Table of Contents

 

 

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, 2014

OR

 

¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to                     

Commission File No. 000-55183

 

 

Home Bancorp Wisconsin, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Maryland		46-3383278
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
3762 East Washington Avenue, Madison, Wisconsin		53704
(Address of Principal Executive Offices)		Zip Code

(608) 282-6000

(Registrant’s telephone number)

N/A

(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 requirements for the past 90 days.    YES  x    NO  ¨

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

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

 

Large accelerated filer		¨		Accelerated filer		¨
Non-accelerated filer		¨  (Do not check if smaller reporting company)		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  ¨    NO  x

There were 899,190 shares of the Registrant’s common stock, par value $0.01 per share issued and outstanding as of February 10, 2015.

 

 

 

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Table of Contents

Home Bancorp Wisconsin, Inc.

Form 10-Q

Index

 

				Page
		Part I. Financial Information
Item 1.		Financial Statements
		Condensed Consolidated Balance Sheets as of December 31, 2014 (unaudited) and September 30, 2014			2
		Condensed Consolidated Statements of Operations for the Three Months Ended December  31, 2014 and 2013 (unaudited)			3
		Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended December  31, 2014 and 2013 (unaudited)			5
		Condensed Consolidated Statements of Equity for the Three Months Ended December  31, 2014 and 2013 (unaudited)			6
		Condensed Consolidated Statements of Cash Flows for the Three Months Ended December  31, 2014 and 2013 (unaudited)			7
		Notes to Condensed Consolidated Financial Statements (unaudited)			9
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			37
Item 3.		Quantitative and Qualitative Disclosures about Market Risk			42
Item 4.		Controls and Procedures			43
		Part II. Other Information
Item 1.		Legal Proceedings			44
Item 1A.		Risk Factors			44
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			44
Item 3.		Defaults upon Senior Securities			44
Item 4.		Mine Safety Disclosures			44
Item 5.		Other Information			44
Item 6.		Exhibits			45

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PART I FINANCIAL INFORMATION Item 1. Financial Statements

Home Bancorp Wisconsin, Inc. and Subsidiary

Condensed Consolidated Balance Sheets

December 31, 2014 and September 30, 2013

(Dollars in Thousands)

 

 

			(Unaudited)
		December 31, 2014				September 30, 2014
Assets
Cash and due from banks		$	3,373			$	2,474
Interest-bearing deposits			295				1,573
Cash and cash equivalents			3,668				4,047
Other interest-bearing deposits			6,901				7,556
Securities available for sale			5,885				7,922
Securities held to maturity (fair value of $3,845 and $3,927 for December 31, 2014 and September 30, 2014, respectively)			3,778				3,893
Loans held for sale			766				320
Loans, net of allowance for loan losses of $1,429 and $1,403 for December 31, 2014 and September 30, 2014, respectively.			91,591				84,757
Premises and equipment, net			5,361				5,423
Foreclosed assets			715				775
Cash value of life insurance			3,258				3,238
Federal Home Loan Bank stock			652				652
Other assets			798				849
TOTAL ASSETS		$	123,373			$	119,432
Liabilities and Stockholders’ Equity
Liabilities:
Demand deposits		$	30,953			$	28,280
Money market and savings deposits			43,016				42,991
Time deposits			25,369				26,414
Total deposits			99,338				97,685
Advance payments by borrowers for taxes and insurance			379				830
Federal funds purchased			2,731				1,965
Borrowed funds			6,500				5,000
Other liabilities			1,813				1,186
Total liabilities			110,761				106,666
Commitments and contingencies (Note 1)
Stockholders’ Equity:
Common stock $0.01 par value, 30,000,000 shares authorized; 899,190 shares issued and outstanding at December 31, 2014 and September 30, 2014		$	9			$	9
Additional paid-in capital			7,412				7,413
Retained earnings			5,869				6,050
Unearned Employee Stock Ownership Plan (ESOP) shares			(690	)			(698	)
Accumulated other comprehensive income (loss)			12				(8	)
Total stockholders’ equity			12,612				12,766
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	123,373			$	119,432

The accompanying notes are an integral part of these financial statements

 

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Home Bancorp Wisconsin, Inc. and Subsidiary

Condensed Consolidated Statements of Operations

Three Months Ended December 31, 2014 and 2013

(Unaudited)

(Dollars in Thousands)

 

 

		Three Months Ended December 31,
		2014				2013
Interest and dividend income:
Loans, including fees		$	938			$	891
Interest-bearing deposits			33				26
Securities			54				58
Total interest and dividend income			1,025				975
Interest expense:
Deposits			68				90
Borrowed funds			47				49
Total interest expense			115				139
Net interest income			910				836
Provision for loan losses			30				51
Net interest income after provision for loan losses			880				785
Noninterest income:
Service fees			62				74
Mortgage banking income			25				7
Net gain (loss) on sale of securities			7				—
Increase in cash value of life insurance			20				21
Net gain on sale of premises and equipment			16				16
Rental income			26				26
Other			7				5
Total noninterest income			163				149

The accompanying notes are an integral part of these financial statements

 

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Home Bancorp Wisconsin, Inc. and Subsidiary

Condensed Consolidated Statements of Operations (Continued)

Three Months Ended December 31, 2014 and 2013

(Unaudited)

(Dollars in Thousands)

 

 

		Three Months Ended December 31,
		2014				2013
Noninterest expense:
Compensation and employee benefits		$	599			$	521
Occupancy and equipment			187				175
Data processing and office expense			234				234
Foreclosed assets, net			44				23
Advertising and promotions			28				65
Professional fees			31				35
Examinations and assessments			39				43
Other			62				54
Total noninterest expense			1,224				1,150
Loss before income taxes			(181	)			(216	)
Provision for income taxes			—				—
Net loss		$	(181	)		$	(216	)
Earnings per share:
Basic			(.22	)			—
Diluted			(.22	)			—

 

The accompanying notes are an integral part of these financial statements

 

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Home Bancorp Wisconsin, Inc. and Subsidiary

Condensed Consolidated Statements of Comprehensive Income (Loss)

Three Months Ended December 31, 2014 and 2013

(Unaudited)

(Dollars in Thousands)

 

 

		Three Months Ended December 31,
		2014				2013
Net loss		$	(181	)		$	(216	)
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities during the year			27				(14	)
Reclassification adjustment for (gains) losses realized in net loss			(7	)			—
Income tax effect			—				—
Net unrealized gain (loss) on securities			20				(14	)
Other comprehensive income (loss), net of tax			20				(14	)
Comprehensive loss		$	(161	)		$	(230	)

 

The accompanying notes are an integral part of these financial statements

 

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Home Bancorp Wisconsin, Inc. and Subsidiary

Condensed Consolidated Statements of Stockholders’ Equity

Three Months Ended December 31, 2014 and 2013

(Unaudited)

(Dollars in Thousands)

 

 

		Common Stock				Additional Paid In Capital				Retained Earnings				Unearned ESOP Shares				Accumulated Other Comprehensive Income (Loss)				Total Stockholders’ Equity
Balance at October 1, 2013		$	—			$	—			$	7,266			$	—			$	4			$	7,270
Net loss			—				—				(216	)			—				—				(216	)
Other comprehensive loss			—				—				—				—				(14	)			(14	)
Balance at December 31, 2013		$	—			$	—			$	7,050			$	—			$	(10	)		$	7,040
Balance at October 1, 2014		$	9			$	7,413			$	6,050			$	(698	)		$	(8	)		$	12,766
Net loss			—				—				(181	)			—				—				(181	)
Allocation of 719 Shares from ESOP			—				(1	)			—				8				—				7
Other comprehensive income			—				—				—				—				20				20
Balance at December 31, 2014		$	9			$	7,412			$	5,869			$	(690	)		$	12			$	12,612

 

The accompanying notes are an integral part of these financial statements

 

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Home Bancorp Wisconsin, Inc. and Subsidiary

Condensed Consolidated Statements of Cash Flows

Three Months Ended December 31, 2014 and 2013

(Unaudited)

(Dollars in Thousands)

 

 

		Three Months Ended December 31,
		2014				2013
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net loss		$	(181	)		$	(216	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation			65				66
Net amortization of premiums and discounts			8				4
ESOP compensation expense			7				—
Provision for loan losses			30				51
Net (gain) loss on sale of securities			(7	)			—
Gain on sale of premises and equipment			(16	)			(16	)
Net loss on foreclosed assets			33				—
Increase in cash surrender value			(20	)			(21	)
Changes in operating assets and liabilities:
Loans held for sale			(446	)			(145	)
Other assets			51				(233	)
Other liabilities			643				1,080
Total adjustments			348				786
Net cash provided by operating activities			167				570
Cash flows from investing activities:
Net increase in other interest-bearing deposits			655				(195	)
Purchases of securities available for sale			—				(846	)
Proceeds from sales of securities available for sale			836				—
Proceeds from maturities, prepayments, and calls of securities available for sale			1,221				181
Proceeds from maturities, prepayments, and calls of securities held to maturity			114				53
Net (increase) decrease in loans			(6,964	)			(3,770	)
Proceeds from sale of foreclosed assets			127				6
Proceeds from sale of premises and equipment			—				78
Capital expenditures			(3	)			(29	)
Net cash used in investing activities			(4,014	)			(4,522	)

 

The accompanying notes are an integral part of these financial statements

 

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Home Bancorp Wisconsin, Inc. and Subsidiary

Condensed Consolidated Statements of Cash Flows (Continued)

Three Months Ended December 31, 2014 and 2013

(Unaudited)

(Dollars in Thousands)

 

 

		Three Months Ended December 31,
		2014				2013
Cash flows from financing activities:
Net increase (decrease) in deposits		$	1,653			$	(420	)
Net decrease in advance payments by borrowers for taxes and insurance			(451	)			(152	)
Net increase (decrease) in federal funds purchased			766				(304	)
Proceeds from borrowings			1,500				—
Repayments of borrowed funds			—				(500	)
Net cash provided by (used in) financing activities			3,468				(1,376	)
Net decrease in cash and cash equivalents			(379	)			(5,328	)
Cash and cash equivalents at beginning			4,047				11,652
Cash and cash equivalents at end		$	3,668			$	6,324
Supplemental cash flow information:
Cash paid for interest		$	129			$	158
Noncash operating and investing activities:
Loans transferred to foreclosed assets		$	100			$	—

 

The accompanying notes are an integral part of these financial statements

 

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Home Bancorp Wisconsin, Inc. and Subsidiary

Notes to Financial Statements

 

 

 

Note 1

Basis of Financial Statement Presentation

The unaudited financial statements include the accounts of Home Bancorp Wisconsin, Inc. and its wholly-owned subsidiary, Home Savings Bank, the “Bank,” and collectively, (the “Company”).

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial reporting and with instructions for Form 10-Q and 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 requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the period. Actual results could differ from these estimates.

In the opinion of management, the preceding unaudited condensed financial statements contain all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial condition of the Company as of December 31, 2014 and September 30, 2014, and the results of its operations and comprehensive income (loss) for the three months ended December 31, 2014 and 2013, and the statements of stockholders’ equity and cash flows for the three months ended December 31, 2014 and 2013. These financial statements should be read in conjunction with the financial statements of the Company for the year ended September 30, 2014 included as part of Home Bancorp Wisconsin, Inc.’s 10-K dated December 12, 2014 as filed with the Securities and Exchange Commission.

The results of operations for the three month periods ended December 31, 2014 are not necessarily indicative of the results that may be expected for the entire year. For further information, refer to the financial statements and footnotes thereto in the 10-K.

 

Note 2

Plan of Conversion and Change in Corporate Form

On June 4, 2013, the Board of Directors of Home Savings Bank adopted a plan of conversion to convert from the mutual form of organization to the capital stock form of organization. A new Maryland-chartered corporation, Home Bancorp Wisconsin, Inc. was formed on May 31, 2013 to become the stock bank holding company of the Bank upon consummation of the conversion.

 

The accompanying notes are an integral part of these financial statements

 

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Home Bancorp Wisconsin, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollars in Thousands, except per share data)

 

 

In the conversion the Bank became a wholly owned subsidiary of the Company, and the Company issued and sold shares of its stock at $10.00 per share to eligible members of the Bank and to the public. The conversion was completed with the sale of 899,190 shares, including 71,935 shares purchased by the Bank’s employee stock ownership plan, on April 23, 2014 and shares of the Company began trading on April 24, 2014.

The costs of reorganization and issuing the common stock have been deducted from the sales proceeds of the offering. The Company recognized $1.6 million in reorganization and stock issuance costs.

 

Note 3

New Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The primary purpose of this new guidance is to provide information about the amounts reclassified out of accumulated other comprehensive income by component. This guidance is effective prospectively for annual and interim periods beginning after December 15, 2012. The adoption of this standard did not have a material effect on the Company’s operating results or financial condition.

In January 2014, FASB issued ASU No. 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The primary purpose of this new guidance is to clarify, for consumer mortgage loans, when an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a residential mortgage loan. This guidance is effective for annual and interim periods beginning after December 15, 2014. The adoption of the guidance is not expected to have a material impact on the consolidated financial statements or the Notes thereto.

 

In May 2014, FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The amendment supercedes and replaces nearly all existing revenue recognition guidance. Under the amended guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for annual and interim periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. The adoption of the guidance is not expected to have a material impact on the consolidated financial statements, but significant disclosures to the Notes thereto will be required.

In August 2014, FASB issued ASU No. 2014-14, Receivables-Troubled Debt Restructurings by Creditors (subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans Upon Foreclosure. The amendments in this guidance require a mortgage loan be derecognized and a separate other receivable be recognized upon foreclosure if certain conditions are met. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The adoption of the standard is not expected to have a material effect on the Company’s operating results or financial condition.

 

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Home Bancorp Wisconsin, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollars in Thousands, except per share data)

 

 

Note 4

Earnings Per Share

Basic earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding during the period, including allocated and committed-to-be-released ESOP shares, during the applicable period. Diluted earnings per share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of stock compensation using the treasury stock method.

The following table presents a reconciliation of the number of shares used in the calculation of basic and diluted earnings per common share:

 

		2014				2013
Net loss		$	(181	)		$		*
Basic potential common shares:
Weighted average shares outstanding			899,190					*
Weighted average unallocated Employee Stock Ownership Plan shares			(69,754	)				*
Basic weighted average shares outstanding			829,436					*
Dilutive potential common shares			—					*
Dilutive weighted average shares outstanding			829,436					*
Basic earnings per share		$	(.22	)		$		*
Diluted earnings per share		$	(.22	)		$		*

 

*	Earnings per share for the three months ended December 31, 2013, is not applicable since the public offering was completed April 23, 2014.

 

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Home Bancorp Wisconsin, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollars in Thousands, except per share data)

 

 

Note 5

Securities

The amortized cost and estimated fair value of securities with gross unrealized gains and losses are as follows:

 

		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Estimated Fair Value
December 31, 2014
Securities available for sale:
U.S. agency notes		$	2,000			$	1			$	1			$	2,000
U.S. agency pass-through			3,873				17				5				3,885
Total securities available for sale		$	5,873			$	18			$	6			$	5,885
Securities held to maturity:
U.S. agency notes		$	500			$	5			$	—			$	505
U.S. agency pass-through		$	3,278			$	62			$	—			$	3,340
Total securities held to maturity		$	3,778			$	67			$	—			$	3,845

 

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Home Bancorp Wisconsin, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollars in Thousands, except per share data)

 

 

Note 5

Securities (Continued)

 

		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Estimated Fair Value
September 30, 2014
Securities available for sale:
U.S. agency notes		$	3,000			$	—			$	12			$	2,988
U.S. agency pass-through			4,930				20				16				4,934
Total securities available for sale		$	7,930			$	20			$	28			$	7,922
Securities held to maturity:
U.S. agency notes		$	500			$	1			$	—			$	501
U.S. agency pass-through		$	3,393			$	33			$	—			$	3,426
Total securities held to maturity		$	3,893			$	34			$	—			$	3,927

Fair values of securities are estimated based on financial models or prices paid for similar securities. It is possible interest rates could change considerably, resulting in a material change in the estimated fair value.

 

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Home Bancorp Wisconsin, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollars in Thousands, except per share data)

 

 

Note 6

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff generally are reported at their outstanding unpaid principal balances adjusted for charge-offs and the allowance for loan losses. Interest on loans is accrued and credited to income based on the unpaid principal balance. Loan-origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

The accrual of interest on loans is discontinued when, in the opinion of management, there is an indication the borrower may be unable to make payments as they become due. When loans are placed on nonaccrual or charged off, all unpaid accrued interest is reversed against interest income. The interest on these loans is subsequently accounted for on the cash-basis or cost-recovery method until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan Losses

The allowance for loan losses is established through a provision for loan losses charged to expense as losses are estimated to have occurred. Loan losses are charged against the allowance when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.

Management regularly evaluates the allowance for loan losses using the Bank’s past loan loss experience, known and inherent risks in the portfolio, composition of the portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, current economic conditions, and other relevant factors. This evaluation is inherently subjective since it requires material estimates that may be susceptible to significant change.

A loan is impaired when, based on current information, it is probable that the Bank will not collect all amounts due in accordance with the contractual terms of the loan agreement. Management determines whether a loan is impaired on a case-by-case basis, taking into consideration the payment status, collateral value, length and reason of any payment delays, the borrower’s prior payment record, and any other relevant factors. Large groups of smaller-balance homogeneous loans, such as residential mortgage and consumer loans, are collectively evaluated in the allowance for loan losses analysis and are not subject to impairment analysis unless such loans have been subject to a restructuring

 

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Home Bancorp Wisconsin, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollars in Thousands, except per share data)

 

 

Note 6

Loans (Continued)

 

agreement. Specific allowances for impaired loans are based on discounted cash flows of expected future payments using the loan’s initial effective interest rate or the fair value of the collateral if the loan is collateral dependent.

In addition, various regulatory agencies periodically review the allowance for loan losses. These agencies may require additions to the allowance for loan losses based on their judgments of collectability.

The following table presents total loans by portfolio segment and class of loan as of December 31, 2014 and September 30, 2014:

 

		December 31, 2014				September 30, 2014
Commercial:
Commercial and industrial		$	2,158			$	1,662
Commercial real estate			18,632				19,273
Multifamily real estate			19,521				14,718
Construction			2,066				1,092
Residential real estate:
One- to four-family residential			38,536				37,076
Second mortgage			9,942				10,044
Consumer			2,422				2,470
Subtotals			93,277				86,335
Allowance for loan losses			(1,429	)			(1,403	)
Net deferred loan expenses			(39	)			(47	)
Undisbursed loan proceeds			(218	)			(128	)
Loans, net		$	91,591			$	84,757

 

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Home Bancorp Wisconsin, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollars in Thousands, except per share data)

 

 

Note 6

Loans (Continued)

 

Analysis of the allowance for loan losses for the three months ended December 31, 2014 and 2013, follows:

 

		Commercial				Residential				Consumer				Totals
Balance at September 30, 2013		$	637			$	480			$	29			$	1,146
Provision for loan losses			18				33				—				51
Loans charged off			(1	)			(7	)			(1	)			(9	)
Recoveries of loans previously charged off			1				—				1				2
Balance at December 31, 2013			655				506				29				1,190
Balance at September 30, 2014		$	877			$	504			$	22			$	1,403
Provision for loan losses			96				(68	)			2				30
Loans charged off			—				—				(5	)			(5	)
Recoveries of loans previously charged off			—				—				1				1
Balance at December 31, 2014		$	973			$	436			$	20			$	1,429
Allowance for loan losses at December 31, 2014:
Individually evaluated for impairment		$	131			$	122			$	—			$	253
Collectively evaluated for impairment			842				314				20				1,176
Totals		$	973			$	436			$	20			$	1,429
Allowance for loan losses at September 30, 2014:
Individually evaluated for impairment		$	134			$	98			$	—			$	232
Collectively evaluated for impairment			743				406				22				1,171
Totals		$	877			$	504			$	22			$	1,403

 

16

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Table of Contents

Home Bancorp Wisconsin, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollars in Thousands, except per share data)

 

 

Note 6

Loans (Continued)

 

Analysis of loans evaluated for impairment as of December 31, 2014 and September 30, 2014, follows:

 

		Commercial				Residential				Consumer				Totals
Loans at December 31, 2014:
Individually evaluated for impairment		$	870			$	1,100			$	—			$	1,970
Collectively evaluated for impairment			41,507				47,378				2,422				91,307
Totals		$	42,377			$	48,478			$	2,422			$	93,277
Loans at September 30, 2014:
Individually evaluated for impairment		$	936			$	1,178			$	—			$	2,114
Collectively evaluated for impairment			35,809				45,942				2,470				84,221
Totals		$	36,745			$	47,120			$	2,470			$	86,335

Information regarding impaired loans as of December 31, 2014, follows:

 

		Recorded Investment				Principal Balance				Related Allowance				Average Investment				Interest Recognized
Loans with no related allowance for loan losses:
Commercial and industrial		$	81			$	80				N/A			$	123			$	—
Commercial real estate			564				564				N/A				570				8
Construction			—				—				N/A				—				—
One-to four-family			527				527				N/A				529				5
Totals			1,172				1,172				N/A				1,222				13
Loans with an allowance for loan losses:
Commercial and industrial			147				147				117				147				—
Commercial real estate			—				—				—				—				—
Construction			78				78				14				78				1
One-to four-family			573				573				122				573				5
Totals			798				798				253				798				6
Grand totals		$	1,970			$	1,970			$	253			$	2,020			$	19

 

17

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Table of Contents

Home Bancorp Wisconsin, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollars in Thousands, except per share data)

 

 

Note 6

Loans (Continued)

 

Information regarding impaired loans as of September 30, 2014, follows:

 

		Recorded Investment				Principal Balance				Related Allowance				Average Investment				Interest Recognized
Loans with no related allowance for loan losses:
Commercial and industrial		$	83			$	83				N/A			$	125			$	—
Commercial real estate			575				575				N/A				560				36
Construction			—				—				N/A				—				—
One-to four-family			631				631				N/A				636				21
Totals			1,289				1,289				N/A				1,321				57
Loans with an allowance for loan losses:
Commercial and industrial			147				147				117				149				1
Commercial real estate			—				—				—				—				—
Construction			131				131				17				133				5
One-to four-family			547				547				98				550				19
Totals			825				825				232				832				25
Grand totals		$	2,114			$	2,114			$	232			$	2,153			$	82

No additional funds are committed to be advanced in connection with impaired loans.

 

18

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Table of Contents

Home Bancorp Wisconsin, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollars in Thousands, except per share data)

 

 

Note 6

Loans (Continued)

 

The Company regularly evaluates various attributes of loans to determine the appropriateness of the allowance for loan losses. The credit quality indicators monitored differ depending on the class of loan.

Commercial loans are generally evaluated using the following internally prepared ratings:

“Pass” ratings are assigned to loans with adequate collateral and debt service ability such that collectibility of the contractual loan payments is highly probable.

“Special mention/watch” ratings are assigned to loans where management has some concern that the collateral or debt service ability may not be adequate, though the collectibility of the contractual loan payments is still probable.

“Substandard” ratings are assigned to loans that do not have adequate collateral and/or debt service ability such that collectibility of the contractual loan payments is no longer probable.

“Doubtful” ratings are assigned to loans that do not have adequate collateral and/or debt service ability, and collectibility of the contractual loan payments is unlikely.

Residential real estate and consumer loans are generally evaluated based on whether or not the loan is performing according to the contractual terms of the loan.

 

19

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Table of Contents

Home Bancorp Wisconsin, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollars in Thousands, except per share data)

 

 

Note 6

Loans (Continued)

 

Information regarding the credit quality indicators most closely monitored for commercial loans by class as of December 31, 2014 and September 30, 2014, follows:

 

		Pass				Special Mention/ Watch				Substandard				Doubtful				Totals
December 31, 2014
Commercial and industrial		$	1,931			$	—			$	227			$	—			$	2,158
Commercial real estate			17,048				1,020				564				—				18,632
Multifamily real estate			19,296				225				—				—				19,521
Construction			1,988				78				—				—				2,066
Totals		$	40,263			$	1,323			$	791			$	—			$	42,377
September 30, 2014
Commercial and industrial		$	1,432			$	—			$	230			$	—			$	1,662
Commercial real estate			17,671				1,027				575				—				19,273
Multifamily real estate			14,492				226				—				—				14,718
Construction			961				78				53				—				1,092
Totals		$	34,556			$	1,331			$	858			$	—			$	36,745

 

20

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Table of Contents

Home Bancorp Wisconsin, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollars in Thousands, except per share data)

 

 

Note 6

Loans (Continued)

 

Information regarding the credit quality indicators most closely monitored for residential real estate and consumer loans by class as of December 31, 2014 and September 30, 2014, follows:

 

		Performing				Non- performing				Totals
December 31, 2014
One- to four-family		$	38,057			$	479			$	38,536
Second mortgage			9,942				—				9,942
Consumer			2,418				4				2,422
Totals		$	50,417			$	483			$	50,900
September 30, 2014
One- to four-family		$	36,659			$	417			$	37,076
Second mortgage			10,044				—				10,044
Consumer			2,462				8				2,470
Totals		$	49,165			$	425			$	49,590

 

21

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Table of Contents

Home Bancorp Wisconsin, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollars in Thousands, except per share data)

 

 

Note 6

Loans (Continued)

 

Loan aging information as of December 31, 2014, follows:

 

		Loans Past Due 30-89 Days				Loans Past Due 90+ Days				Total Past Due Loans
Commercial and industrial		$	—			$	227			$	227
Commercial real estate			245				63				308
Construction			—				—				—
One- to four-family			363				555				918
Second mortgage			27				—				27
Consumer			2				4				6
Totals		$	637			$	849			$	1,486

 

		Total Past Due Loans				Total Current Loans				Total Loans				Loans 90+ Days Past Due and Accruing Interest				Total Nonaccrual Loans
Commercial and industrial		$	227			$	1,931			$	2,158			$	—			$	227
Commercial real estate			308				18,324				18,632				—				63
Multifamily real estate			—				19,521				19,521				—				—
Construction			—				2,066				2,066				—				—
One- to four-family			918				37,618				38,536				76				479
Second mortgage			27				9,915				9,942				—				—
Consumer			6				2,416				2,422				—				4
Totals		$	1,486			$	91,791			$	93,277			$	76			$	773

 

22

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Table of Contents

Home Bancorp Wisconsin, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollars in Thousands, except per share data)

 

 

Note 6

Loans (Continued)

 

Loan aging information as of September 30, 2014, follows:

 

		Loans Past Due 30-89 Days				Loans Past Due 90+ Days				Total Past Due Loans
Commercial and industrial		$	—			$	230			$	230
Commercial real estate			—				—				—
Construction			—				53				53
One- to four-family			280				493				773
Second mortgage			83				—				83
Consumer			4				8				12
Totals		$	367			$	784			$	1,151

 

		Total Past Due Loans				Total Current Loans				Total Loans				Loans 90+ Days Past Due and Accruing Interest				Total Nonaccrual Loans
Commercial and industrial		$	230			$	1,432			$	1,662			$	—			$	230
Commercial real estate			—				19,273				19,273				—				—
Multifamily real estate			—				14,718				14,718				—				—
Construction			53				1,039				1,092				—				53
One- to four-family			773				36,303				37,076				76				417
Second mortgage			83				9,961				10,044				—				—
Consumer			12				2,458				2,470				—				8
Totals		$	1,151			$	85,184			$	86,335			$	76			$	708

When, for economic or legal reasons related to the borrower’s financial difficulties, the Company grants a concession to the borrower that the Company would not otherwise consider, the modified loan is classified as a troubled debt restructuring. Loan modifications may consist of forgiveness of interest and/or principal, a reduction of the interest rate, interest-only payments for a period of time, and/or extending amortization terms. No new troubled debt restructurings were entered into during the three months ended December 31, 2014.

During the year ended and as of September 30, 2014, there were no new troubled debt restructurings.

No troubled debt restructurings defaulted within 12 months of their modification date during the three months ended December 31, 2014 and year ended September 30, 2014.

 

23

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Table of Contents

Home Bancorp Wisconsin, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollars in Thousands, except per share data)

 

 

Note 7

Regulatory Capital Ratios

The Bank is subject to various regulatory capital requirements administered by federal and state 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 consolidated 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 assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

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 I capital to risk-weighted assets and of Tier I capital to average assets.

As of December 31, 2014 and September 30, 2014, the Bank was well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since December 31, 2014, that management believes have changed the Bank’s category.

 

24

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Table of Contents

Home Bancorp Wisconsin, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollars in Thousands, except per share data)

 

 

Note 7

Regulatory Capital Ratios (Continued)

 

The Bank’s actual capital amounts and ratios as of December 31, 2014 and September 30, 2014 are presented in the following table:

 

		Actual								For Capital Adequacy Purposes								To Be Well Capitalized Under Prompt Corrective Action Provisions
		Amount				Ratio				Amount				Ratio				Amount				Ratio
December 31, 2014
Total capital (to risk-weighted assets)		$	12,712				14.6	% ³		$	6,951	³			8.0	% ³		$	8,689	³			10.0	%
Tier I capital (to risk-weighted assets)			11,622				13.4	% ³			3,476	³			4.0	% ³			5,213	³			6.0	%
Tier I capital (to average assets)			11,622				9.6	% ³			4,836	³			4.0	% ³			6,045	³			5.0	%
September 30, 2014
Total capital (to risk-weighted assets)		$	12,822				15.8	% ³		$	6,513	³			8.0	% ³		$	8,141	³			10.0	%
Tier I capital (to risk-weighted assets)			11,800				14.5	% ³			3,256	³			4.0	% ³			4,885	³			6.0	%
Tier I capital (to average assets)			11,800				9.7	% ³			4,854	³			4.0	% ³			6,068	³			5.0	%

As a state-chartered savings bank, the Bank is required to maintain a minimum net worth ratio. The Bank’s actual and required net worth ratios are as follows:

 

		Actual Net Worth								Required Net Worth
		Amount				Ratio				Amount				Ratio
December 30, 2014		$	12,712				10.3	%		$	7,402				6.0	%
September 30, 2014			12,822				10.7				7,166				6.0

 

25

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Table of Contents

Home Bancorp Wisconsin, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollars in Thousands, except per share data)

 

 

Note 8

Fair Value Measurements

Accounting standards describe three levels of inputs that may be used to measure fair value (the fair value hierarchy). The level of an asset or liability within the fair value hierarchy is based on the lowest level of input significant to the fair value measurement of that asset or liability.

Following is a brief description of each level of the fair value hierarchy:

Level 1 - Fair value measurement is based on quoted prices for identical assets or liabilities in active markets.

Level 2 - Fair value measurement is based on: (1) quoted prices for similar assets or liabilities in active markets; (2) quoted prices for identical or similar assets or liabilities in markets that are not active; or (3) valuation models and methodologies for which all significant assumptions are or can be corroborated by observable market data.

Level 3 - Fair value measurement is based on valuation models and methodologies that incorporate at least one significant assumption that cannot be corroborated by observable market data. Level 3 measurements reflect the Company’s estimates about assumptions market participants would use in measuring fair value of the asset or liability.

 

26

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Table of Contents

Home Bancorp Wisconsin, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollars in Thousands, except per share data)

 

 

Note 8

Fair Value Measurements (Continued)

 

Some assets and liabilities, such as securities available for sale, are measured at fair value on a recurring basis under accounting principles generally accepted in the United States. Other assets and liabilities, such as impaired loans, may be measured at fair value on a nonrecurring basis.

Following is a description of the valuation methodology used for each asset measured at fair value on a recurring or nonrecurring basis, as well as the classification of the asset within the fair value hierarchy.

Securities available for sale - Securities available for sale may be classified as Level 1 or Level 2 measurements within the fair value hierarchy. Level 1 securities include equity securities traded on a national exchange. The fair value measurement of a Level 1 security is based on the quoted price of the security. Level 2 securities include U.S. government and agency securities, obligations of states and political subdivisions, corporate debt securities, and mortgage-related securities. The fair value measurement of a Level 2 security is obtained from an independent pricing service and is based on recent sales of similar securities and other observable market data.

Loans - Loans are not measured at fair value on a recurring basis. However, loans considered to be impaired may be measured at fair value on a nonrecurring basis. The fair value measurement of an impaired loan that is collateral dependent is based on the fair value of the underlying collateral. All other impaired loan measurements are based on the present value of expected future cash flows discounted at the applicable effective interest rate and, thus, are not fair value measurements. Fair value measurements of underlying collateral that utilize observable market data, such as independent appraisals reflecting recent comparable sales, are considered Level 2 measurements. Other fair value measurements that incorporate estimated assumptions market participants would use to measure fair value are considered Level 3 measurements.

 

27

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Table of Contents

Home Bancorp Wisconsin, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollars in Thousands, except per share data)

 

 

Note 8

Fair Value Measurements (Continued)

 

Foreclosed assets - Real estate and other property acquired through or in lieu of loan foreclosure are not measured at fair value on a recurring basis. However, foreclosed assets are initially measured at fair value (less estimated costs to sell) when they are acquired and may also be measured at fair value (less estimated costs to sell) if they become subsequently impaired. The fair value measurement for each asset may be obtained from an independent firm or prepared internally. Fair value measurements obtained from independent firms are generally based on sales of comparable assets and other observable market data and are considered Level 2 measurements. Fair value measurements prepared internally are based on observable market data but include significant unobservable data and are therefore considered Level 3 measurements.

Information regarding the fair value of assets measured at fair value on a recurring basis as of December 31, 2014 and September 30, 2014 follows:

 

						Recurring Fair Value Measurements Using
		Assets Measured at Fair Value				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
December 31, 2014
Assets - Securities available for sale		$	5,885			$	—			$	5,885			$	—
September 30, 2014
Assets - Securities available for sale		$	7,922			$	—			$	7,922			$	—

 

28

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Table of Contents

Home Bancorp Wisconsin, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollars in Thousands, except per share data)

 

 

Note 8

Fair Value Measurements (Continued)

 

Information regarding the fair value of assets measured at fair value on a nonrecurring basis as of December 31, 2014 and September 30, 2014 follows:

 

						Nonrecurring Fair Value Measurements Using
		Assets Measured at Fair Value				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
December 31, 2014
Loans		$	545			$	—			$	—			$	545
Foreclosed assets			715				—				—				715
Totals		$	1,260			$	—			$	—			$	1,260
September 30, 2014
Loans		$	593			$	—			$	—			$	593
Foreclosed assets			775				—				—				775
Totals		$	1,368			$	—			$	—			$	1,368

Loans with a carrying amount of $798 and $825 were considered impaired and were written down to their estimated fair value of $545 and $593 as of December 31, 2014 and September 30, 2014, respectively. As a result, the Company recognized a specific valuation allowance against these impaired loans totaling $253 and $232 during the three months ended December 31, 2014 and the year ended September 30, 2014, respectively. The loans were valued based on the value of the underlying collateral, adjusted for selling costs. The fair value of collateral is determined based on appraisals, broker price opinions, or automated valuation models. In some cases, adjustments were made to these values due to various factors including age of the appraisal, age of the comparable and other 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.

 

29

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Table of Contents

Home Bancorp Wisconsin, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollars in Thousands, except per share data)

 

 

Note 8

Fair Value Measurements (Continued)

 

At December 31, 2014 and September 30, 2014, foreclosed assets with a fair value less estimated costs to sell of $715 and $775, respectively, were acquired through or in lieu of foreclosure. The fair value of foreclosed assets is determined based on appraisals, broker price opinions, or automated valuation models. In some cases, adjustments were made to these values due to various factors including age of the appraisal, age of the comparable and other 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.

The Company estimates fair value of all financial instruments regardless of whether such instruments are measured at fair value. The following methods and assumptions were used by the Company to estimate fair value of financial instruments not previously discussed.

Cash and cash equivalents - Fair value approximates the carrying value.

Other interest-bearing deposits - Fair value is estimated using discounted cash flow analyses based on current rates for similar types of deposits.

Securities held to maturity - Fair value is based on quoted market prices where available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

Loans held for sale - Fair value is based on commitments on hand from investors or prevailing market prices.

Loans - Fair value of variable rate loans that reprice frequently is based on carrying values. Fair value of other loans is estimated by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings. Fair value of impaired and other nonperforming loans is estimated using discounted expected future cash flows or the fair value of underlying collateral, if applicable.

Federal Home Loan Bank stock - Fair value is the redeemable (carrying) value based on the redemption provisions of the Federal Home Loan Bank.

 

30

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Table of Contents

Home Bancorp Wisconsin, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollars in Thousands, except per share data)

 

 

Note 8

Fair Value Measurements (Continued)

 

Accrued interest receivable and payable - Fair value approximates the carrying value.

Cash value of life insurance - Fair value is based on reported values of the assets.

Deposits and advance payments by borrowers for taxes and insurance - Fair value of deposits with no stated maturity, such as demand deposits, savings, and money market accounts, including advance payments by borrowers for taxes and insurance, by definition, is the amount payable on demand on the reporting date. Fair value of fixed rate time deposits is estimated using discounted cash flows applying interest rates currently being offered on similar time deposits.

Federal funds purchased - Fair value approximates carrying value.

Borrowed funds - Fair value of fixed rate, fixed term borrowings is estimated by discounting future cash flows using the current rates at which similar borrowings would be made. Fair value of borrowings with variable rates or maturing within 90 days approximates the carrying value of these borrowings.

Off-balance-sheet instruments - Fair value is based on quoted market prices of similar financial instruments where available. If a quoted market price is not available, fair value is based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreement and the counterparty’s credit standing. Since the estimated fair value of off-balance-sheet instruments is not material, no amounts are presented in the following schedule.

 

31

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Table of Contents

Home Bancorp Wisconsin, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollars in Thousands, except per share data)

 

 

Note 8

Fair Value Measurements (Continued)

 

The carrying value and estimated fair value of financial instruments at December 31, 2014 and September 30, 2014 follow:

 

		December 31, 2014
						Fair Value
		Carrying Value				Level 1				Level 2				Level 3
Financial assets:
Cash and cash equivalents		$	3,668			$	3,668			$	—			$	—
Other interest-bearing deposits			6,901				—				—				6,814
Securities available for sale			5,885				—				5,885				—
Securities held to maturity			3,778				—				3,845				—
Loans held for sale			766				—				766				—
Loans			91,591				—				—				90,970
Accrued interest receivable			426				426				—				—
Cash value of life insurance			3,258				—				—				3,258
Federal Home Loan Bank stock			652				—				—				652
Financial liabilities:
Deposits		$	99,338			$	73,969			$	—			$	25,367
Advance payments by borrowers for taxes and insurance			379				379				—				—
Federal funds purchased			2,731				2,731				—				—
Borrowed funds			6,500				—				—				6,903
Accrued interest payable			39				39				—				—

 

32

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Table of Contents

Home Bancorp Wisconsin, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollars in Thousands, except per share data)

 

 

Note 8

Fair Value Measurements (Continued)

 

		September 30, 2014
						Fair Value
		Carrying Value				Level 1				Level 2				Level 3
Financial assets:
Cash and cash equivalents		$	4,047			$	4,047			$	—			$	—
Other interest-bearing deposits			7,556				—				—				7,461
Securities available for sale			7,922				—				7,922				—
Securities held to maturity			3,893				—				3,927				—
Loans held for sale			320				—				320				—
Loans			84,757				—				—				84,182
Accrued interest receivable			402				402				—				—
Cash value of life insurance			3,238				—				—				3,238
Federal Home Loan Bank stock			652				—				—				652
Financial liabilities:
Deposits		$	97,685			$	71,271			$	—			$	26,412
Advance payments by borrowers for taxes and insurance			830				830				—				—
Federal funds purchased			1,965				1,965				—				—
Borrowed funds			5,000				—				—				5,398
Accrued interest payable			52				52				—				—

Limitations - The fair value of a financial instrument is the current amount that would be exchanged between market participants, other than in a forced liquidation. Fair value is best determined based on quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. 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. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Consequently, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

 

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Form 10-Q

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollars in Thousands, except per share data)

 

 

Note 8

Fair Value Measurements (Continued)

 

Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters that could affect the estimates. Fair value estimates are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business. Deposits with no stated maturities are defined as having a fair value equivalent to the amount payable on demand. This prohibits adjusting fair value derived from retaining those deposits for an expected future period of time. This component, commonly referred to as a deposit base intangible, is neither considered in the above amounts, nor is it recorded as an intangible asset on the consolidated balance sheets. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

 

Note 9

Employee Stock Ownership Plan

The Company adopted an employee stock ownership plan (“ESOP”) for the benefit of substantially all employees effective January 1, 2014. On April 23, 2014, the date of conversion, the ESOP borrowed $719 from the Company and used those funds to acquire 71,935 shares of the Company’s stock at a price of $10.00 per share. The Company accounts for its ESOP in accordance with ASC 718-40. Accordingly, because the debt is intercompany, it is eliminated in consolidation for presentation in these financial statements. The shares pledged as collateral are reported as unearned ESOP shares in the balance sheet.

Shares issued to the ESOP are allocated to ESOP participants based on principal and interest repayment made by the ESOP on the loan. The loan is secured by shares purchased with the loan proceeds and will be repaid by the ESOP with funds from the Bank’s discretionary contributions to the ESOP and earnings on ESOP assets.

 

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Home Bancorp Wisconsin, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollars in Thousands, except per share data)

 

 

Note 9

Employee Stock Ownership Plan (Continued)

 

The $719 loan for the ESOP purchase was borrowed from the Company and requires annual payments to be made by the ESOP of approximately $41, including principal and interest at a rate of 3.25%.

As shares are released from collateral, the Company will report compensation expense equal to the current market price of the shares and the shares will become outstanding for earnings-per-shares (EPS) computations. During the three months ended December 31, 2014, 719 shares, with an average fair value of $8.36 per share, were committed to be released resulting in ESOP compensation expense of $7 for the three months ended December 31, 2014. During the three months ended December 31, 2014 the 719 shares committed to be released were released, along with the 2,158 shares previously committed to be released, to total 2,877 shares released. No ESOP compensation expense was recorded for the three months ended December 31, 2013. The ESOP shares as of December 31, 2014 and September 30, 2014 were as follows:

 

		December 31, 2014				September 30, 2014
Allocated shares			2,877				—
Shares committed to be released and allocated to participants			—				2,158
Total unallocated shares			69,058				69,777
Total ESOP shares			71,935				71,935

 

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Home Bancorp Wisconsin, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollars in Thousands, except per share data)

 

 

Note 10

Subsequent Events

Management has reviewed operations for potential disclosure of information or financial statement impacts related to events occurring after December 31, 2014 but prior to the release of these financial statements.

As of January 28, 2015 the Company’s shares are traded on the OTC Pink market. The shares were previously traded on the OTCQB market.

Based on the results of this review, no additional subsequent events disclosures or financial statement impacts to the recently completed quarter are required as of the release date.

 

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Form 10-Q

 

 

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,” “plan,” “seek,” “expect” 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 quality of our loan and investment portfolios; and

 

•

estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our management 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.

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 in this report:

 

•

our ability to execute on our business strategy to increase our origination of multi-family residential loans, one- to four-family investment property loans, commercial real estate loans and home equity loans and lines of credit;

 

•

our ability to comply with the regulatory agreements we have entered into with the FDIC and the WDFI;

 

•

general economic conditions, either nationally or in our market areas, that are worse than expected;

 

•

competition among depository and other financial institutions;

 

•

inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;

 

•

adverse changes in the securities markets;

 

•

changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

 

•

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

 

•

our ability to successfully integrate de novo or acquired branches, if any;

 

•

changes in consumer spending, borrowing and savings habits;

 

•

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; and

 

•

changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

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

 

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Form 10-Q

 

 

Critical Accounting Policies

We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. The following represent our critical accounting policies:

Allowance for Loan Losses. The allowance for loan losses is the estimated amount considered necessary to cover inherent, but unconfirmed, credit losses in the loan portfolio at the balance sheet date. The allowance is established through the provision for losses on loans which is charged against income. In determining the allowance for loan losses, management makes significant estimates and has identified this policy as one of our most critical accounting policies.

Management performs a quarterly evaluation of the allowance for loan losses. Consideration is given to a variety of factors in establishing this estimate including, but not limited to, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal loan reviews and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change.

The analysis has two components, specific and general allocations. Specific percentage allocations can be made for unconfirmed losses related to loans that are determined to be impaired. Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. If the fair value of the loan is less than the loan’s carrying value, a charge is recorded for the difference. The general allocation is determined by segregating the remaining loans by type of loan, risk weighting (if applicable) and payment history. We also analyze historical loss experience, delinquency trends, general economic conditions and geographic and industry concentrations. This analysis establishes factors that are applied to the loan groups to determine the amount of the general reserve. Actual loan losses may be significantly more than the allowances we have established which could result in a material negative effect on our financial results.

Securities Valuation and Impairment. We classify our investments in debt and equity securities as either held-to-maturity or available-for-sale. Securities classified as held-to maturity are recorded at cost or amortized cost. Available-for-sale securities are carried at fair value. We obtain our fair values from a third party service. This service’s fair value calculations are based on quoted market prices when such prices are available. If quoted market prices are not available, estimates of fair value are computed using a variety of techniques, including extrapolation from the quoted prices of similar instruments or recent trades for thinly traded securities, fundamental analysis, or through obtaining purchase quotes. Due to the subjective nature of the valuation process, it is possible that the actual fair values of these investments could differ from the estimated amounts, thereby affecting our financial position, results of operations and cash flows. If the estimated value of investments is less than the cost or amortized cost, we evaluate whether an event or change in circumstances has occurred that may have a significant adverse effect on the fair value of the investment. If such an event or change has occurred and we determine that the impairment is other-than-temporary, we expense the impairment of the investment in the period in which the event or change occurred. We also consider how long a security has been in a loss position in determining if it is other than temporarily impaired. Management also assesses the nature of the unrealized losses taking into consideration factors such as changes in risk-free interest rates, general credit spread widening, market supply and demand, creditworthiness of the issuer, and quality of the underlying collateral. At December 31, 2014, 100%, of our securities were issued by the U.S. government, U.S. government agencies or U.S. government-sponsored enterprises.

Foreclosed Assets. Assets acquired through or in lieu of loan foreclosure are held for sale and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management, and the assets are carried at the lower of carrying amount or fair value less cost to sell and are included in other assets. Revenue and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets.

 

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Form 10-Q

 

 

Income Taxes and Accounting for Valuation Allowance on Deferred Tax Asset. We determine deferred tax assets and liabilities using the liability method. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the current enacted tax rates that will be in effect when these differences are expected to reverse. Provision (credit) for deferred taxes is the result of changes in the deferred tax assets and liabilities. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax asset will not be realized. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets.

We assessed our operating losses during fiscal 2008 through 2011, 2013, and 2014, estimated future operating results, tax planning strategies and the timing of reversals of temporary differences. At September 30, 2014, and again at December 31, 2014 we determined that it is more likely than not that the deferred tax asset may not be realized. Accordingly, a valuation allowance has been established for the entire amount of our deferred tax asset.

Overview

During the quarter ended December 31, 2014, we experienced a net loss of $181,000, a $35,000 improvement from the $216,000 net loss for the quarter ended December 31, 2013. Net interest income increased by $74,000 for the quarter ended December 31, 2014, compared to the quarter ended December 31, 2013. In addition, the provision for loan losses decreased by $21,000 for the 2014 quarter compared to 2013, as credit quality continued to improve. However, noninterest expense increased by $74,000 for the first quarter of 2015 compared to the first quarter of 2014, primarily due to an increase of $78,000 in compensation and employee benefits.

We do not anticipate net income until we are able to achieve significant growth in our earnings base. While we have already started to increase our interest income by increasing our earnings base, including our loan portfolio, it will take additional time to fully deploy the proceeds of the offering into higher earning assets. Although we hope to return to profitability in 2016, we cannot predict with specificity when or whether this will occur. A return to profitability is dependent upon, among other things, portfolio loan growth, saleable loan growth and expense management.

Comparison of Financial Condition at December 31, 2014 and September 30, 2014

Total assets increased $3.9 million, or 3.4% to $123.3 million at December 31, 2014 from $119.4 million at September 30, 2014. Net loans increased by $6.8 million and loans held for sale increased by $446,000, as total investment securities decreased by $2.2 million and other interest-bearing deposits in other banks decreased by $655,000.

Net loans, excluding loans held for sale, increased by $6.8 million, or 8.1%, to $91.6 million at December 31, 2014 from $84.8 million at September 30, 2014. The increase in net loans during the three months ended December 31, 2014 was primarily the result of a $4.8 million increase in multifamily real estate loans, a $1.0 million increase in construction loans, a $1.3 million increase in one- to four-family residential mortgage loans and a $176,000 increase in one- to four-family investor mortgage loans.

Loans held for sale increased by $446,000, or 139.4%, to $776,000 from $320,000 at September 30, 2014. The increase in loans held for sale represents the timing of loan originations and loan sales.

 

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Form 10-Q

 

 

Total investment securities decreased $2.2 million, or 18.2%, to $9.7 million at December 31, 2014. Securities available for sale decreased $2.0 million, while securities held to maturity decreased by $115,000.

Our investment in bank-owned life insurance increased $20,000 to $3.3 million during the three months ended December 31, 2014. We invest in bank-owned life insurance to provide us with a funding offset for our benefit plan obligations. Bank-owned life insurance also generally provides us noninterest income that is non-taxable.

Foreclosed assets decreased $60,000 to $715,000 at December 31, 2014.

Total deposits increased $1.7 million, or 1.7%, to $99.4 million at December 31, 2014 from $97.7 million at September 30, 2014. As part of our plan to reduce our reliance on certificates of deposit, we allowed higher costing certificates of deposit to run off at maturity during the period ended December 31, 2014. During the period, certificates of deposit decreased $1.0 million, or 4.0%, to $25.4 million. Total core deposits, which we consider to be all deposits except time deposits, increased by $2.7 million, or 3.6%, to $74.0 million as a result of a $2.7 million increase in demand accounts.

Our borrowings consist predominantly of Federal Home Loan Bank of Chicago advances. Federal Home Loan Bank advances increased by $1.5 million, or 30.0%, to $6.5 million at September 30, 2014. At December 31, 2014, and September 30, 2014, we also had $2.7 million and $2.0 million of overnight federal funds, respectively.

Other liabilities increased $633,000 to $1.8 million on December 31, 2014.

Total equity decreased $154,000, or 1.2%, to $12.6 million at December 31, 2014 from $12.8 million at September 30, 2014. The decrease was primarily due to the $181,000 net loss for the three months ended December 31, 2014. Additionally, accumulated other comprehensive income increased by $20,000 and $7,000 of ESOP shares were earned in the three months ended December 31, 2014.

Comparison of Results of Operations for the three months ended December 31, 2014 and 2013

General. We recorded a net loss of $181,000 for the three months ended December 31, 2014, compared to a net loss of $216,000 for the three months ended December 31, 2013. Net interest income increased by $74,000, noninterest income increased by $14,000, and the provision for loan losses decreased by $21,000 for the three months ended December 31, 2014. However, this improvement was partially offset by a $74,000 increase in noninterest expense.

Net Interest Income. Net interest income increased $74,000, or 8.9%, to $910,000 for the three months ended December 31, 2014 from $836,000 for the three months ended December 31, 2013. The increase in net interest income resulted from an increase of $50,000 in interest and dividend income and a decrease of $24,000 in interest expense.

Interest and Dividend Income. Interest and dividend income increased $50,000, or 5.1%, to $1.0 million for the three months ended December 31, 2014 from $975,000 for the three months ended December 31, 2013. The increase resulted from a $3,000 increase in interest and dividend income on interest-bearing deposits and securities and a $47,000 increase in interest income on loans.

 

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Form 10-Q

 

 

Interest income on loans increased $47,000, or 5.3%, to $938,000 for the quarter ended December 31, 2014 from $891,000 for the quarter ended December 31, 2013. This increase resulted from a $8.6 million increase in the average balance of loans to $88.0 million that was partially offset by a 25 basis point decrease in the average yield on loans to 4.20%. The average balance of loans held for sale rose $614,000 to $716,000. Total loans increased as we deployed funds raised in the stock conversion.

Interest income on interest-bearing deposits increased $7,000, or 26.9%, to $33,000 for the three month period ended December 31, 2014 from $26,000 for the three month period ended December 31, 2013.

Interest and dividend income on investment securities decreased by $4,000 to $54,000 for the quarter ended December 31, 2014 from $58,000 for the quarter ended December 31, 2013. The decrease was due to a $1.4 million increase in the average balance of investment securities to $10.9 million for the quarter ended December 31, 2014 which was more than offset by a 41 basis point decrease in the average yield on investment securities to 1.97%.

Interest Expense. Interest expense, consisting of interest-bearing deposits and borrowings, decreased $24,000, or 17.3%, to $115,000 for the quarter ended December 31, 2014 from $139,000 for the quarter ended December 31, 2013. The decrease was due to a $22,000, or 24.4%, decrease in the cost of interest-bearing deposits and a $2,000, or 4.1%, decrease in the cost of borrowings.

The $22,000 decrease in interest expense from deposits was largely the result of a $24,000 decrease in interest expense from certificates of deposit. The average balance of certificates of deposit declined $4.1 million for the quarter ended December 31, 2014 compared to the quarter ended December 31, 2013, while the average cost of such deposits decreased to .79% from 1.00% for the same periods, respectively.

The cost of borrowings decreased $2,000 for the quarter ended December 31, 2014, as average borrowings increased $1.0 million and the average cost of such borrowings decreased to 2.94% from 3.64%.

Provision for Loan Losses. We recorded a provision for loan losses of $30,000 for the three months ended December 31, 2014, compared to a provision for loan losses of $51,000 for the three months ended December 31, 2013. The decrease in the provision for loan losses was primarily due to a reduction in historical loan losses. The allowance for loan losses increased $26,000 in the three months ended December 31, 2014 as the $30,000 provision for loan losses and the $1,000 recoveries on previously charged off loans was more than offset by net loan charge offs totaling $5,000.

Noninterest Income. Noninterest income increased $14,000 to $163,000 for the three months ended December 31, 2014, compared to $149,000 for the three months ended December 31, 2013. The growth was primarily due to an $18,000 increase in mortgage banking income to $25,000 for the quarter ended December 31, 2014. Noninterest income from service fees declined by $12,000 to $62,000 for the quarter ended and we had a $7,000 gain on sale of securities.

Noninterest Expense. Noninterest expense increased $74,000, or 6.4%, to $1.2 million for the three months ended December 31, 2014 compared to the three months ended December 31, 2013. The largest component increases were compensation and employee benefits which increased $78,000 from $521,000 and noninterest expenses on foreclosed assets which increased $21,000 from $23,000. These increases were offset by a decrease of $37,000 in other advertising and promotions expenses.

Income Tax Expense. We recorded no income tax expense for the three months ended December 31, 2014 and 2013. Although we had losses in both quarters, we recorded no tax benefit in the quarters ended December 31, 2014 and 2013 because we are continuing to provide a 100% valuation allowance against our deferred tax asset.

 

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Form 10-Q

 

 

Liquidity and Capital Resources

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, scheduled amortization and prepayments of loan principal and mortgage-backed securities, maturities and calls of investment securities and funds provided by our operations. In addition, we have the ability to borrow from the Federal Home Loan Bank of Chicago. At December 31, 2014, we had $6.5 million in borrowings from the Federal Home Loan Bank of Chicago. At that same date, we had the capacity to borrow an additional $14.1 million from the Federal Home Loan Bank of Chicago, subject to our pledging sufficient assets. At December 31, 2014, we also had the ability to borrow up to $1.8 million through Bankers Bank’s agent federal funds program. In addition, we have authority to borrow $7.3 million from the Federal Reserve’s “discount window,” but Federal Reserve policy generally requires savings institutions to exhaust all other sources before borrowing from the Federal Reserve.

Loan repayments and maturing securities are a relatively predictable source of funds. However, deposit flows, calls of securities and prepayments of loans and mortgage-backed securities are strongly influenced by interest rates, general and local economic conditions and competition in the marketplace. These factors reduce the predictability of these sources of funds.

Our primary investing activity is the origination of loans. We have also purchased investment securities in executing our business strategy to invest some of our excess liquidity in investment securities. Our loans, net of allowance for loan losses, increased $6.8 million during the three months ended December 31, 2014.

Total deposits increased $1.7 million during the three months ended December 31, 2014. Deposit flows are affected by the level of interest rates, the interest rates and products offered by competitors and other factors. At December 31, 2014, certificates of deposit scheduled to mature within one year totaled $16.6 million. Our ability to retain these deposits will be determined in part by the interest rates we are willing to pay on such deposits.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.

At December 31, 2014, the Bank’s capital levels exceeded the levels required to be considered “well capitalized” under federal regulations.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make.

Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include data processing services, operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities.

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

As of December 31, 2014, there were no material changes in interest rate risk from the analysis disclosed in the Company’s Form 10-K as filed with the Securities and Exchange Commission on December 12, 2014.

 

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Item 4.

Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal 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) promulgated under the Securities and Exchange Act of 1934, as amended) as of the period covered by this report. Based upon such evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

During the period covered by this report, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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Home Savings Bank

Part II — Other Information

 

Item 1.

Legal Proceedings

The Bank and Company are subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Bank’s or the Company’s financial condition or results of operations.

 

Item 1A.

Risk Factors

For information regarding the Company’s risk factors, see “Risk Factors” in the Company’s Form 10-K for the year ended September 30, 2014 as filed with the Securities and Exchange Commission on December 12, 2014. As of December 31, 2014, the risk factors of the Company have not changed materially from those disclosed in the 10-K.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None

 

Item 3.

Defaults Upon Senior Securities

None.

 

Item 4.

Mine Safety Disclosures

Not applicable.

 

Item 5.

Other Information

None.

 

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Item 6.

Exhibits

 

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101		Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Balance Sheets as of December 31, 2014 and September 30, 2014, (ii) the Statements of Income for the three months December 31, 2014 and 2013, (iii) the Statements of Comprehensive Income for the three months ended December 31, 2014 and 2013, (iv) the Statements of Equity for the three months ended December 31, 2014 and 2013, (v) the Statements of Cash Flows for the three months ended December 31, 2014 and 2013, and (vi) the Notes to the Financial Statements.

 

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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.

 

				HOME BANCORP WISCONSIN, INC.
Date: February 10, 2015				/s/ James R. Bradley
				James R. Bradley
				President and Chief Executive Officer
Date: February 10, 2015				/s/ Mark A. Fritz
				Mark A. Fritz
				Senior Vice President and Chief Financial Officer

 

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