)

 

 

2,932

 

(57

)

Municipal securities

 

2,100

 

(64

)

 

 

2,100

 

(64

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

6,030

 

$

(123

)

$

 

$

 

$

6,030

 

$

(123

)

 

At September 30, 2012, the investment portfolio did not include any available-for-sale securities which had been in unrealized loss positions for greater than twelve months.  At December 31, 2012, the investment portfolio included two securities available-for-sale which had been in unrealized loss positions for twelve months or greater. Both securities are considered to be acceptable credit risks.  Based upon an evaluation of the available evidence, including recent changes in market rates, credit rating information and information obtained from regulatory filings, management believes the decline in fair value for these securities is temporary.  In addition, the Company does not intend to sell these investment securities for a period of time sufficient to allow for anticipated recovery.  The Company does not have any current requirement to sell its investment in the issuer prior to any anticipated recovery in fair value.

 

8



Table of Contents

 

WBSB Bancorp, MHC and Subsidiary

 

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands)

 

Note 3.                                Loans

 

A summary of the balances of loans follows:

 

 

 

December 31,
2012

 

September 30,
2012

 

 

 

 

 

 

 

Real Estate:

 

 

 

 

 

Single Family

 

$

145,409

 

$

153,090

 

Multifamily

 

40,781

 

38,491

 

Commercial real estate

 

131,519

 

132,782

 

Construction and land development

 

9,080

 

8,975

 

Total Real Estate

 

326,789

 

333,338

 

 

 

 

 

 

 

Commercial Business

 

22,135

 

22,938

 

 

 

 

 

 

 

Consumer:

 

 

 

 

 

Home equity lines of credit

 

18,134

 

19,356

 

Education

 

5,666

 

5,709

 

Other

 

1,051

 

1,255

 

Total Consumer

 

24,851

 

26,320

 

 

 

 

 

 

 

Total Loans

 

373,775

 

382,596

 

Less:

 

 

 

 

 

Net Deferred Loan Fees

 

50

 

7

 

Allowance for Loan Losses

 

5,968

 

6,690

 

 

 

 

 

 

 

Net Loans

 

$

367,757

 

$

375,899

 

 

9



Table of Contents

 

WBSB Bancorp, MHC and Subsidiary

 

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands)

 

Note 3.                                 Loans (Continued)

 

The following tables present the contractual aging of the recorded investment in past due loans by class of loans as of December 31, 2012 and September 30, 2012:

 

 

 

 

 

 

 

 

 

Loans Past

 

 

 

 

 

 

 

30-59 Days

 

60-89 Days

 

Due 90 Days

 

 

 

December 31, 2012

 

Current

 

Past Due

 

Past Due

 

or More

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Single family

 

$

138,582

 

$

2,261

 

$

1,259

 

$

3,307

 

$

145,409

 

Multifamily

 

40,781

 

 

 

 

40,781

 

Commercial real estate

 

127,848

 

1,649

 

156

 

1,866

 

131,519

 

Construction and land development

 

8,833

 

247

 

 

 

9,080

 

Commercial business

 

22,016

 

74

 

 

45

 

22,135

 

Consumer and other:

 

 

 

 

 

 

 

 

 

 

 

Home equity lines of credit

 

17,356

 

542

 

14

 

222

 

18,134

 

Education

 

5,304

 

99

 

44

 

219

 

5,666

 

Other

 

1,039

 

10

 

1

 

1

 

1,051

 

 

 

$

361,759

 

$

4,882

 

$

1,474

 

$

5,660

 

$

373,775

 

 

 

 

 

 

 

 

 

 

Loans Past

 

 

 

 

 

 

 

30-59 Days

 

60-89 Days

 

Due 90 Days

 

 

 

September 30, 2012

 

Current

 

Past Due

 

Past Due

 

or More

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Single family

 

$

147,197

 

$

1,747

 

$

1,112

 

$

3,034

 

$

153,090

 

Multifamily

 

38,491

 

 

 

 

38,491

 

Commercial real estate

 

130,237

 

 

169

 

2,376

 

132,782

 

Construction and land development

 

8,814

 

53

 

 

108

 

8,975

 

Commercial business

 

22,785

 

153

 

 

 

22,938

 

Consumer and other:

 

 

 

 

 

 

 

 

 

 

 

Home equity lines of credit

 

18,367

 

453

 

248

 

288

 

19,356

 

Education

 

5,449

 

61

 

85

 

114

 

5,709

 

Other

 

1,236

 

5

 

5

 

9

 

1,255

 

 

 

$

372,576

 

$

2,472

 

$

1,619

 

$

5,929

 

$

382,596

 

 

There were no loans past due ninety days or more still accruing interest as of December 31, 2012 and September 30, 2012.

 

10



Table of Contents

 

WBSB Bancorp, MHC and Subsidiary

 

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands)

 

Note 3.                                 Loans (Continued)

 

The following table presents the recorded investment in nonaccrual loans by class of loans as of December 31, 2012 and September 30, 2012:

 

 

 

December 31,

 

September 30,

 

 

 

2012

 

2012

 

 

 

 

 

 

 

Single family

 

$

4,557

 

$

4,610

 

Multifamily

 

2,735

 

2,789

 

Commercial real estate

 

1,905

 

2,376

 

Construction and land development

 

 

108

 

Commercial business

 

84

 

 

Consumer and other:

 

 

 

 

 

Home equity lines of credit

 

243

 

310

 

Education

 

263

 

199

 

Other

 

31

 

45

 

 

 

$

9,818

 

$

10,437

 

 

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

 

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

 

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

 

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

 

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

 

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.

 

11



Table of Contents

 

WBSB Bancorp, MHC and Subsidiary

 

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands)

 

Note 3.                                 Loans (Continued)

 

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

 

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

 

The following tables present the risk category of loans evaluated by internal asset classification based on the most recent analysis performed and the contractual aging as of December 31, 2012 and September 30, 2012:

 

December 31, 2012

 

Pass

 

Watch

 

Special Mention

 

Substandard

 

Doubtful

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Single family

 

$

7,906

 

$

697

 

$

124

 

$

2,496

 

$

––

 

$

11,223

 

Multifamily

 

34,932

 

1,995

 

937

 

2,917

 

––

 

40,781

 

Commercial real estate

 

108,188

 

10,473

 

2,802

 

10,056

 

––

 

131,519

 

Construction and land development

 

7,936

 

74

 

 

1,070

 

––

 

9,080

 

Commercial business

 

19,593

 

1,027

 

322

 

1,193

 

––

 

22,135

 

Total

 

$

178,555

 

$

14,266

 

$

4,185

 

$

17,732

 

$

––

 

$

214,738

 

 

 

 

Performing

 

Non-Performing

 

Total

 

 

 

 

 

 

 

 

 

Single family

 

$

129,917

 

$

4,269

 

$

134,186

 

Consumer and other:

 

 

 

 

 

 

 

Home equity lines of credit

 

17,891

 

243

 

18,134

 

Education

 

5,403

 

263

 

5,666

 

Other

 

1,020

 

31

 

1,051

 

 

 

$

154,231

 

$

4,806

 

$

159,037

 

 

September 30, 2012

 

Pass

 

Watch

 

Special Mention

 

Substandard

 

Doubtful

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Single family

 

$

8,059

 

$

536

 

$

806

 

$

2,629

 

$

 

$

12,030

 

Multifamily

 

29,948

 

5,208

 

 

3,335

 

 

38,491

 

Commercial real estate

 

114,755

 

5,246

 

1,795

 

10,986

 

 

132,782

 

Construction and land development

 

7,534

 

708

 

177

 

556

 

 

8,975

 

Commercial business

 

20,504

 

280

 

780

 

953

 

 

22,938

 

Total

 

$

181,221

 

$

11,978

 

$

3,558

 

$

18,459

 

$

 

$

215,216

 

 

 

 

Performing

 

Non-Performing

 

Total

 

Single family

 

$

137,936

 

$

3,124

 

$

141,060

 

Consumer and other:

 

 

 

 

 

 

 

Home equity lines of credit

 

19,046

 

310

 

19,356

 

Education

 

5,510

 

199

 

5,709

 

Other

 

1,210

 

45

 

1,255

 

 

 

$

163,702

 

$

3,678

 

$

167,380

 

 

The Company does not classify single family loans unless such loans are either related to an existing classified commercial or commercial real estate loan relationship, or have become more than 90 days delinquent and are not secured by private mortgage insurance.  As of December 31, 2012 and September 30, 2012, $2,496 and $2,629, respectively, of single family loans meeting these criteria are included in the Substandard risk category above.

 

12



Table of Contents

 

WBSB Bancorp, MHC and Subsidiary

 

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands)

 

Note 3.                                 Loans (Continued)

 

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, 2012 and December 31, 2011:

 

Three Months Ended

 

 

 

 

 

Commercial

 

Construction and

 

 

 

Consumer

 

 

 

December 31, 2012

 

Single Family

 

Multifamily

 

Real Estate

 

Land Development

 

Commercial

 

and Other

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

1,390

 

$

712

 

$

3,249

 

$

293

 

$

810

 

$

236

 

$

6,690

 

Provision for loan losses

 

760

 

(127

)

(169

)

54

 

(45

)

(143

)

330

 

Loans charged-off

 

(505

)

 

(330

)

(106

)

(99

)

(28

)

(1,068

)

Recoveries

 

 

 

2

 

 

13

 

1

 

16

 

Ending balance

 

$

1,645

 

$

585

 

$

2,752

 

$

241

 

$

679

 

$

66

 

$

5,968

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period-ended amount allocated for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

60

 

$

182

 

$

855

 

$

 

$

 

$

 

$

1,097

 

Collectively evaluated for impairment

 

1,585

 

403

 

1,897

 

241

 

679

 

66

 

4,871

 

Ending Balance

 

$

1,645

 

$

585

 

$

2,752

 

$

241

 

$

679

 

$

66

 

$

5,968

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

4,238

 

$

2,735

 

$

7,139

 

$

443

 

$

 

$

82

 

$

14,637

 

Collectively evaluated for impairment

 

141,171

 

38,046

 

124,380

 

8,637

 

22,135

 

24,769

 

359,138

 

Ending Balance

 

$

145,409

 

$

40,781

 

$

131,519

 

$

9,080

 

$

22,135

 

$

24,851

 

$

373,775

 

 

Three Months Ended

 

 

 

 

 

Commercial

 

Construction and

 

 

 

Consumer

 

 

 

December 31, 2011

 

Single Family

 

Multifamily

 

Real Estate

 

Land Development

 

Commercial

 

and Other

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

1,440

 

$

1,009

 

$

3,367

 

$

251

 

$

1,095

 

$

50

 

$

7,212

 

Provision for loan losses

 

339

 

955

 

927

 

 

796

 

136

 

3,153

 

Loans charged-off

 

(358

)

(1,086

)

(983

)

 

(807

)

(146

)

(3,380

)

Recoveries

 

16

 

40

 

70

 

 

5

 

 

 

131

 

Ending balance

 

$

1,437

 

$

918

 

$

3,381

 

$

251

 

$

1,089

 

$

40

 

$

7,116

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period-ended amount allocated for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

52

 

$

522

 

$

1,125

 

$

 

$

284

 

$

 

$

1,983

 

Collectively evaluated for impairment

 

1,385

 

396

 

2,256

 

251

 

805

 

40

 

5,133

 

Ending Balance

 

$

1,437

 

$

918

 

$

3,381

 

$

251

 

$

1,089

 

$

40

 

$

7,116

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

4,275

 

$

7,867

 

$

7,159

 

$

650

 

$

812

 

$

121

 

$

20,884

 

Collectively evaluated for impairment

 

166,658

 

36,719

 

128,445

 

11,653

 

22,807

 

28,467

 

394,749

 

Ending Balance

 

$

170,933

 

$

44,586

 

$

135,604

 

$

12,303

 

$

23,619

 

$

28,588

 

$

415,633

 

 

13



Table of Contents

 

WBSB Bancorp, MHC and Subsidiary

 

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands)

 

Note 3.                                 Loans (Continued)

 

The following tables present additional detail of impaired loans, segregated by segment, as of and for the three months ended December 31, 2012, and the three months ended December 31, 2011.  The unpaid principal balance represents the recorded balance prior to any partial charge-offs.  The recorded investment represents customer balances net of any partial charge-offs recognized on the loans.  The interest income recognized column represents all interest income reported on either a cash or accrual basis for the periods presented.

 

 

 

Unpaid

 

 

 

Allowance for

 

Average

 

Interest

 

 

 

Principal

 

Recorded

 

Loan Losses

 

Recorded

 

Income

 

December 31, 2012

 

Balance

 

Investment

 

Allocated

 

Investment

 

Recognized

 

 

 

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

Single family

 

$

4,667

 

$

3,791

 

$

 

$

3,659

 

$

8

 

Multifamily

 

2,066

 

1,813

 

 

 

3,588

 

 

Commercial real estate

 

4,152

 

4,068

 

 

 

4,087

 

57

 

Construction and land development

 

443

 

443

 

 

 

547

 

6

 

Commercial business

 

 

 

 

 

193

 

 

Consumer and other

 

40

 

30

 

 

 

76

 

 

 

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

Single family

 

504

 

499

 

60

 

 

624

 

6

 

Multifamily

 

978

 

922

 

182

 

 

674

 

 

Commercial real estate

 

4,074

 

3,071

 

855

 

 

2,788

 

19

 

Construction and land development

 

 

 

 

 

 

 

Commercial business

 

 

 

 

 

1,527

 

 

Consumer and other

 

 

 

 

 

 

 

 

 

$

16,924

 

$

14,637

 

$

1,097

 

$

17,763

 

$

96

 

 

14



Table of Contents

 

WBSB Bancorp, MHC and Subsidiary

 

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands)

 

Note 3.                                 Loans (Continued)

 

 

 

Unpaid

 

 

 

Allowance for

 

Average

 

Interest

 

 

 

Principal

 

Recorded

 

Loan Losses

 

Recorded

 

Income

 

December 31, 2011

 

Balance

 

Investment

 

Allocated

 

Investment

 

Recognized

 

 

 

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

Single family

 

$

3,526

 

$

3,526

 

$

 

$

2,137

 

$

 

Multifamily

 

5,362

 

5,362

 

 

5,503

 

29

 

Commercial real estate

 

4,373

 

4,106

 

 

8,077

 

120

 

Construction and land development

 

650

 

650

 

 

144

 

 

Commercial business

 

444

 

386

 

 

2,445

 

7

 

Consumer and other

 

121

 

121

 

 

71

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

Single family

 

749

 

749

 

52

 

747

 

 

Commercial business

 

426

 

426

 

284

 

403

 

 

Multifamily

 

2,505

 

2,505

 

522

 

3,051

 

 

Construction and land development

 

 

 

 

 

691

 

 

Commercial real estate

 

3,053

 

3,053

 

1,125

 

1,904

 

 

Consumer and other

 

 

 

 

11

 

 

Total

 

$

21,209

 

$

20,884

 

$

1,983

 

$

25,184

 

$

156

 

 

The following is a summary of troubled debt restructured loans (TDRs) at December 31, 2012 and September 30, 2012:

 

 

 

December 31,

 

September 30,

 

 

 

2012

 

2012

 

 

 

 

 

 

 

Troubled debt restructurings - accrual

 

$

6,187

 

$

6,302

 

Troubled debt restructurings - nonaccrual

 

1,419

 

1,289

 

 

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

 

15



Table of Contents

 

WBSB Bancorp, MHC and Subsidiary

 

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands)

 

Note 3.                                 Loans (Continued)

 

The following table presents information related to loans modified in a TDR, by class, during the three months ended December 31, 2012 and the three months ended December 31, 2011:

 

 

 

Three Months Ended December 31, 2012

 

 

 

 

 

Unpaid

 

 

 

 

 

 

 

 

 

Principal

 

Balance in the ALLL

 

 

 

Number of
Modifications

 

Balance
(at End of Period)

 

Prior to
Modification

 

At Period End

 

 

 

 

 

 

 

 

 

 

 

Single family

 

1

 

$

124

 

$

 

$

 

Multifamily

 

 

 

 

 

Commercial real estate

 

3

 

810

 

 

 

Construction and land development

 

 

 

 

 

Commercial business

 

 

 

 

 

Consumer and other:

 

 

 

 

 

 

 

 

 

Home equity lines of credit

 

 

 

 

 

Education

 

 

 

 

 

Other

 

 

 

 

 

 

 

4

 

$

934

 

$

 

$

 

 

 

 

Three Months Ended December 31, 2011

 

 

 

 

 

Unpaid

 

 

 

 

 

 

 

 

 

Principal

 

Balance in the ALLL

 

 

 

Number of
Modifications

 

Balance
(at End of Period)

 

Prior to
Modification

 

At Period End

 

 

 

 

 

 

 

 

 

 

 

Single family

 

10

 

$

319

 

$

 

$

36

 

Multifamily

 

 

 

 

 

Commercial real estate

 

5

 

795

 

 

 

Construction and land development

 

 

 

 

 

Commercial business

 

 

 

 

 

Consumer and other:

 

 

 

 

 

 

 

 

 

Home equity lines of credit

 

 

 

 

 

Education

 

 

 

 

 

Other

 

 

 

 

 

 

 

15

 

$

1,114

 

$

 

$

36

 

 

16



Table of Contents

 

WBSB Bancorp, MHC and Subsidiary

 

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands)

 

Note 3.                                 Loans (Continued)

 

The following table presents a summary of loans modified in a TDR during the three months ended December 31, 2012 and the three months ended December 31, 2011 by class and by type of modification:

 

 

 

Principal and

 

Interest Rate Reduction

 

Reduced

 

Reduced

 

 

 

 

 

Three Months Ended

 

Interest to

 

To Below

 

To Interest

 

Amortization

 

Principal

 

 

 

 

 

December 31, 2012

 

Interest Only

 

Market Rate

 

Only

 

Period

 

Balance

 

Other (1)

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Single family

 

$

 

$

 

$

 

$

 

$

 

$

124

 

$

124

 

Multifamily

 

 

 

 

 

 

 

 

Commercial real estate

 

185

 

 

 

 

 

625

 

810

 

Construction and land development

 

 

 

 

 

 

 

 

Commercial business

 

 

 

 

 

 

 

 

Consumer and other:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines of credit

 

 

 

 

 

 

 

 

Education

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

$

185

 

$

 

$

 

$

 

$

 

$

749

 

$

934

 

 

 

 

Principal and

 

Interest Rate Reduction

 

Reduced

 

Reduced

 

 

 

 

 

Three Months Ended

 

Interest to

 

To Below

 

To Interest

 

Amortization

 

Principal

 

 

 

 

 

December 31, 2011

 

Interest Only

 

Market Rate

 

Only

 

Period

 

Balance

 

Other (1)

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Single family

 

$

 

$

 

$

 

$

 

$

319

 

$

 

$

319

 

Multifamily

 

 

 

 

 

 

 

 

Commercial real estate

 

408

 

387

 

 

 

 

 

795

 

Construction and land development

 

 

 

 

 

 

 

 

Commercial business

 

 

 

 

 

 

 

 

Consumer and other:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines of credit

 

 

 

 

 

 

 

 

Education

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

$

408

 

$

387

 

$

 

$

 

$

319

 

$

 

$

1,114

 

 


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

 

There were no re-defaults of TDR loans that occurred during the three months ended December 31, 2012 and the three months ended December 31, 2011.

 

Certain of the Bank’s officers, employees, directors, and their associates are loan customers of the Bank.  As of December 31, 2012 and September 30, 2012, loans of approximately $5,825 and $5,781, respectively, were outstanding to such parties.  These loans were made on substantially the same terms as those prevailing for comparable transactions with other persons and do not involve more than the normal risk of collectability.

 

17



Table of Contents

 

WBSB Bancorp, MHC and Subsidiary

 

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands)

 

Note 4.                                 Deposits

 

The following table presents the composition of deposits as of:

 

 

 

December 31, 2012

 

September 30, 2012

 

 

 

Amount

 

Percent

 

Amount

 

Percent

 

Negotiable order for withdrawal accounts:

 

 

 

 

 

 

 

 

 

Noninterest bearing

 

$

73,890

 

15.75

%

$

67,033

 

14.36

%

Interest bearing

 

157,034

 

33.47

%

153,824

 

32.96

%

 

 

230,924

 

49.22

%

220,857

 

47.32

%

 

 

 

 

 

 

 

 

 

 

Passbook and Statement Savings

 

112,234

 

23.93

%

113,381

 

24.29

%

Variable Rate Money Market Accounts

 

23,130

 

4.93

%

23,595

 

5.05

%

Certificate accounts

 

102,815

 

21.92

%

108,925

 

23.34

%

 

 

 

 

 

 

 

 

 

 

 

 

$

469,103

 

100.00

%

$

466,758

 

100.00

%

 

Certificate accounts over $100,000 totaled $25,709 and $27,795 as of December 31, 2012 and September 30, 2012 respectively.

 

Note 5.                                 Regulatory Capital

 

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

 

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

 

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and Tier 1 capital (as defined) to average assets (as defined).  Management believes, as of December 31, 2012 and September 30, 2012, the Bank meets all capital adequacy requirements to which it is subject.

 

In connection with the challenging economic environment and the Bank’s elevated levels of non-performing assets, management instituted a business and capital plan to maintain the stability of the Bank.  This business and capital plan requires the Bank to maintain a Tier 1 (leverage) capital ratio of 8.00% and a total risk-based capital ratio of 12.00%.  The Bank did not achieve these capital targets at December 31, 2012 and September 30, 2012.  Management plans to meet the capital targets prescribed by the business and capital plan through the disposition of problem assets, reduction of non-interest expenses, retention of earnings and completion of a plan of conversion (see Note 8).

 

18



Table of Contents

 

WBSB Bancorp, MHC and Subsidiary

 

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands)

 

Note 5.                                 Regulatory Capital (Continued)

 

On November 5, 2012, the Bank was notified by its primary regulator that it would be subject to higher minimum capital ratios as of December 31, 2012.  The higher minimum capital ratios are identical to the business and capital plan ratios noted above.  At December 31, 2012, the Bank was not in compliance with those ratios.

 

As of December 31, 2012 and September 30, 2012 the Bank was restricted from paying dividends to the Company without the prior consent of their primary regulator.  Regardless of formal regulatory restrictions, the Bank would not be allowed to pay dividends in amounts that would result in its capital levels being reduced below the minimum requirements to be adequately capitalized under the regulatory framework for prompt corrective action.

 

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

 

At December 31, 2012

 

 

 

Actual

 

For Capital Adequacy
Purposes

 

To Be Well
Capitalized Under
Prompt Corrective
Action Provisions

 

 

 

Amount

 

Ratio

 

Amount

 

Ratio

 

Amount

 

Ratio

 

 

 

 

 

Total capital (to risk-weighted assets)

 

$

45,208

 

11.79

%

$

30,672

 

8.00

%

$

38,340

 

10.00

%

Tier 1 capital (to risk-weighted assets)

 

40,401

 

10.54

%

15,336

 

4.00

%

23,004

 

6.00

%

Tier 1 capital (to adjusted total assets)

 

40,401

 

7.88

%

20,512

 

4.00

%

25,640

 

5.00

%

 

At September 30, 2012

 

 

 

Actual

 

For Capital Adequacy
Purposes

 

To Be Well
Capitalized Under
Prompt Corrective
Action Provisions

 

 

 

Amount

 

Ratio

 

Amount

 

Ratio

 

Amount

 

Ratio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital (to risk-weighted assets)

 

$

44,148

 

11.46

%

$

30,830

 

8.00

%

$

38,538

 

10.00

%

Tier 1 capital (to risk-weighted assets)

 

39,308

 

10.20

%

15,415

 

4.00

%

23,123

 

6.00

%

Tier 1 capital (to adjusted total assets)

 

39,308

 

7.68

%

20,480

 

4.00

%

25,600

 

5.00

%

 

19



Table of Contents

 

WBSB Bancorp, MHC and Subsidiary

 

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands)

 

Note 5.                                 Regulatory Capital (Continued)

 

The following table reconciles the Bank’s stockholders’ equity to regulatory capital as of December 31, 2012 and September 30, 2012:

 

 

 

December 31,
2012

 

September 30,
2012

 

 

 

 

 

 

 

Stockholders’ equity of the Bank

 

$

47,865

 

$

47,353

 

Less: Disallowed servicing assets

 

(176

)

(189

)

Unrealized gain on securities

 

(829

)

(1,177

)

Disallowed investment in subsidiary

 

(3,296

)

(3,296

)

Disallowed deferred tax assets

 

(3,163

)

(3,383

)

Tier 1 and tangible capital

 

40,401

 

39,308

 

Plus: Allowable general valuation allowances

 

4,807

 

4,840

 

Risk-based capital

 

$

45,208

 

$

44,148

 

 

Note 6.                                 Commitments

 

Financial Instruments with Off-Balance Sheet Risk

 

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

 

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit is represented by the contractual amount of those instruments.  The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

 

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

 

 

 

December 31,

 

September 30,

 

 

 

2012

 

2012

 

Commitments to extend mortgage credit:

 

 

 

 

 

Fixed rate

 

$

1,371

 

$

812

 

Adjustable rate

 

1,148

 

118

 

 

 

 

 

 

 

Unused commercial loan and home equity lines of credit

 

$

37,012

 

$

36,553

 

Standby letters of credit

 

698

 

545

 

Commitment to sell loans

 

2,217

 

3,022

 

 

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.

 

20



Table of Contents

 

WBSB Bancorp, MHC and Subsidiary

 

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands)

 

Note 6.                                 Commitments (Continued)

 

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

 

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.  Those letters of credit are primarily issued to support public and private borrowing arrangements, and, generally, have terms of one year or less.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.  The Company holds collateral supporting those commitments if deemed necessary.  In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Company would be required to fund the commitment.  The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount shown in the summary above.  If the commitment is funded, the Company would be entitled to seek recovery from the customer.  At December 31, 2012 and September 30, 2012, no amounts have been recorded as liabilities for the Company’s potential obligations under these guarantees.

 

Note 7.                                 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 valuation hierarchy, is set forth below.

 

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

 

21



Table of Contents

 

WBSB Bancorp, MHC and Subsidiary

 

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands)

 

Note 7.                                 Fair Value Measurements (Continued)

 

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

 

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

 

 

 

 

 

Fair Value Measurements

 

 

 

 

 

Quoted Prices in

 

 

 

 

 

 

 

 

 

Active Markets for

 

Significant Other

 

Significant Other

 

 

 

 

 

Identical Assets

 

Observable Inputs

 

Unobservable

 

December 31, 2012

 

Total

 

(Level 1)

 

(Level 2)

 

Inputs (Level 3)

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Securities available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency securities

 

$

3,008

 

$

 

$

3,008

 

$

 

U.S. Government agency residential mortgage-backed securities

 

23,628

 

 

23,628

 

 

U.S. Government agency collateralized mortgage obligations

 

7,015

 

 

7,015

 

 

Municipal securities

 

23,800

 

 

23,800

 

 

Total securities available-for-sale

 

$

57,451

 

$

 

$

57,451

 

$

 

 

 

 

 

 

 

 

 

 

 

Derivatives

 

$

473

 

$

 

$

473

 

$

 

Liabilities

 

 

 

 

 

 

 

 

 

Derivatives

 

$

473

 

$

 

$

473

 

$

 

 

 

 

 

 

Fair Value Measurements

 

September 30, 2012

 

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

 

$

3,009

 

$

 

$

3,009

 

$

 

U.S. Government agency residential mortgage-backed securities

 

32,510

 

 

32,510

 

 

U.S. Government agency collateralized mortgage obligations

 

8,745

 

 

8,745

 

 

Municipal securities

 

20,268

 

 

20,268

 

 

Total securities available-for-sale

 

$

64,532

 

$

 

$

64,532

 

$

 

 

 

 

 

 

 

 

 

 

 

Derivatives

 

$

513

 

$

 

$

513

 

$

 

Liabilities

 

 

 

 

 

 

 

 

 

Derivatives

 

$

513

 

$

 

$

513

 

$

 

 

22



Table of Contents

 

WBSB Bancorp, MHC and Subsidiary

 

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands)

 

Note 7.                                 Fair Value Measurements (Continued)

 

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, 2012.  The Company’s policy for determining transfers between levels occurs at the end of the reporting period when circumstances in the underlying valuation criteria change and result in a transfer between levels.

 

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

 

Impaired loans:  The Company does not record loans at fair value on a recurring basis.  The specific reserves for collateral-dependent impaired loans are based on the fair value of the collateral less estimated costs to sell. The fair value of collateral is determined based on appraisals.  In some cases, adjustments were made to the appraised values due to various factors including age of the appraisal, age of comparables included in the appraisal, and known changes in the market and in the collateral.  When significant adjustments were based on unobservable inputs, the resulting fair value measurement has been categorized as a Level 3 measurement.  Impaired loans with a carrying amount of $4,492 and $5,559 have a valuation allowance of $1,097 and $1,491 included in the allowance for loan losses as of December 31, 2012 and September 30, 2012, 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, 2012, mortgage servicing rights with a carrying amount of $2,526 have a valuation allowance of $762 to reflect their fair value of $1,764. As of September 30, 2012, mortgage servicing rights with a carrying amount of $2,655 have a valuation allowance of $762 to reflect their fair value of $1,893.

 

 

 

 

 

Fair Value Measurements

 

 

 

 

 

Quoted Prices in
Active Markets
for Identical
Assets

 

Significant Other
Observable
Inputs

 

Significant Other
Unobservable
Inputs

 

December 31, 2012

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Assets

 

 

 

 

 

 

 

 

 

Impaired loans

 

$

3,394

 

$

 

$

 

$

3,394

 

Foreclosed real estate

 

1,912

 

 

 

1,912

 

Mortgage Servicing Rights

 

1,764

 

 

 

1,764

 

 

23



Table of Contents

 

WBSB Bancorp, MHC and Subsidiary

 

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands)

 

Note 7.                                 Fair Value Measurements (Continued)

 

 

 

 

 

Fair Value Measurements

 

 

 

 

 

Quoted Prices in
Active Markets
for Identical
Assets

 

Significant Other
Observable
Inputs

 

Significant Other
Unobservable
Inputs

 

September 30, 2012

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Impaired loans

 

$

4,068

 

$

 

$

 

$

4,068

 

Foreclosed real estate

 

2,728

 

 

 

2,728

 

Mortgage Servicing Rights

 

1,893

 

 

 

1,893

 

 

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

 

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

 

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

 

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

 

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

 

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

 

24



Table of Contents

 

WBSB Bancorp, MHC and Subsidiary

 

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands)

 

Note 7.                                 Fair Value Measurements (Continued)

 

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 and notes payable:  The fair values of FHLB advances and notes payable are estimated using discounted cash flow analyses, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

 

Advance payments by borrowers for property taxes and insurance:  The carrying amounts of the advance payments by borrowers for property taxes and insurance approximate their fair values.

 

Mortgage banking derivatives:  The fair value of commitments to originate mortgage loans held for sale is estimated by comparing the Company’s cost to acquire mortgages and the current price for similar mortgage loans, taking into account the terms of the commitments and the credit worthiness of the counterparties.  The fair value of forward commitments to sell residential mortgage loans is the estimated amount that the Bank would receive or pay to terminate the forward delivery contract at the reporting date based on market prices for similar financial instruments.  The fair value of these derivative financial instruments was not material at December 31, 2012 and September 30, 2012.

 

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

 

 

 

December 31, 2012

 

 

 

 

 

 

 

Quoted Prices in
Active Markets for

 

Significant Other

 

Significant Other

 

 

 

Carrying Amount

 

Estimated Fair Value

 

Identical Assets
(Level 1)

 

Observable Inputs
(Level 2)

 

Unobservable Inputs
(Level 3)

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

49,054

 

$

49,054

 

$

49,054

 

$

 

$

 

Securities

 

57,451

 

57,451

 

 

57,451

 

 

Loans, net

 

367,757

 

375,707

 

 

 

375,707

 

Loans held for sale, net

 

2,217

 

2,217

 

 

2,217

 

 

Federal Home Loan Bank stock

 

2,670

 

2,670

 

 

 

2,670

 

Mortgage servicing rights

 

1,764

 

1,764

 

 

1,764

 

 

Accrued interest receivable

 

1,824

 

1,824

 

1,824

 

 

 

Derivative asset

 

473

 

473

 

 

473

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

469,103

 

470,422

 

29,442

 

 

440,980

 

Notes payable

 

1,254

 

1,254

 

 

 

1,254

 

Advance payments by borrowers for property taxes and insurance

 

593

 

593

 

593

 

 

 

Accrued interest payable

 

36

 

36

 

36

 

 

 

Derivative liability

 

473

 

473

 

 

473

 

 

 

25



Table of Contents

 

WBSB Bancorp, MHC and Subsidiary

 

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands)

 

Note 7.                                 Fair Value Measurements (Continued)

 

 

 

September 30, 2012

 

 

 

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

 

$

33,141

 

$

33,141

 

$

33,141

 

$

 

$

 

Securities

 

64,532

 

64,532

 

 

64,532

 

 

Loans, net

 

375,899

 

384,318

 

 

 

384,318

 

Loans held for sale, net

 

3,022

 

3,022

 

 

3,022

 

 

Federal Home Loan Bank stock

 

2,670

 

2,670

 

 

 

2,670

 

Mortgage servicing rights

 

1,893

 

1,893

 

 

1,893

 

 

Accrued interest receivable

 

1,907

 

1,907

 

1,907

 

 

 

Derivative asset

 

513

 

513

 

 

513

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

466,758

 

465,651

 

67,033

 

 

398,618

 

Notes payable

 

1,254

 

1,254

 

 

 

1,254

 

Advance payments by borrowers for property taxes and insurance

 

6,670

 

6,670

 

6,670

 

 

 

Accrued interest payable

 

38

 

38

 

38

 

 

 

Derivative liability

 

513

 

513

 

 

513

 

 

 

Note 8.                                 Plan of Conversion and Reorganization and Change in Corporate Form

 

On September 5, 2012, the Board of Directors of WBSB Bancorp, MHC (“MHC”) adopted a plan of conversion and reorganization (“Plan”).  The Plan was approved by the Board of Governors of the Federal Reserve System.  The Plan must also be approved by the affirmative vote of at least a majority of the total votes eligible to be cast by the voting members of the MHC at a special meeting to be held on April 1, 2013.  The Plan provides for the reorganization of the MHC from a federally chartered mutual holding company into a stock stock holding company, Westbury Bancorp, Inc. (the “Company”) and an offering by the Company of shares of its common stock to eligible depositors of Westbury Bank (the “Bank”) and the public.  The Company has been organized as a corporation incorporated under the laws of the State of Maryland and will own all of the outstanding common stock of the Bank upon completion of the reorganization.

 

On February 22, 2013, the Company began offering up to 5,091,625 shares of common stock to the public at $10.00 per share based upon a valuation by an independent appraiser.  The Company must sell a minimum of 3,272,500 shares in order to complete the offering and the Company will terminate the offering if it does not sell the minimum number of shares.  The offering is being conducted pursuant to a registration statement filed with the United States Securities and Exchange Commission.

 

In addition, the Company intends to contribute a total of $1.0 million (consisting of a number of shares of common stock equal to 1.0% of the shares sold in the offering, and the remainder in cash) to a charitable foundation that the Bank is establishing in connection with the reorganization.

 

The costs of reorganization and issuing the common stock will be deferred and deducted from the sales proceeds of the offering.  If the reorganization and offering are not completed, all deferred costs will be charged to operations.  The Company has $865 and $198 in deferred costs as of December 31, 2012 and September 30, 2012, respectively, which are included in other assets on the consolidated balance sheets.

 

26



Table of Contents

 

WBSB Bancorp, MHC and Subsidiary

 

Notes to Unaudited Consolidated Financial Statements

(Dollars in thousands)

 

Note 8.                                 Plan of Conversion and Reorganization and Change in Corporate Form (Continued)

 

In accordance with federal regulations, at the time of the reorganization, the Company will substantially restrict retained earnings by establishing a liquidation account and the Bank will establish a parallel liquidation account.  The liquidation account will be maintained for the benefit of eligible account holders who continue to maintain their accounts at the Bank after the reorganization.  The liquidation account will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s interest in the liquidation account. In the event of a complete liquidation of the Bank, and only in such event, each eligible account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the adjusted qualifying account balances then held.  The Bank may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount.  The reorganization will be accounted for as a change in corporate form with the historic basis of the Bank’s assets, liabilities and equity unchanged as a result.  The reorganization and offering are expected to be completed in April 2013.

 

27



Table of Contents

 

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

 

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

 

·                                          statements of our goals, intentions and expectations;

 

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

 

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

 

·                                          estimates of our risks and future costs and benefits.

 

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

 

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

 

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

 

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

 

·                                          significant increases in our loan losses, including as a result of our inability to resolve classified assets, and management’s assumptions in determining the adequacy of the allowance for loan losses;

 

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

 

·                                          our ability to comply with the terms of agreements with our regulators, including business and capital plans submitted to our regulators, and the individual minimum capital requirement imposed by the OCC, and our ability to successfully conduct our operations while subject to regulatory restrictions on our activities;

 

·                                          competition among depository and other financial institutions;

 

·                                          our success in increasing our commercial business, commercial real estate and multi-family lending;

 

·                                          our success in introducing new financial products;

 

·                                          our ability to attract and maintain deposits;

 

28



Table of Contents

 

·                                          our ability to improve our asset quality even as we increase our non-residential lending;

 

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

 

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

 

·                                          changes in consumer spending, borrowing and savings habits;

 

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

 

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

 

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

 

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

 

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

 

·                                          changes in consumer spending, borrowing and savings habits;

 

·                                          changes in laws or government regulations or policies affecting financial institutions, including the Dodd-Frank Act, which could result in, among other things, increased deposit insurance premiums and assessments, capital requirements, 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 organization, compensation and benefit plans;

 

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

 

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

 

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

 

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

 

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

 

29



Table of Contents

 

Critical Accounting Policies

 

There are no material changes to the critical accounting policies disclosed in Westbury Bancorp, Inc.’s Prospectus dated February 11, 2013, as filed with the Securities and Exchange Commission pursuant to Securities Act Rule 424(b)(3) on February 21, 2013.

 

Comparison of Financial Condition at December 31, 2012 and September 30, 2012

 

Total Assets.  Total assets decreased by $2.7 million, or 0.5%, to $523.8 million at December 31, 2012 from $526.5 million at September 30, 2012.  The decrease was primarily the result of decreases in securities available-for-sale of $7.1 million, loans of $8.1 million and real estate held for investment of $2.1 million, offset by an increase in cash and cash equivalents of $15.9 million.

 

Net Loans.  Net loans decreased by $8.1 million, or 2.2%, to $367.8 million at December 31, 2012 from $375.9 million at September 30, 2012.  During the three months ended December 31, 2012 we originated $51.6 million of one- to four-family residential real estate loans, selling $49.4 million at a premium. Commercial real estate and multi-family real estate loans increased $1.0 million, or 0.6%, commercial business loans decreased $803,000, or 3.5%, and consumer loans decreased $1.5 million, or 5.7%, during the three month period ended December 31, 2012.  Decreases in loan origination reflect strong competition for commercial business, commercial real estate and multi-family loans in our market area in the current low interest rate environment, as well as our decision to manage loan growth in order to improve capital ratios and reduce expenses.

 

Investment Securities.  Investment securities available for sale decreased $7.1 million, or 11.0%, to $57.4 million at December 31, 2012 from $64.5 million at September 30, 2012 as a result of our decision to manage our balance sheet to improve capital ratios and reduce expenses.  Mortgage-backed securities decreased $10.7 million, or 26.0%, to $30.6 million at December 31, 2012 from $41.3 million at September 30, 2012, U.S. government and agency securities were unchanged at $3.0 million at both December 31, 2012 and September 30, 2012, and municipal securities increased $3.5 million, or 17.3%, to $23.8 million at December 31, 2012 from $20.3 million at September 30, 2012.  Net unrealized gain on securities declined $572,000 from September 30, 2012 to December 31, 2012, reflecting the market values of the remaining securities after the significant reduction in the size of the portfolio.  At December 31, 2012, investment securities classified as available-for-sale consisted entirely of U.S. government and agency securities, U.S. government agency collateralized mortgage obligations, U.S. government agency residential mortgage-backed securities, and municipal securities with a focus on suitable government-sponsored securities to augment risk-based capital.

 

Foreclosed Real Estate.  Foreclosed real estate held for sale decreased $816,000, or 29.9% to $1.9 million at December 31, 2012 from $2.7 million at September 30, 2012, as we sold $1.4 million of foreclosed properties, foreclosed on $336,000 of non-performing loans and recorded valuation adjustments of $80,000.  At December 31, 2012 our foreclosed real estate included primarily one- to four-family residential real estate, multi-family and commercial real estate properties, the largest of which was vacant land with a carrying value of $551,000.

 

Bank Owned Life Insurance.  Bank-owned life insurance (“BOLI”), which provides us with a funding source for our employee benefit plan obligations, increased $108,000, to $12.0 million at December 31, 2012 from $11.9 million at September 30, 2012.  We are the beneficiary and owner of the BOLI policies, and as such, the investment is carried at the cash surrender value of the underlying

 

30



Table of Contents

 

policies.  BOLI also generally provides us other income that is non-taxable.  Regulations generally limit our investment in BOLI to 25% of our tier 1 capital plus our allowance for loan losses.  At December 31, 2012, this limit was $11.6 million, and we had invested $12.0 million in BOLI at that date.  We exceeded regulatory limitations as a result of a reduction in capital caused by the loss incurred in the three month period ended December 31, 2011.  We expect that additional capital raised in connection with the conversion and offering will result in our compliance with regulatory limitations.

 

Deposits.  Deposits increased $2.3 million, or 0.5%, to $469.1 million at December 31, 2012 from $466.8 million at September 30, 2012.  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, checking, money market and savings accounts, increased $8.5 million, or 2.4%, to $366.3 million at December 31, 2012 from $357.8 million at September 30, 2012.  Certificates of deposit and other time deposits decreased $6.1 million, or 5.6%, to $102.8 million at December 31, 2012 from $108.9 million at September 30, 2012.   The decrease in certificates of deposit is attributed primarily to customers’ reinvestment decisions resulting from the decline in then-current interest rates.

 

Other Liabilities.  Notes payable were unchanged at $1.3 million at December 31, 2012 and September 30, 2012.  Other liabilities increased $595,000 or 12.1%, to $5.5 million at December 31, 2012 from $4.9 million at September 30, 2012, reflecting routine fluctuations and payments made related to our defined benefit plan, advance payments by borrowers for property taxes and insurance, and income taxes.

 

Total Equity.  Total equity increased $493,000, or 1.1%, to $47.4 million at December 31, 2012 from $46.9 million at September 30, 2012.  The increase resulted primarily from net income of $841,000 during the three months ended December 31, 2012, offset by a decline of $348,000 in unrealized gains on securities.

 

31



Table of Contents

 

Delinquent Loans

 

The following table sets forth our loan delinquencies, including non-accrual loans, by type and amount at the dates indicated.

 

 

 

 

 

 

 

Loans Delinquent For

 

 

 

 

 

 

 

 

 

 

 

30-59 Days

 

60-89 Days

 

90 Days and Over

 

Total

 

 

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

 

 

(Dollars in thousands)

 

At December 31, 2012:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family

 

24

 

$

2,261

 

10

 

$

1,259

 

36

 

$

3,307

 

70

 

$

6,827

 

Multi-family

 

 

 

 

 

 

 

1

 

 

Commercial

 

3

 

1,649

 

2

 

156

 

3

 

1,866

 

8

 

3,671

 

Construction and land

 

1

 

247

 

 

 

 

 

1

 

247

 

Total real estate

 

28

 

4,157

 

12

 

1,415

 

39

 

5,173

 

79

 

10,745

 

Commercial business loans

 

2

 

74

 

 

 

1

 

45

 

3

 

119

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines of credit

 

13

 

542

 

3

 

14

 

6

 

222

 

22

 

778

 

Education

 

13

 

99

 

4

 

44

 

19

 

219

 

36

 

362

 

Automobile

 

2

 

2

 

 

 

 

 

2

 

2

 

Other consumer loans

 

3

 

8

 

2

 

1

 

1

 

1

 

6

 

10

 

Total consumer loans

 

31

 

651

 

9

 

59

 

26

 

442

 

66

 

1,152

 

Total

 

61

 

$

4,882

 

21

 

$

1,474

 

66

 

$

5,660

 

148

 

$

12,016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At September 30, 2012:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family

 

22

 

$

1,747

 

11

 

$

1,112

 

30

 

$

3,034

 

63

 

$

5,893

 

Multi-family

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

1

 

169

 

5

 

2,376

 

6

 

2,545

 

Construction and land

 

1

 

53

 

 

 

1

 

108

 

2

 

161

 

Total real estate

 

23

 

1,800

 

12

 

1,281

 

36

 

5,518

 

71

 

8,599

 

Commercial business loans

 

4

 

153

 

 

 

 

 

4

 

153

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity lines of credit

 

7

 

453

 

3

 

248

 

11

 

288

 

21

 

989

 

Education

 

7

 

61

 

8

 

85

 

10

 

114

 

25

 

260

 

Automobile

 

3

 

5

 

2

 

5

 

2

 

3

 

7

 

13

 

Other consumer loans

 

 

 

 

 

2

 

6

 

2

 

6

 

Total consumer loans

 

17

 

519

 

13

 

338

 

25

 

411

 

55

 

1,268

 

Total

 

44

 

$

2,472

 

25

 

$

1,619

 

61

 

$

5,929

 

130

 

$

10,020

 

 

The increase in delinquent loans at December 31, 2012 compared to September 30, 2012 is primarily attributed to one relationship with four commercial real estate and land loans totaling $1.9 million that became 30-59 days past due during the three month period, and the normal seasonal increase in one-to-four family loan delinquencies of $514,000.

 

32



Table of Contents

 

Classified Assets

 

We had classified or held as special mention the following assets as of the date indicated:

 

 

 

At December 31,

 

At September 30,

 

 

 

2012

 

2012

 

 

 

(In thousands)

 

Classified Loans:

 

 

 

 

 

Loss

 

 

 

Doubtful

 

 

 

Substandard — performing:

 

 

 

 

 

Real estate loans:

 

 

 

 

 

One- to four-family

 

$

2,750

 

$

1,485

 

Multi-family

 

182

 

546

 

Commercial

 

8,151

 

8,610

 

Construction and land

 

1,070

 

448

 

Total real estate loans

 

12,153

 

11,089

 

Commercial business loans

 

1,109

 

953

 

Consumer loans:

 

 

 

 

 

Home equity lines of credit

 

142

 

407

 

Other consumer loans

 

 

 

Total consumer loans

 

142

 

407

 

Total substandard — performing

 

13,404

 

12,449

 

 

 

 

 

 

 

Substandard — Nonperforming:

 

 

 

 

 

Real estate loans:

 

 

 

 

 

One- to four-family

 

4,015

 

4,268

 

Multi-family

 

2,735

 

2,789

 

Commercial

 

1,905

 

2,376

 

Construction and land

 

 

108

 

Total real estate loans

 

8,655

 

9,541

 

Commercial business loans

 

84

 

 

Consumer loans:

 

 

 

 

 

Home equity lines of credit

 

243

 

310

 

Other consumer loans

 

31

 

45

 

Total consumer loans

 

274

 

355

 

Total substandard — nonperforming

 

9,013

 

9,896

 

 

 

 

 

 

 

Total classified loans(1)

 

22,417

 

22,345

 

 

 

 

 

 

 

Securities(2)

 

229

 

230

 

Foreclosed real estate

 

1,912

 

2,728

 

 

 

 

 

 

 

Total classified assets

 

$

24,558

 

$

25,303

 

 

 

 

 

 

 

Special mention:

 

 

 

 

 

Real estate loans:

 

 

 

 

 

One- to four-family

 

$

124

 

$

806

 

Multi-family

 

937

 

 

Commercial

 

2,802

 

1,795

 

Construction and land

 

 

177

 

Total real estate loans

 

3,863

 

2,778

 

Commercial business loans

 

322

 

780

 

Consumer loans:

 

 

 

 

 

Home equity lines of credit

 

 

 

Other consumer loans

 

 

 

Total consumer loans

 

 

 

Total special mention

 

4,185

 

3,558

 

 

 

 

 

 

 

Total classified assets and special mention loans

 

$

28,743

 

$

28,861

 

 


(1)         Includes $2.9 million and $3.7 million, respectively, at December 31, 2012 and September 30, 2012 of homogenous one- to four-family real estate mortgage loans, home equity lines of credit and other consumer loans that were not, at those dates, subject to detailed internal evaluation or formally risk-rated by the Bank, but that were, at such dates, 90 or more days past due and not covered by private mortgage insurance, and, in accordance with internal policy, are included herein as substandard because the loans are non-performing.

(2)         Represents municipal bonds that management believed it was appropriate to classify as substandard as a result of downgraded ratings issued by the ratings agencies.

 

The decrease in classified assets from September 30, 2012 to December 31, 2012 was primarily due to the disposition of foreclosed real estate and the repayment of classified loans.

 

33



Table of Contents

 

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, 2012

 

At September 30, 2012

 

 

 

(Dollars in thousands)

 

Nonaccrual loans:

 

 

 

 

 

Real estate loans:

 

 

 

 

 

One- to four-family

 

$

4,557

 

$

4,610

 

Multi family

 

2,735

 

2,789

 

Commercial

 

1,905

 

2,376

 

Construction and land

 

 

108

 

Total real estate

 

9,197

 

9,883

 

Commercial business loans

 

84

 

 

Consumer loans:

 

 

 

 

 

Home equity lines of credit

 

243

 

310

 

Education

 

263

 

199

 

Automobile

 

 

3

 

Other consumer loans

 

31

 

42

 

Total consumer loans

 

537

 

554

 

Total nonaccrual loans(1)

 

9,818

 

10,437

 

 

 

 

 

 

 

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

 

 

 

Automobile

 

 

 

Other consumer loans

 

 

 

Total consumer loans

 

 

 

Total delinquent loans accruing

 

 

 

 

 

 

 

 

 

Total non-performing loans

 

9,818

 

10,437

 

 

 

 

 

 

 

Foreclosed assets:

 

 

 

 

 

One- to four-family

 

230

 

591

 

Multi-family

 

234

 

410

 

Commercial real estate

 

481

 

684

 

Construction and land

 

967

 

1,043

 

Commercial assets

 

 

 

Consumer

 

 

 

Total foreclosed assets

 

1,912

 

2,728

 

 

 

 

 

 

 

Total nonperforming assets

 

$

11,730

 

$

13,165

 

 

 

 

 

 

 

Performing troubled debt restructurings

 

$

6,187

 

$

6,302

 

 

 

 

 

 

 

Ratios:

 

 

 

 

 

Nonperforming loans to total loans

 

2.63

%

2.73

%

Nonperforming assets to total assets

 

2.24

%

2.50

%

Nonperforming assets and troubled debt restructurings to total assets

 

3.41

%

3.70

%

 


(1)         Includes $1.4 million and $1.3 million, respectively, of troubled debt restructurings that were on non-accrual status at December 31, 2012 and September 30, 2012.

 

34



Table of Contents

 

Interest income that would have been recorded for the three months ended December 31, 2012, had non-accruing loans been current according to their original terms amounted to $133,000.  Interest of approximately $11,000 related to these loans was included in interest income for the three months ended December 31, 2012.

 

Other Loans of Concern.   There were no other loans at December 31, 2012 that are not already disclosed where there is information about possible credit problems of borrowers that caused management to have serious doubts about the ability of the borrowers to comply with present loan repayment terms and that may result in disclosure of such loans in the future.

 

Comparison of Operating Results for the Three Months Ended December 31, 2012 and December 31, 2011

 

General.  Net income for the three months ended December 31, 2012 was $841,000, compared to net loss of $(4.3 million) for the three months ended December 31, 2011, an increase of $5.1 million. The increase in net income was primarily due to a decrease in provision for loan losses of $2.8 million and a decrease in noninterest expense of $2.3 million.

 

Interest and Dividend Income. Interest and dividend income decreased $674,000, or 11.8%, to $5.0 million for the three months ended December 31, 2012 from $5.7 million for the three months ended December 31, 2011. This decrease was primarily attributable to a $502,000 decrease in interest and fee income on loans receivable.  The average balance of loans during the three months ended December 31, 2012 decreased $41.4 million to $371.5 million from $412.9 for the three months ended December 31, 2011. The average yield on loans increased by 2 basis points to 5.05% for the three months ended December 31, 2012 from 5.03% for the three months ended December 31, 2011.  The average balance of investment securities decreased $36.8 million to $57.7 million for the three months ended December 31, 2012 from $94.5 million for the three months ended December 31, 2011, while the average yield on investment securities increased by 14 basis points to 2.23% for the three months ended December 31, 2012 from 2.09% for the three months ended December 31, 2011. Resulting income on securities declined, primarily as the result of lower average balances. The increased yields reflected the modestly higher interest rate environment.

 

Interest Expense. Total interest expense decreased $506,000, or 44.7%, to $626,000 for the three months ended December 31, 2012 from $1.1 million for the three months ended December 31, 2011.  Interest expense on deposit accounts decreased $402,000, or 40.1%, to $600,000 for the three months ended December 31, 2012 from $1.0 million for the three months ended December 31, 2011.  The decrease was primarily due to a decrease in the average cost of interest-bearing deposits to 0.53% for the three months ended December 31, 2012 from 0.77% for the three months ended December 31, 2011, reflecting the declining interest rate environment, and by a decrease of $71.8 million, or 13.7%, in the average balance of deposits to $451.3 million for the three months ended December 31, 2012 from $523.1 million for the three months ended December 31, 2011.

 

Interest expense on Federal Home Loan Bank of Chicago advances decreased $80,000 to $0 for the three months ended December 31, 2012 from $80,000 for the three months ended December 31, 2011.  The average balance of advances decreased by $5.7 million to $0 for the three months ended December 31, 2012 from $5.7 million for the three months ended December 31, 2011, as we repaid our entire outstanding balance in March, 2012.

 

Net Interest Income. Net interest income decreased $168,000, or 3.7%, to $4.4 million for the three months ended December 31, 2012 from $4.6 million for the three months ended December 31,

 

35



Table of Contents

 

2011.  The decrease reflected decrease in the average net loan balance of $41.4 million, or 10.0%, from $412.9 for the three months ended December 31, 2011 to $371.5 million for the three months ended December 31, 2012 and a decrease in the average interest bearing deposits of $71.8 million, or 13.7% from $523.1 million for the three months ended December 31, 2011 to $451.3 million for the three months ended December 31, 2012.  The decreases in average balances outstanding were offset by an increase in our interest rate spread to 3.98% for the three months ended December 31, 2012 from 3.54% for the three months ended December 31, 2011, and an increase in our net interest margin to 3.97% for the three months ended December 31, 2012 from 3.53% for the three months ended December 31, 2011.  The increase in our interest rate spread and net interest margin reflected the more rapid repricing of our interest-bearing liabilities in a decreasing interest rate environment compared to our interest-earning assets.

 

Provision for Loan Losses.  Based on our analysis of the factors described in “Critical Accounting Policies—Allowance for Loan Losses,” we recorded a provision for loan losses of $330,000 for the three months ended December 31, 2012 and $3.1 million for the three months ended December 31, 2011.  The allowance for loan losses was $6.0 million, or 1.6% of total loans, at December 31, 2012, compared to $6.7 million, or 1.8% of total loans, at September 30, 2012 and $7.1 million, or 1.8% of total loans, at December 31, 2011.  Total nonperforming loans were $9.8 million at December 31, 2012, compared to $10.4 million at September 30, 2012 and $14.8 million at December 31, 2011.  As a percentage of nonperforming loans, the allowance for loan losses was 60.8% at December 31, 2012 compared to 64.1% at September 30, 2012 and 48.2% at December 31, 2011.  Total classified assets were $24.6 million at December 31, 2012, compared to $25.3 million at September 30, 2012 and $23.6 million at December 31, 2011.

 

The allowance for loan losses reflects the estimate we believe to be appropriate to cover incurred probable losses which were inherent in the loan portfolio at December 31, 2012 and December 31, 2011.

 

Non-Interest IncomeNon-interest income increased $840,000, or 41.3%, to $2.9 million for the three months ended December 31, 2012 from $2.0 million for the three months ended December 31, 2011. The increase was primarily related to an increase in the gain on sale of residential mortgage loans of $323,000 to $952,000 for the three months ended December 31, 2012 from $629,000 for the three months ended December 31, 2011.

 

Non-Interest Expense.  Non-interest expense decreased $2.3 million, or 28.5%, to $5.7 million for the three months ended December 31, 2012 from $8.0 million for the three months ended December 31, 2011. The decrease primarily reflected a decrease in salaries and employee benefits expense and commission expense of $1.6 million and a decrease in occupancy expense of $267,000, both of which are associated with the closing or sale of branches and related reductions in staff full time equivalents, and an $803,000 decrease in net loss from operation and sale of foreclosed real estate, offset by an increase of $389,000 in expenses relating primarily to professional services.

 

Provision for Income Taxes.  Income tax expense was $424,000 for the three months ended December 31, 2012 compared to a tax benefit of $226,000 for the three months ended December 31, 2011.  The effective tax rate as a percent of pre-tax income (loss) was 33.5% and (5.0%) for the three months ended December 31, 2012 and 2011, respectively.  The increase in the effective tax rate for the three months ended December 31, 2012 was due to the return to profitability during 2012 and adjustments to the valuation allowance for deferred tax assets during the three months ended December 31, 2012.

 

36



Table of Contents

 

Analysis of Net Interest Income

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

 

 

 

At December

 

For the Three Months Ended December 31,

 

 

 

31, 2012

 

2012

 

2011

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

Outstanding

 

 

 

 

 

Average

 

 

 

 

 

 

 

Yield/Cost

 

Balance

 

Interest

 

Yield/Cost

 

Outstanding Balance

 

Interest

 

Yield/Cost

 

 

 

(Dollars in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

4.88

%

$

371,518

 

$

4,695

 

5.05

%

$

412,889

 

$

5,197

 

5.03

%

Securities

 

1.97

 

57,698

 

322

 

2.23

 

94,542

 

493

 

2.09

 

Fed funds sold and other interest-earning deposits

 

0.39

 

15,543

 

19

 

0.49

 

12,048

 

20

 

0.66

 

Total interest-earning assets

 

 

 

444,759

 

5,036

 

4.53

 

519,479

 

5,710

 

4.40

 

Noninterest-earning assets

 

 

 

81,257

 

 

 

 

 

86,007

 

 

 

 

 

Total assets

 

 

 

$

526,016

 

 

 

 

 

$

605,486

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Checking accounts

 

0.51

%

$

199,922

 

154

 

0.31

%

$

233,589

 

$

286

 

0.49

%

Passbook and statement savings

 

0.22

 

118,577

 

63

 

0.21

 

121,964

 

81

 

0.27

 

Variable rate money market

 

0.23

 

27,170

 

16

 

0.24

 

35,482

 

53

 

0.60

 

Certificates of deposit

 

1.26

 

105,657

 

368

 

1.39

 

132,030

 

584

 

1.77

 

Total interest bearing deposits

 

 

 

451,326

 

601

 

0.53

 

523,065

 

1,004

 

0.77

 

FHLB advances

 

 

 

 

 

 

5,696

 

80

 

5.62

 

Notes payable

 

6.26

 

1,254

 

25

 

7.97

 

2,208

 

48

 

8.70

 

Total interest-bearing liabilities

 

 

 

452,580

 

626

 

0.55

 

530,969

 

1,132

 

0.85

 

Noninterest-bearing demand deposits

 

 

 

22,373

 

 

 

 

 

17,841

 

 

 

 

 

Other liabilities

 

 

 

3,968

 

 

 

 

 

5,244

 

 

 

 

 

Total liabilities

 

 

 

478,921

 

 

 

 

 

554,054

 

 

 

 

 

Equity

 

 

 

47,095

 

 

 

 

 

51,432

 

 

 

 

 

Total liabilities and equity

 

 

 

$

526,016

 

 

 

 

 

$

605,486

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

$

4,410

 

 

 

 

 

$

4,578

 

 

 

Net interest rate spread(1)

 

 

 

 

 

 

 

3.98

%

 

 

 

 

3.54

%

Net interest-earning assets

 

 

 

$

(7,821

)

 

 

 

 

$

(11,490

)

 

 

 

 

Net interest margin(1)

 

 

 

 

 

 

 

3.97

%

 

 

 

 

3.53

%

Average of interest-earning assets to interest-bearing liabilities

 

 

 

 

 

 

 

98

%

 

 

 

 

98

%

 


(1)   Annualized.

 

37



Table of Contents

 

Liquidity and Capital Resources

 

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

 

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities.  Net cash used in operating activities was $2.3 million and $8.7 million for the three months ended December 31, 2012 and December 31, 2011, respectively. Net cash provided by 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 $15.9 million and $11.4 for the three months ended December 31, 2012 and December 31, 2011, respectively.  During the three months ended December 31, 2012, we purchased $7.8 million and sold $10.3 million in securities held as available-for-sale, and during the three months ended December 31, 2011, we purchased $17.1 million and sold $5.3 million in securities held as available-for-sale.  Net cash provided by (used in) financing activities, consisting primarily of the activity in deposit accounts and Federal Home Loan Bank advances, was $2.3 million and ($26.9) million for the three months ended December 31, 2012 and December 31, 2011, respectively, resulting from our strategy of managing growth to preserve capital ratios and reduce expenses.

 

At December 31, 2012, we exceeded all of our regulatory capital requirements with a tier 1 leverage capital level of $40.4 million, or 7.88% of adjusted total assets, which is above the required level of $25.6 million, or 5.00%; and total risk-based capital of $45.2 million, or 11.79% of risk-weighted assets, which is above the required level of $38.3 million, or 10.00%.  Accordingly, Westbury Bank was categorized as well capitalized at December 31, 2012.  Management is not aware of any conditions or events since the most recent notification that would change our category.  However, at December 31, 2012, Westbury Bank was not in compliance with the capital plan it had submitted to the OCC, and was not in compliance with the individual minimum capital requirement imposed by the OCC, each of which requires Westbury Bank to maintain a tier 1 leverage capital ratio of at least 8.00% and a total risk-based capital ratio of at least 12.00%.

 

At December 31, 2012, we had outstanding commitments to originate loans of $2.5 million and stand-by letters of credit of $698,000.  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, 2012 totaled $58.8 million.  Management expects that a substantial portion of the maturing certificates of deposit will be renewed.  However, if a substantial portion of these deposits is not retained, we may utilize Federal Home Loan Bank 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.

 

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

 

38



Table of Contents

 

Impact of Inflation and Changing Prices

 

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

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

ITEM 4. CONTROLS AND PROCEDURES

 

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of December 31, 2012. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

 

During the quarter ended December 31, 2012, there have been no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934, amended) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II

 

ITEM 1. LEGAL PROCEEDINGS

 

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

 

Westbury Bank believes that the lawsuit is without merit and intends to defend itself vigorously.  Based on the information available to Westbury Bank’s litigation counsel at this time, they believe that the claims in this case are legally and factually without merit.  Because this lawsuit has just been filed, counsel is unable to give an opinion as to the likely outcome.

 

Other than the foregoing, we are not involved in any pending legal proceedings as a plaintiff or defendant other than routine legal proceedings occurring in the ordinary course of business, and at December 31, 2012, we

 

39



Table of Contents

 

were not involved in any legal proceedings, the outcome of which would be material to our financial condition or results of operations.

 

ITEM 1A. RISK FACTORS

 

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

 

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

 

Not applicable.

 

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.

 

40



Table of Contents

 

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: March 27, 2013

 

 

 

 

/s/ Raymond F. Lipman

 

Raymond F. Lipman

 

President and Chief Executive Officer

 

 

 

/s/ Kirk J. Emerich

 

Kirk J. Emerich

 

Senior Vice President and Chief Financial Officer

 

41



Table of Contents

 

INDEX TO EXHIBITS

 

Exhibit Number

 

Description

2

 

Amended and Restated Plan of Conversion and Reorganization*

3.1

 

Articles of Incorporation of Westbury Bancorp, Inc.*

3.2

 

Bylaws of Westbury Bancorp, Inc.*

4

 

Form of Common Stock Certificate of Westbury Bancorp, Inc.*

10.1

 

Form of Employee Stock Ownership Plan*

10.2

 

Salary Continuation Agreement by and between Westbury Bank and Raymond F. Lipman*

10.3

 

Salary Continuation Agreement by and between Westbury Bank and Kirk J. Emerich*

10.4

 

Employment Agreement by and between Westbury Bank and Raymond F. Lipman*

10.5

 

Form of Employment Agreement between Westbury Bank and Raymond F. Lipman*

10.6

 

Form of Employment Agreement between Westbury Bank and certain executive officers*

10.7

 

Form of Change and Control Agreement*

10.8

 

Deferred Compensation Plan for Directors and Key Management Employees of Westbury Bank*

10.9

 

Formal Written Agreement by and between Westbury Bank and The Comptroller of the Currency*

31.1

 

Certification of Raymond F. Lipman, President and Chief Executive Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a)

31.2

 

Certification of Kirk J. Emerich, Senior Vice President and Chief Financial Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a)

32

 

Certification of Raymond F. Lipman, President and Chief Executive Officer, and Kirk J. Emerich, Senior Vice President and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101

 

The following materials from the Company’s Quarterly Report on Form 10Q for the quarter ended December 31, 2012, 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 Cash Flows; and (v) Notes to The Unaudited Consolidated Financial Statements**

 


*

 

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

**

 

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

 

42