Home Bancorp Wisconsin, Inc. - FORM 10-K

Home Bancorp Wisconsin, Inc. - FORM 10-K - December 23, 2015

Attached files

Attached files

Home Bancorp Wisconsin, Inc. Reports

file	filename
EX-32 - EX-32 - Home Bancorp Wisconsin, Inc.	d73535dex32.htm
EX-23 - EX-23 - Home Bancorp Wisconsin, Inc.	d73535dex23.htm
EX-31.2 - EX-31.2 - Home Bancorp Wisconsin, Inc.	d73535dex312.htm
EX-31.1 - EX-31.1 - Home Bancorp Wisconsin, Inc.	d73535dex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended September 30, 2015

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

For the transition period from to

Commission File Number: 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 No.)

3762 East Washington Avenue, Madison, Wisconsin		53704
(Address of principal executive offices)		(Zip Code)

(608) 282-6000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

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

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 (§ 232.405 of this chapter) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

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

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the Registrant, computed by reference to the closing price of the common stock on March 31, 2015 was $6.6 million.

The number of shares outstanding of the registrant’s common stock as of December 23, 2015 was 899,190.

DOCUMENTS INCORPORATED BY REFERENCE: Proxy Statement for the Registrant’s Annual Meeting of Stockholders (Part III).

INDEX


		Page
Part I

Item 1.	Business		1
Item 1A.	Risk Factors		29
Item 1B.	Unresolved Staff Comments		33
Item 2.	Properties		34
Item 3.	Legal Proceedings		34
Item 4.	Mine Safety Disclosures		34

Part II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		34
Item 6.	Selected Financial Data		35
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		37
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		45
Item 8.	Financial Statements and Supplementary Data		45
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		46
Item 9A.	Controls and Procedures		46
Item 9B.	Other Information		46

Part III

Item 10.	Directors, Executive Officers and Corporate Governance		46
Item 11.	Executive Compensation		46
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		46
Item 13.	Certain Relationships and Related Transactions, and Director Independence		47
Item 14.	Principal Accounting Fees and Services		47

Part IV

Item 15.	Exhibits and Financial Statement Schedules		48

SIGNATURES			49

This report contains certain “forward-looking statements” within the meaning of the federal securities laws. These statements are not historical facts; rather, they are statements based on Home Bancorp Wisconsin, Inc.’s current expectations regarding its business strategies, intended results and future performance. Forward-looking statements are preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions.

Management’s ability to predict results or the effect of future plans or strategies is inherently uncertain. Factors which could affect actual results include changes in interest rates, national and regional economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board, the credit quality and composition of the loan and investment portfolios, valuation of assets acquired through foreclosure, deposit flows, competition, demand for loan products and for financial services in Home Bancorp Wisconsin, Inc.’s market area, changes in real estate market values in Home Bancorp Wisconsin, Inc.’s market area, changes in relevant accounting principles and guidelines and the inability of third party service providers to perform as required. For further discussion of factors that may affect the results, see “Item 1A. Risk Factors” in this Annual Report on Form 10-K (“Annual Report”). These factors should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements. Except as required by law, we disclaim any intention or obligation to update or revise any forward-looking statements after the date of this Annual Report, whether as a result of new information, future events or otherwise.

In this Annual Report, the terms “we,” “our,” and “us” refer to Home Bancorp Wisconsin, Inc. and Home Savings Bank, unless the context indicates another meaning. In addition, we sometimes refer to Home Bancorp Wisconsin, Inc. as “Home Bancorp Wisconsin” or the “Company,” and to Home Savings Bank as the “Bank.”

PART I

ITEM 1.

BUSINESS

General

Home Bancorp Wisconsin, Inc. is a Maryland chartered corporation established in June 2013 to become the holding company for Home Savings Bank in connection with the Bank’s mutual-to-stock conversion. Home Bancorp Wisconsin’s business activity is the ownership of the Bank’s capital stock and the management of the offering proceeds it retained in connection with the Bank’s conversion. Home Bancorp Wisconsin does not own or lease any property but instead uses the premises, equipment and other property of the Bank with the payment of appropriate rental fees, as required by applicable law and regulations, under the terms of an expense allocation agreement. In the future, Home Bancorp Wisconsin may acquire or organize other operating subsidiaries; however, there are no current plans, arrangements, agreements or understandings, written or oral, to do so.

Home Savings Bank is a Wisconsin chartered stock savings bank founded in 1895. We are headquartered in Madison, Wisconsin, and conduct our business from our four full-service banking offices, with three offices located in Madison, Wisconsin, and our fourth office located in Stoughton, Wisconsin.

Our primary business activity consists of taking deposits from the general public and investing those deposits, together with funds generated from operations, in one- to four-family residential real estate loans (including both owner-occupied and investor loans), commercial and multi-family real estate loans, home equity loans and lines of credit, and, to a more limited extent, commercial business loans, construction loans and consumer loans (consisting primarily of student loans). At September 30, 2015, $48.3 million, or 42.9%, of our total loan portfolio was comprised of one- to four-family residential real estate loans. Of these loans, $28.5 million were secured by owner-occupied properties and $19.8 million were loans to investors for the purchase and refinance of non owner-occupied one- to four-family residential real estate. At September 30, 2015, $19.6 million, or 17.4%, of our total loan portfolio was comprised of commercial real estate loans, $25.2 million, or 22.4%, of our total loan portfolio was comprised of multi-family residential loans, and $9.7 million, or 8.6%, of our total loan portfolio was comprised of home equity loans and lines of credit.

We also invest in securities, which at September 30, 2015 consisted of securities issued or guaranteed by U.S. government agencies or government-sponsored enterprises. A portion of our funds are also held in federally insured certificates of deposits at other financial institutions.

We offer a variety of deposit accounts, including money market accounts, savings accounts, NOW accounts, individual retirement accounts and certificate of deposit accounts. From time to time we have also used borrowings to fund our operations. At September 30, 2015 we had deposits of $105.7 million. At that same date we had borrowings consisting of $13.0 million of advances from the Federal Home Loan Bank of Chicago and $616,000 of overnight federal funds.

We are dedicated to offering a wide range of banking products and delivery systems, including online banking, online mortgage applications and mobile banking.

We also offer investments and wealth management services at all of our locations through investment advisors registered with Raymond James Financial Services, Inc.

Home Savings Bank is subject to regulation and examination by the Wisconsin Department of Financial Institutions and the Federal Deposit Insurance Corporation. Our executive offices are located at 3762 East Washington Avenue, Madison, Wisconsin 53704, and our telephone number at that address is (608) 282-6000.

Available Information

The Bank’s website address is www.home-savings.com. Information on the Bank’s website should not be considered a part of this Annual Report.

Market Area

According to the U.S. Census Bureau, between 2000 and 2010 the population and median household income of Dane County have grown faster than in Wisconsin and the United States, and this trend is projected to continue through 2017. Between 2000 and 2010, Dane County’s population increased by 14.4%, compared to 6.0% and 9.7% for Wisconsin and the United States, respectively. Between 2010 and 2017, Dane County, Wisconsin and the United States are projected to increase in population at rates of 7.7%, 3.2% and 4.9%, respectively. Growth in households in Dane County has also outpaced that in Wisconsin and the United States, and is projected to do so through 2017.

From 2000 to 2010, median household income in Dane County, Wisconsin and the United States increased by 25.8%, 19.6 % and 19.2% to $61,913, $52,374 and $50,046, according to data from the US Census Bureau. According to ESRI, a private provider of demographic data, between 2010 and 2017 Dane County is projected to experience a median household income increase of 14.5% to $70,898, while Wisconsin and the United States are projected to increase by 9.3% to $57,220 and by 13.7% to $56,895, respectively.

Based on data from the US Bureau of Labor Statistics, Dane County has been characterized by lower unemployment rates than Wisconsin and the United States. In October 2014, Dane County’s rate of unemployment was 3.4%, the unemployment rate in Wisconsin was 5.4%, and the United States’ unemployment rate decreased to 5.8%.

In 2010, the services industry, wholesale/retail trade industry and manufacturing industry provided the first, second and third highest levels of employment, respectively, for Dane County, according to the US Census Bureau.

Competition

We face significant competition within our market both in making loans and attracting deposits. Some of our competitors offer products and services that we currently do not offer, such as trust services and private banking. Our competition for loans and deposits comes principally from commercial banks, savings institutions, mortgage banking firms, consumer finance companies and credit unions. We face additional competition for deposits from short-term money market funds, brokerage firms, mutual funds and insurance companies. Our primary focus is to build and develop profitable customer relationships across all lines of business while maintaining our position as a community bank.

We are a small community savings bank and as of June 30, 2015 (the latest date for which information is available), our market share was 0.78% of total FDIC-insured deposits in Madison, Wisconsin, making us the 16th largest out of 24 financial institutions in Madison. On that same date, our market share was 10.97% of total FDIC-insured deposits in Stoughton, Wisconsin, making us the 5th largest out of 5 financial institutions in Stoughton.

Lending Activities

General. Our principal lending activities include one- to four-family residential real estate loans (including both owner-occupied and investor loans), commercial real estate loans, multi-family real estate loans, and home equity loans and lines of credit. To a more limited extent, we also offer consumer loans (consisting primarily of student loans), commercial business loans and construction loans.

As part of our efforts to increase our interest income, we intend to increase our origination of short term fixed-rate and adjustable rate commercial real estate loans, multi-family real estate loans and loans to investors for the purchase of non-owner occupied one- to four-family real estate loans (referred to herein as “one- to four-family investment property loans”). In addition, we intend to increase our portfolio of home equity loans and lines of credit.

We have also purchased and sold participations in loans, primarily commercial real estate loans, multi-family real estate loans and construction and development loans. See “—Loan Originations, Participations, Purchases and Sales.”

Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio, by type of loan collateral at the dates indicated, excluding loans held for sale. At September 30, 2015 we had $151,000 loans held for sale, compared to $320,000 loans held for sale at September 30, 2014.


	At September 30,
	2015					2014
	Amount		Percent			Amount		Percent
	(Dollars in thousands)
Real estate loans:
One- to four-family residential	$	28,487		25.33	%	$	23,945		27.74	%
One- to four-family investment property		19,797		17.61	%		13,131		15.21	%
Commercial		19,595		17.43	%		19,273		22.32	%
Multi-family		25,224		22.43	%		14,718		17.05	%
Construction		5,179		4.61	%		1,092		1.26	%
Home equity loans and lines of credit		9,668		8.60	%		10,044		11.63	%
Commercial business loans		2,182		1.94	%		1,662		1.93	%
Consumer loans		2,311		2.05	%		2,470		2.86	%

Total		112,443		100.00	%		86,335		100.00	%

Less:
Net deferred loan expenses		51					47
Undisbursed loan proceeds		1,054					128
Allowance for loan losses		1,478					1,403

Total loans	$	109,860				$	84,757

Loan Portfolio Maturities. The following tables set forth the contractual maturities of our loan portfolio at September 30, 2015, excluding loans held for sale. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. The table presents contractual maturities and does not reflect repricing or the effect of prepayments. Actual maturities may differ.


September 30, 2015	One- to Four- Family Residential Real Estate (1)		Commercial Real Estate		Multi- Family Real Estate		Construction
	(In thousands)
Amounts due in:
One year or less	$	562	$	6,884	$	574	$	1,837
More than one to two years		375		2,944		795		210
More than two to three years		4,315		1,308		2,749		874
More than three to five years		7,780		7,440		12,014		480
More than five to ten years		5,548		870		8,439		1,505
More than ten to 15 years		1,334		149		316		—
More than 15 years		28,370		—		337		273

Total	$	48,284	$	19,595	$	25,224	$	5,179


September 30, 2015	Home Equity Loans and Lines of Credit		Commercial Business		Consumer		Total
	(In thousands)
Amounts due in:
One year or less	$	4,074	$	1,090	$	674	$	15,695
More than one to two years		1,138		100		23		5,585
More than two to three years		1,237		61		36		10,580
More than three to five years		2,989		901		96		31,700
More than five to ten years		230		30		1,131		17,753
More than ten to 15 years		—		—		—		1,799
More than 15 years		—		—		351		29,331

Total	$	9,668	$	2,182	$	2,311	$	112,443

(1)	Includes one- to four-family investment property loans.

Fixed and Adjustable-Rate Loan Schedule. The following table sets forth our fixed and adjustable-rate loans at September 30, 2015 that are contractually due after September 30, 2016, excluding loans held for sale.


	Due After September 30, 2016
	Fixed		Adjustable		Total
	(In thousands)
Real estate loans:
One- to four-family residential	$	2,985	$	25,405	$	28,390
One- to four-family investment properties		14,449		4,883		19,332
Commercial		11,991		720		12,711
Multi-family		16,469		8,181		24,650
Construction		1,565		1,777		3,342
Home equity loans and lines of credit		2,382		3,212		5,594
Commercial business loans		1,072		20		1,092
Consumer loans		227		1,410		1,637

Total loans	$	51,140	$	45,608	$	96,748

One- to Four-Family Residential Real Estate Lending. As of September 30, 2015, $28.5 million, or 25.3% of our total loans, consisted of residential mortgage loans secured by owner-occupied one- to four-family properties. We also make loans to investors for the purchase and refinance of one- to four-family residential properties that are not owner-occupied, which are described below under “One- to Four-Family Investment Property Loans”.

We sell a portion of our conforming one- to four-family mortgage loans with terms of 15 years or more in the secondary market. We determine the amount of such loans that we sell based on interest rate risk and balance sheet considerations. During recent years, we have sold substantially all of such loans, although, depending on market conditions, we may not do so in the future. During the fiscal year ended September 30, 2015 and 2014, we sold $9.6 million and $6.7 million of the owner-occupied one- to four-family mortgage loans that we originated, respectively.

Generally, one- to four-family residential mortgage loans secured by owner-occupied properties are originated in amounts up to 95% of the lesser of the appraised value or purchase price of the property, with private mortgage insurance required on loans with a loan-to-value ratio in excess of 80%. On occasion, borrowers have combined a first mortgage loan and home equity loan with a combined loan-to-value ratio of up to 90% to avoid the need for private mortgage insurance. Fixed-rate one- to four-family mortgage loans generally are originated for terms of 15 to 30 years. Generally, all fixed-rate residential mortgage loans are underwritten according to secondary market policies and procedures, which allows us to sell the loans in the secondary market, consistent with our asset-liability management and portfolio needs.

We also offer adjustable-rate mortgage loans for owner-occupied one- to four-family properties. These loans are generally nonconforming, including loans for amounts above the lending limit for conforming loans (“jumbo loans”). Our typical adjustable rate loan for owner-occupied one- to four-family mortgage loan has a competitive initial rate that typically resets at an applicable margin over the 1 year treasury index after 5 years (some loans reset after 1, 3 or 10 years), with a maximum rate adjustment of 2% per adjustment, and a lifetime maximum adjustment of 6% above the initial rate. Our owner occupied adjustable rate loans do not have a floor. Our adjustable-rate mortgage loans amortize over terms of up to 30 years. During the fiscal years ended September 30, 2015 and 2014, $8.4 million and $4.1 million of the owner-occupied one- to four-family mortgage loans that we originated had adjustable rates, respectively.

Virtually all of our one- to four-family residential real estate loans are secured by properties located in our primary lending area, which we define as Dane County, Wisconsin and contiguous counties.

Although adjustable-rate mortgage loans may reduce to an extent our vulnerability to changes in market interest rates because they periodically reprice, as interest rates increase the required payments due from the borrower also increase (subject to rate caps), increasing the potential for default by the borrower. At the same time, the ability of the borrower to repay the loan and the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustments of the contractual interest rate are also limited by the maximum periodic and lifetime rate adjustments permitted by our loan documents. As a result, the effectiveness of adjustable-rate mortgage loans in compensating for changes in general interest rates may be limited during periods of rapidly rising interest rates.

One- to Four-Family Investment Property Loans. We originate loans on one- to four-family investment properties. The subject properties are non-owner occupied and generally under a business name or in the name of an individual who owns more investment property than what is allowed under guidelines set by government-sponsored enterprises. At September 30, 2015, one- to four-family investment property loans totaled $19.8 million, which amounted to 17.6% of total loans. Our real estate underwriting policies provide that such loans may be made in amounts of up to 80% of the appraised value of the property. Our one- to four-family investment property loans are generally fixed rate balloons or adjustable rate loans. Adjustable rate loans have a competitive initial rate that typically reset to an applicable margin over the 1 year treasury index after 5 years (some loans reset after 1, 3, or 10 years), with a maximum rate adjustment of 2% per adjustment, and a lifetime maximum adjustment of 6-8% above the initial rate. Our adjustable rate one- to four-family investment property loans generally also have a floor, which currently is about 4%. Adjustable rate loans may have terms from 10-30 years, and are fully amortizing. Our fixed rate balloon loans for one- to four-family investment property typically have five year terms and amortize over 30 years.

We generally target one- to four-family investment property loans with balances up to $750,000. At September 30, 2015, our average one- to four-family investment property had a balance of $204,000. Virtually all of our one- to four-family investment property loans are secured by properties located in our primary lending area, which we define as Dane County, Wisconsin and contiguous counties.

In reaching a decision on whether to make one- to four-family investment loans, we consider the net operating income of the property, the borrower’s expertise and credit history, the global cash flow of the borrowers and the value of the underlying property. We generally require that the properties securing these real estate loans have debt service coverage ratios (the ratio of earnings before debt service to debt service) of at least 1.15. Generally, one- to four-family real estate loans made to business entities require the principals to execute the loan agreements in their individual capacity, as well as signing on behalf of such business entity.

A borrower’s financial information is monitored on an ongoing basis by requiring periodic financial statement updates, payment history reviews and periodic face-to-face meetings with the borrower. We require borrowers receiving one- to four-family investment property loans to provide annually updated financial statements and federal tax returns, as we do of individual principals on our commercial real estate loans. We also require borrowers with rental investment property to provide an annual report of income and expenses for the property, including a rent roll and copies of leases, as applicable. The largest one- to four-family investment property loan in our portfolio at September 30, 2015 was a $792,000 loan collateralized by a four unit property located in Madison, Wisconsin. This loan was performing according to its terms at September 30, 2015.

Loans secured by one- to four-family investment properties generally involve larger principal amounts and a greater degree of risk than one- to four-family residential mortgage loans. Because payments on loans secured by one- to four-family investment properties are often dependent on successful operation or management of the properties, repayment of such loans may be affected by adverse conditions in the real estate market or the economy.

Commercial and Multi-Family Real Estate Lending. We offer commercial real estate and multi-family real estate loans, which provide us the opportunity to enhance the yield and reduce the term to maturity of our loan portfolio. At September 30, 2015, we had $19.6 million in commercial real estate loans, representing 17.4% of our total loan portfolio, and $25.2 million in multi-family real estate loans, representing 22.4% of our total loan portfolio. We intend to prudently increase our current level of commercial and multi-family real estate loans, subject to future economic, market and regulatory conditions.

Our commercial and multi-family real estate loans are generally fixed rate balloons or adjustable rate loans. Adjustable rate loans have a competitive initial rate that typically resets to an applicable margin over the 1 year treasury index after 5 years (some loans reset after 1, 3, or 7 years), with no limit on adjustments. Adjustable rate loans may have terms from 10-30 years, and are fully amortizing. Our fixed rate balloon loans for commercial and multi-family real estate typically have five year terms and amortize over a period of up to 30 years.

Our real estate underwriting policies provide that commercial and multi-family real estate loans may be made in amounts of up to 80% of the appraised value of the property. We generally require a minimum debt service ratio of 1.25 (unless certain factors are met, in which case we may require a debt service ratio of 1.15, or 1.00 for owner occupied properties).

Almost all of our commercial and multi-family real estate loans are collateralized by office buildings, mixed-use properties and five or more family residential real estate located in Dane County, Wisconsin and contiguous counties.

We consider a number of factors in originating commercial and multi-family real estate loans, including non-owner occupied one- to four-family residential real estate loans. We evaluate the qualifications and financial condition of the borrower, including credit history, profitability and expertise, as well as the value and condition of the property securing the loan. When evaluating the qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in owning or managing similar property and the borrower’s payment history with us and other financial institutions. In evaluating the property securing the loan, the factors we consider include the net operating income of the mortgaged property before debt service and depreciation, the ratio of the loan amount to the appraised value of the mortgaged property and the debt service coverage ratio (the ratio of net operating income to debt service). All commercial and multi-family real estate loans in excess of $250,000 are appraised by outside independent appraisers who are approved by the board of directors. Personal guarantees are generally obtained from the principals of commercial and multi-family real estate loans.

Commercial and multi-family real estate loans entail greater credit risks compared to owner-occupied one- to four-family residential real estate loans because they typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment of loans secured by income-producing properties typically depends on the successful operation of the property, as repayment of the loan generally is dependent, in large part, on sufficient income from the property to cover operating expenses and debt service. Changes in economic conditions that are not in the control of the borrower or lender could affect the value of the collateral for the loan or the future cash flow of the property. Additionally, any decline in real estate values may be more pronounced for commercial and multi-family real estate than residential properties.

Our loans-to-one borrower limit is currently $2.2 million, and we currently target commercial real estate and multi-family real estate loans with balances of up to $2.0 million. At September 30, 2015, our average commercial real estate loan had a balance of $478,000. At that same date, our largest commercial real estate loan totaled $1.7 million and was performing in accordance with its repayment terms. In addition to this loan, at September 30, 2015, the same borrower had provided guarantees for an additional $4.7 million of loans from Home Savings Bank. At September 30, 2015, our average multi-family real estate loan had a balance of $587,000. At that same date, our largest multi-family real estate loan totaled $2.0 million and was performing in accordance with its repayment terms. In addition to this loan, at September 30, 2015, the same borrower had provided guarantees for an additional $273,000 of loans from Home Savings Bank.

Home Equity Loans and Lines of Credit. We also offer home equity loans and home equity lines of credit secured by owner-occupied one- to four-family residences. We intend to increase our portfolio of home equity loans and lines of credit by expanding balances on current low and no balance loans and lines of credit, as well as offering new home improvement loans to homeowners who are deferring new home purchases. At September 30, 2015, outstanding home equity loans and equity lines of credit totaled $9.7 million, or 8.6% of total loans outstanding. At September 30, 2015, commitments to extend credit for home equity lines of credit totaled $15.5 million of which $7.1 million were outstanding loans. The underwriting standards utilized for home equity loans and home equity lines of credit include a determination of the applicant’s credit history, an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan, and the value of the collateral securing the loan. Home equity loans are offered with fixed rates of interest with terms up to 5 years. Loan-to-value ratios are generally limited to 80% when combined with the first security lien, if applicable. Our home equity lines of credit have five-year terms and adjustable rates of interest which are indexed to prime rate as published in the Wall Street Journal. Home equity lines of credit have a maximum interest rate of 18%, and no minimum interest rate. The average outstanding home equity loan balance was $20,000 at September 30, 2015, with the largest outstanding balance at that date of $314,000.

Construction and Land Loans. We originate construction loans to individuals and contractors for the construction of one- to four-family residential properties and, from time to time, commercial real estate and multi-family residential properties. We have also originated and participated in loans for construction and land development, although we do not intend to emphasize these loans in the near future. At September 30, 2015, $5.2 million, or 4.6%, of our total loan portfolio, consisted of construction and land loans, substantially all of which were secured by one- to four-family residential real estate. At September 30, 2015, the unadvanced portion of such loans totaled $1.1 million.

Our construction mortgage loans generally provide for the payment of interest only during the construction phase, which is typically up to 12 months. At the end of the construction phase, the construction loan converts to a longer term permanent mortgage loan. Construction loans can be made with a maximum loan-to-value ratio of 80%, although the permanent loan may be for a maximum loan-to-value ratio of 95%, provided that the borrower obtains private mortgage insurance if the loan-to-value ratio exceeds 80%. The average outstanding construction loan balance totaled $288,000 on September 30, 2015, with the largest outstanding balance at $1.5 million.

Before making a commitment to fund a residential construction loan, we require an appraisal of the property by an independent licensed appraiser. We also review and inspect each property before disbursement of funds during the term of the construction loan. Loan proceeds are disbursed after inspection based on the percentage of completion method.

Construction financing is generally considered to involve a higher degree of credit risk than longer-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions. If the estimate of construction cost is inaccurate, we may be required to advance funds beyond the amount originally committed in order to protect the value of the property. Additionally, if the estimate of value is inaccurate, we may be confronted with a project, when completed, with a value that is insufficient to ensure full repayment of the loan.

Commercial Business Loans. We also originate commercial non-mortgage business (term) loans and adjustable lines of credit. At September 30, 2015, we had $2.2 million of commercial business loans outstanding, representing 1.9% of our total loan portfolio. At that date, we also had $468,000 of unfunded commitments on such loans, which included letters of credit totaling $25,000. These loans are generally originated to small- and medium-sized companies in our primary lending market. Our commercial business loans are generally used for working capital purposes or for acquiring equipment, inventory or furniture, and are primarily secured by business assets other than real estate, such as business equipment and inventory, accounts receivable or stock.

In underwriting commercial business loans, we generally lend up to 80% of the appraised value or purchase price of the collateral securing the loan, whichever is lower. The commercial business loans that we offer have fixed interest rates or adjustable-rate indexed to the prime rate as published in the Wall Street Journal plus an applicable margin, and with terms ranging from six months to five years. Our commercial business loan portfolio consists primarily of secured loans. When making commercial business loans, we consider the financial statements, lending history and debt service capabilities of the borrower (generally requiring a minimum ratio of 1.15), the projected cash flows of the business and the value of the collateral, if any. Virtually all of our loans are guaranteed by the principals of the borrower.

Commercial business loans generally have a greater credit risk than one- to four-family residential mortgage loans. Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment and other income, and which are secured by real property whose value tends to be more easily ascertainable, commercial business loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself. Further, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business. We seek to minimize these risks through our underwriting standards.

At September 30, 2015, our largest commercial business loan outstanding was for $506,000 and was secured by business inventory. At September 30, 2015, this loan was performing in accordance with its terms.

Consumer Loans. To a lesser extent, we also offer a variety of other consumer loans to individuals who reside or work in our market area, the majority of which are student loans or loans secured by passbook savings accounts and other collateral. At September 30, 2015, consumer loans totaled $2.3 million, or 2.1% of our loan portfolio. Management believes that offering consumer loan products helps to expand and create stronger ties to our existing customer base by increasing the number of customer relationships and providing cross-marketing opportunities. Consumer loans generally have greater risk compared to loans secured by one- to four-family residential real estate loans.

Loan Originations, Participations, Purchases and Sales. Our loan originations are generated by our loan personnel operating at our banking offices. All loans we originate are underwritten pursuant to our policies and procedures. While we originate both fixed-rate and adjustable-rate loans, our ability to generate each type of loan depends upon relative borrower demand and the pricing levels as set in the local marketplace by competing banks, thrifts, credit unions, and mortgage banking companies. Our volume of real estate loan originations is influenced significantly by market interest rates, and, accordingly, the volume of our real estate loan originations can vary from period to period.

During 2002 through 2008, we acquired a significant number of participations in non-residential loans originated by other lenders. Six of such loans, aggregating approximately $6.7 million, most of which were out-of-market construction and land development loans, required substantial provisions and charge-offs. We do not intend to emphasize loans for construction and land development or out-of-market participations in loans that we do not originate in the near future.

Because of our small size, the amount that we are able to loan to one borrower is limited compared to larger banks with which we compete. In order to originate larger loans, including multi-family and commercial real estate loans, we have sold participations in some of our loans to other banks. We intend to expand our network of banks to which we may sell participations.

The following table shows our loan origination, purchases and repayment activities for the years indicated.


	Years Ended September 30,
	2015			2014
	(In thousands)
Total gross loans at beginning of year (1)	$	86,655		$	78,642

Loans originated:
Real estate loans:
One- to four-family residential		18,432			10,840
One- to four-family investment property		7,153			3,381
Commercial		11,314			12,200
Multi-family		16,185			5,467
Construction		2,832			1,014
Home equity loans and lines of credit		1,557			810
Commercial business loans		2,368			599
Consumer loans		158			278

Total loans originated		59,999			34,589

Loans purchased:
Real estate loans:
One- to four-family residential		—			—
One- to four-family investment property		—			—
Commercial		1,008			1,000
Multi-family		—			—
Construction		—			—
Home equity loans and lines of credit		—			—
Commercial business loans		—			—
Consumer loans		—			—

Total loans purchased		1,008			1,000

Loans sold:
Real estate loans:
One- to four-family residential		(9,614	)		(6,700	)
One- to four-family investment property		—			—
Commercial		—			—
Multi-family		—			—
Construction		—			—
Home equity loans and lines of credit		—			—
Commercial business loans		—			—
Consumer loans		—			—

Total loans sold		(9,614	)		(6,700	)

Principal repayments and charge-offs		(25,454	)		(20,876	)

Net loan activity		25,939			8,013

Total gross loans at end of year (1)	$	112,594		$	86,655

(1)	Includes loans held for sale.

Loan Approval Procedures and Authority. Pursuant to applicable law, the aggregate amount of loans that we are permitted to make to any one borrower or a group of related borrowers is generally limited to 20% of Home Savings Bank’s capital. This limit may be increased to 50% of capital for loans secured by certain secured liabilities. At September 30, 2015, our largest loan was a multifamily real estate loan for $2.0 million. At September 30, 2015, the largest lending guarantor provided guarantees to the Bank on multiple loans totaling $6.4 million. At September 30, 2015, all of such loans were performing in accordance with the original terms.

Our lending is subject to written underwriting standards and origination procedures. Decisions on loan applications are made on the basis of detailed applications submitted by the prospective borrower and property valuations (consistent with our appraisal policy) prepared by outside independent licensed appraisers approved by our board of directors as well as internal evaluations, where permitted by regulations. The loan applications are designed primarily to determine the borrower’s ability to repay the requested loan, and the more significant items on the application are verified through use of credit reports, financial statements and tax returns.

Conforming one-to four-family loans may be approved by mortgage underwriters up to secondary market limits. Nonconforming one- to four-family loans up to $750,000 may be approved by a loan committee of officers. All loans above $750,000 and up to $1.25 million must be approved by the loan committee of the board of directors, and all loans above $1.25 million must be approved by the full board of directors.

Generally, we require title insurance on our mortgage loans as well as fire and extended coverage casualty insurance in amounts at least equal to the principal amount of the loan or the value of improvements on the property, depending on the type of loan. We also require flood insurance if the improved property is determined to be in a flood zone area.

Collection Procedures. When a borrower fails to make required payments on a loan, we take a number of steps to induce the borrower to cure the delinquency and restore the loan to current status. A late notice is sent 10-15 days after the payment due date. If the loan is not brought current, calls are made to attempt to obtain a payment or commitment to make a payment. Borrowers who become 30 days late are added to a collection task data base. Follow up calls are made, and if contact cannot be made by telephone, additional letters are sent. If a borrower does not respond timely, a meeting with the borrowers is requested. When a borrower is 60 to 90 days late, a “right-to-cure” notice is sent, if applicable. If the borrower does not respond to the right to cure notice, the loan is turned over to our attorney to ensure that further collection activities are conducted in accordance with applicable laws and regulations. Generally loans past due 90 days are put on non-accrual and reported to the board of directors monthly. If our attorneys do not receive a response from the borrower, or if the terms of any payment plan established are not followed, then foreclosure proceedings will be implemented. Management submits an Asset Classification Report detailing delinquencies to the board of directors on a monthly basis.

Delinquent Loans. The following table sets forth certain information regarding delinquencies in our loan portfolio.


	At September 30,
	2015						2014
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due
	(In thousands)
Real estate loans:
One- to four-family residential	$	—	$	487	$	—	$	117	$	—	$	316
One- to four-family investment property loans		—		—		—		—		163		177
Commercial		—		—		62		—		—		—
Multi-family		—		—		—		—		—		—
Construction		—		—		—		—		—		53
Home equity loans and lines of credit		46		—		16		27		56		—
Commercial business loans		—		—		80		—		—		230
Consumer loans		3		—		8		2		2		8

Total	$	49	$	487	$	166	$	146	$	221	$	784

Non-Performing Assets. The table below sets forth the amounts and categories of our non-performing assets at the dates indicated.


	At September 30,
	2015			2014
	(Dollars in thousands)
Non-accrual loans:
Real estate loans:
One- to four-family residential	$	—		$	417
Commercial		62			—
Multi-family		—			—
Construction		—			53
Home equity loans and lines of credit		16			—
Commercial business loans		80			230
Consumer loans		8			8

Total non-accrual loans		166			708

Accruing loans past due 90 days or more		—			76

Total of nonaccrual loans and accruing loans 90 days or more past due		166			784

Real estate owned:
One- to four-family		—			—
Commercial		260			469
Multi-family		—			—
Other		—			306

Total real estate owned		260			775

Other non-performing assets		—			—

Total non-performing assets		426			1,559

Accruing troubled debt restructurings		748			397

Total non-performing assets and performing troubled debt restructurings	$	1,174		$	1,956

Total non-performing loans to total loans (1)		0.15	%		0.91	%
Total non-performing assets to total assets		0.32	%		1.31	%
Total non-performing assets and accruing troubled debt restructurings to total assets		0.88	%		1.64	%
Total loans (1)	$	112,443		$	86,335
Total assets	$	133,526		$	119,432

(1)	Total gross loans excluding loans held for sale.

For the years ended September 30, 2015 and 2014, gross interest income that would have been recorded had our non-accruing loans been current in accordance with their original terms equaled $24,000 and $42,000, respectively. Interest income recognized on such loans for the years ended September 30, 2015 and 2014 equaled $1,000 and $5,000, respectively.

At September 30, 2015, non-accrual loans consisted of six loans to six borrowers. One loan for $62,000 is secured by commercial real estate. One loan for $80,000 is a commercial business loan and is secured by business assets. One loan for $16,000 is secured by a second mortgage on one-to-four-family residential real estate. Three loans, totaling $8,000, are unsecured consumer loans. At September 30, 2014, non-accrual loans consisted of ten loans to eight borrowers. Three of these loans, totaling $417,000, were secured by residential real estate. One loan for $53,000 was secured by land. Two loans, totaling $230,000 were commercial business loans and are secured by business assets. Four loans totaling $8,000 were unsecured consumer loans. One loan for $76,000 was past due more than 90 days and accruing and was secured by residential real estate.

At September 30, 2015, we had seven troubled debt restructurings totaling $890,000, all of which were performing under their restructured terms, except two loans; one for $80,000 that is 607 days past due and one for $62,000 that is 386 days past due. These loans included one $77,000 residential construction loan, one $80,000 business loan secured by business assets, three loans, totaling $513,000, secured by residential real estate properties, and one $62,000 loan secured by commercial real estate and one $158,000 loan secured by business assets.

Classified Assets. Federal regulations require that each insured savings institution classify its assets on a regular basis. In addition, in connection with examinations of insured institutions, federal examiners have authority to identify problem assets and, if appropriate, classify them. There are three classifications for problem assets: “substandard,” “doubtful” and “loss.” Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a higher possibility of loss. An asset classified as a loss is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. Another category designated “special mention” also may be established and maintained for assets which do not currently expose an insured institution to a sufficient degree of risk to warrant classification as substandard, doubtful or loss. If a classified asset is deemed to be impaired with measurement of loss, Home Savings Bank will establish a charge-off of the loan pursuant to Accounting Standards Codification Topic 310, “Receivables.”

The following table sets forth our amounts of classified assets and assets designated as special mention as of September 30, 2015 and 2014. The classified assets total at September 30, 2015 and 2014 includes nonperforming assets of $426,000 and $1.6 million, respectively.


	At September 30,
	2015		2014
	(In thousands)
Classified assets:
Substandard	$	1,532	$	2,420
Doubtful		—		—
Loss		—		—

Total classified assets	$	1,532	$	2,420

Special mention	$	1,735	$	1,721

Potential problem loans are loans that are currently performing and are not included in non-accrual loans above, but may be delinquent. These loans require an increased level of management attention, because we have serious doubts as to the ability of the borrower to comply with the present loan repayment terms and as a result such loans may be included at a later date in non-accrual loans. At September 30, 2015, we had no potential problem loans that are not accounted for above under “—Classified Assets.”

Allowance for Loan Losses. We maintain the allowance through provisions for loan losses that we charge to income. We charge losses on loans against the allowance for loan losses when we believe the collection of loan principal is unlikely. Recoveries on loans charged-off are restored to the allowance for loan losses. The allowance for loan losses is maintained at a level believed, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio both probable and reasonable to estimate at each reporting date. The level of allowance for loan losses is based on management’s periodic review of the collectability of the loans principally in light of our historical experience, augmented by the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and current and anticipated economic conditions in the primary lending area. Management and the board of directors evaluate our allowance for loan losses at least quarterly. We have not made any changes to the external factors in the calculation during the year as we believe the local economy has stabilized. We will continue to monitor all items involved in the allowance calculation closely.

In addition, the regulatory agencies, as an integral part of their examination and review process, periodically review our loan portfolios and the related allowance for loan losses. Regulatory agencies may require us to increase the allowance for loan losses based on their judgments of information available to them at the time of their examination, thereby adversely affecting our results of operations.

We recorded a $105,000 provision for loan losses for the year ended September 30, 2015, and a $356,000 provision for loan losses for the year ended September 30, 2014. The allowance for loan losses was $1.5 million, or 1.3% of total loans, at September 30, 2015, compared to $1.4 million, or 1.6% of total loans, at September 30, 2014.

Our methodology for calculating the allowance for such loans includes the application of a historical loan loss factor based on loan charge-offs over the past 36 months divided by average loan balances. This factor is calculated and applied to each loan category separately. Our non-performing loans and classified assets have exhibited significant improvement through September 30, 2015, but loan losses during prior years continue to affect the level of our allowance for loan losses due to the application of the historical loan loss factor.

Consistent with our business strategy, we intend to increase our originations of multi-family real estate loans and loans secured by non-owner occupied one- to four-family properties. These types of loans generally bear higher risk than owner occupied one- to four-family residential real estate loans. We expect that increases in such loans will cause our allowance for loan losses to increase.

The following table sets forth the analysis of the activity in the allowance for loan losses for the periods indicated:


	Year Ended September 30,
	2015			2014
	(Dollars in thousands)
Allowance at beginning of year	$	1,403		$	1,146
Provision for loan losses		105			356
Charge offs:
Real estate loans:
One- to four-family residential (1)		—			—
Commercial		—			—
Multi-family		—			—
Construction		—			—
Home equity loans and lines of credit		21			100
Commercial business loans		—			1
Consumer loans		16			13

Total charge-offs		37			114

Recoveries:
Real estate loans:
One- to four-family residential (1)		—			3
Commercial		—			—
Multi-family		—			—
Construction		—			1
Home equity loans and lines of credit		2			1
Commercial business loans		—			—
Consumer loans		5			10

Total recoveries		7			15

Net charge-offs		(30	)		(99	)

Allowance at end of year	$	1,478		$	1,403

Allowance to non-performing loans (2)		890.36	%		178.95	%
Allowance to total loans outstanding at the end of the period (3)		1.31	%		1.62	%
Net charge-offs to average loans outstanding during the year		0.03	%		0.12	%

(1)	Includes one- to four-family investment property loans.

(2)	Excludes accruing troubled debt restructurings.

(3)	Includes loans held for sale.

Allocation of Allowance for Loan Losses. The following table sets forth the allocation of allowance for loan losses by loan category at the dates indicated. The table also reflects each loan category as a percentage of total loans receivable. The allocation of the allowance by category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any category.


	At September 30,
	2015					2014
	Allowance for Loan Losses		Percent of Loans in Each Category to Total Loans			Allowance for Loan Losses		Percent of Loans in Each Category to Total Loans
	(Dollars in thousands)
Real estate loans:
One- to four-family residential	$	334		42.94	%	$	323		42.95	%
Commercial		463		17.43			635		22.32
Multi-family		164		22.43			37		17.05
Construction		126		4.61			50		1.26
Home equity loans and lines of credit		188		8.60			181		11.63
Consumer loans		26		1.94			22		1.93
Commercial business loans		177		2.05			155		2.86

Total	$	1,478		100.00	%	$	1,403		100.00	%

Securities Activities

General. Our investment policy is established by the board of directors. The objectives of the policy are to maximize portfolio yield over the long term in a manner that is consistent with liquidity needs, pledging requirements, asset and liability strategies, and safety and soundness concerns.

Our investment committee, consisting of our President and Chief Executive Officer, and our Senior Vice President, Chief Financial Officer and Investment Officer, is responsible for implementing our investment policy, including approval of investment strategies and monitoring investment performance. Our President and Chief Executive Officer and our Senior Vice President, Chief Financial Officer and Investment Officer are each authorized to execute purchases or sales of securities permitted under our investment policy, subject to the limits set forth in our interest rate risk and asset liability management policy. The board of directors regularly reviews our investment strategies and the market value of our investment portfolio.

We account for investment and mortgage-backed securities in accordance with Accounting Standards Codification Topic 320, “Investments - Debt and Equity Securities.” Accounting Standards Codification 320 requires that investments be categorized as held-to maturity, trading, or available for sale. Our decision to classify certain of our securities as available-for-sale is based on our need to meet daily liquidity needs and to take advantage of profits that may occur from time to time.

Although Wisconsin law would allow Home Savings Bank to invest in a wider variety of investment securities, our Investment Policy generally limits our investments to:

•

Direct obligations of the U.S. Treasury and securities issued or backed by federal agencies or U.S. government-sponsored enterprises.

•

Other securities, including mortgage-related instruments, issued or backed by the U.S. Government, federal agencies or U.S. government-sponsored enterprises.

•

Debt obligations of a U.S. state or political subdivision such as a county, city, town, village, or municipality that represent general obligations of the issuer or revenue bonds.

•

Certificates of deposit, if federally insured.

At September 30, 2015, our investment portfolio consisted of U.S. agency securities. At September 30, 2015, we also owned $646,000 in Federal Home Loan Bank of Chicago stock. As a member of Federal Home Loan Bank of Chicago, we are required to hold stock in the Federal Home Loan Bank of Chicago. At September 30, 2015, we had no investments in a single company or entity (other than agencies of the U.S. Government) that had an aggregate book value in excess of 10% of our equity.

The following table sets forth the amortized cost and fair value of our securities portfolio (excluding common stock we hold in the Federal Home Loan Bank of Chicago) at the dates indicated.


	At September 30,
	2015				2014
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(In thousands)
Securities available for sale:
Debt securities:
U.S. agency securities	$	2,738	$	2,765	$	7,930	$	7,922


	At September 30,
	2015				2014
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(In thousands)
Securities held-to-maturity:
U.S. agency securities	$	2,870	$	2,933	$	3,893	$	3,927

Portfolio Maturities and Yields. The composition and maturities of the investment securities portfolio at September 30, 2015 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur.


	One Year or Less					More than One Year through Five Years					More than Five Years through Ten Years					More than Ten Years					Total
	Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Fair Value		Weighted Average Yield
	(Dollars in thousands)
Securities available-for-sale:
Debt securities:
U.S. agency securities	$	—		—	%	$	498		1.67	%	$	472		2.12	%	$	1,768		1.13	%	$	2,738	$	2,765		1.40	%

Securities held-to-maturity:
U.S. agency securities	$	—		—	%	$	—		—	%	$	688		2.11	%	$	2,182		2.46	%	$	2,870	$	2,933		2.38	%

Sources of Funds

General. Deposits, scheduled amortization and prepayments of loan principal, maturities and calls of securities, Federal Home Loan Bank advances and funds provided by operations are our primary sources of funds for use in lending, investing and for other general purposes.

Deposits. We offer deposit products having a range of interest rates and terms. We currently offer statement and passbook savings accounts, NOW accounts, noninterest-bearing demand accounts, money market accounts and certificates of deposit. Our strategic plan includes a greater emphasis on customer relationships and core deposits.

Deposit flows are significantly influenced by general and local economic conditions, changes in prevailing interest rates, internal pricing decisions and competition. Our deposits are primarily obtained from areas surrounding our branch offices. In order to attract and retain deposits we rely on paying competitive interest rates and providing quality service.

Based on experience, we believe that our deposits are relatively stable. However, the ability to attract and maintain deposits and the rates paid on these deposits, has been and will continue to be significantly affected by market conditions. At September 30, 2015, $32.6 million, or 30.8% of our total deposit accounts were certificates of deposit, of which $16.5 million had maturities of one year or less.

The following table sets forth the distribution of our average deposit accounts, by account type, for the years indicated.


	For the Year Ended September 30,
	2015					2014
	Average Balance		Percent			Average Balance		Percent
	(Dollars in thousands)
Demand	$	30,396		29.55	%	$	27,624		27.60	%
Money market		29,556		28.74			29,704		29.68
Savings		14,418		14.02			13,959		13.94
Certificates of deposit		28,476		27.69			28,806		28.78

Total	$	100,093		100.00	%	$	100,093		100.00	%

As of September 30, 2015, the aggregate amount of all our certificates of deposit in amounts greater than or equal to $100,000 was approximately $15.8 million. The following table sets forth the maturity of these certificates as of September 30, 2015.


	At September 30, 2015
	(In thousands)
Maturity Period:
Three months or less	$	3,679
Over three through six months		1,247
Over six through twelve months		2,211
Over twelve months		8,667

Total	$	15,804

The following table sets forth certificates of deposit classified by interest rate as of the dates indicated.


	At September 30,
	2015		2014
	(In thousands)
Interest Rate:
Less than 1%	$	18,321	$	18,964
1.00% - 1.99%		12,795		4,267
2.00% - 2.99%		1,444		2,664
3.00% - 3.99%		—		518
4.00% - 4.99%		—		1

Total	$	32,560	$	26,414

The following table sets forth the amount and maturities of certificates of deposit accounts at the date indicated.


	At September 30, 2015
	Period to Maturity
	One Year or Less		Over One Year to Two Years		Over Two Years to Three Years		Over Three Years		Total		Percentage of Total Certificate Accounts
	(Dollars in thousands)
Interest Rate:
Less than 1%	$	13,982	$	3,662	$	616	$	61	$	18,321		56.27	%
1.00% - 1.99%		1.971		516		5,521		4,787		12,795		39.30
2.00% - 2.99%		525		227		90		602		1,444		4.43
3.00% - 3.99%		—		—		—		—		—		—
4.00% - 4.99%		—		—		—		—		—		—

Total	$	16,478	$	4,405	$	6,227	$	5,450	$	32,560		100.00	%

Borrowings. As a member of the Federal Home Loan Bank of Chicago, Home Savings Bank is eligible to obtain advances upon the security of the Federal Home Loan Bank common stock owned and certain residential mortgage loans, provided certain standards related to credit-worthiness have been met. Federal Home Loan Bank advances are available pursuant to several credit programs, each of which has its own interest rate and range of maturities. At September 30, 2015, the Bank’s available and unused portion of Federal Home Loan Bank advances totaled $3.2 million. At September 30, 2015, we borrowed $616,000 of our maximum $1.8 million of overnight federal funds through the Bankers’ Bank of Wisconsin. In addition, we have authority to borrow 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. The following table sets forth information concerning balances and interest rates on our Federal Home Loan Bank advances at the dates and for the periods indicated.


	Year Ended September 30,
	2015			2014
	(Dollars in thousands)
Average amount outstanding during the year	$	9,702		$	5,085
Weighted average interest rate during the year		2.28	%		3.61	%
Maximum amount outstanding at any month end	$	16,213		$	5,500
Balance outstanding at end of year	$	13,005		$	5,000
Weighted average interest rate at end of year		2.22	%		3.56	%

Employees

As of September 30, 2015, we had 36 full-time equivalent employees. Our employees are not represented by any collective bargaining group. Management believes that we have a good working relationship with our employees.

Subsidiary Activities

Home Savings Bank has one inactive subsidiary, Home Agency, Inc.

REGULATION AND SUPERVISION

General

Home Savings Bank is a stock savings bank organized under the laws of the State of Wisconsin. The lending, investment, and other business operations of Home Savings Bank are governed by Wisconsin law and regulations, as well as applicable federal law and regulations, and Home Savings Bank is prohibited from engaging in any operations not authorized by such laws and regulations. Home Savings Bank is subject to extensive regulation and supervision by the Wisconsin Department of Financial Institutions, Division of Banking and by the Federal Deposit Insurance Corporation. This regulation and supervision establishes a comprehensive framework of activities in which an institution may engage and is intended primarily for the protection of the Federal Deposit Insurance Corporation’s deposit insurance fund and depositors, and not for the protection of security holders. Home Savings Bank also is regulated to a lesser extent by the Board of Governors of the Federal Reserve System (“Federal Reserve Board”), governing reserves to be maintained against deposits and other matters. Home Savings Bank also is a member of and owns stock in the Federal Home Loan Bank of Chicago, which is one of the twelve regional banks in the Federal Home Loan Bank System.

As a bank holding company, Home Bancorp Wisconsin, Inc. is required to comply with the rules and regulations of the Federal Reserve Board. Home Bancorp Wisconsin, Inc. is also required to file certain reports with the Federal Reserve Board and is subject to examination by and the enforcement authority of the Federal Reserve Board. In addition, Home Bancorp Wisconsin is subject to the rules and regulations of the Securities and Exchange Commission under the federal securities laws.

Any change in applicable laws or regulations, whether by the Wisconsin Department of Financial Institutions, the Federal Deposit Insurance Corporation, the Federal Reserve Board or Congress, could have a material adverse impact on the operations and financial performance of Home Bancorp Wisconsin and Home Savings Bank.

Set forth below is a brief description of material regulatory requirements that are applicable to Home Savings Bank and Home Bancorp Wisconsin. The description is limited to certain material aspects of the statutes and regulations addressed, and is not intended to be a complete description of such statutes and regulations and their effects on Home Savings Bank and Home Bancorp Wisconsin.

Intrastate and Interstate Merger and Branching Activities

Wisconsin Law and Regulation. Any Wisconsin savings bank meeting certain requirements may, upon approval of the Wisconsin Department of Financial Institutions, establish one or more branch offices in the state of Wisconsin or the states of Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Missouri, and Ohio. In addition, upon Wisconsin Department of Financial Institutions approval, a Wisconsin savings bank may establish a branch office in any other state as the result of a merger or consolidation.

Federal Law and Regulation. The Interstate Banking Act permits the federal banking agencies to, under certain circumstances, approve acquisition transactions between banks located in different states, regardless of whether an acquisition would be prohibited under state law. The Interstate Banking Act, as amended, authorizes de novo branching into another state at locations at which banks chartered by the host state could establish a branch. Additionally, the IBA authorizes branching by merger, subject to certain state law limitations.

Loans and Investments

Wisconsin Law and Regulations Generally. In 2004, Home Savings Bank applied to the Wisconsin Department of Financial Institutions for, and received, certification as a “universal bank.” A “universal bank” has broader powers than a typical Wisconsin savings bank. For example, a universal bank may make, sell, purchase, arrange, participate in or otherwise deal in loans or extensions of credit for any purpose. A typical savings bank is subject to percentage of assets limits on certain types of loans such as commercial loans not secured by real estate and consumer loans. A universal bank is not subject to the qualified thrift investment requirement in Wisconsin law which generally applies to savings banks and requires a minimum portfolio of residential mortgage-related investments.

Universal banks may invest funds in certain types of debt and equity securities, including obligations of federal, state and local governments and agencies. Investments in investment securities may be made up to 100% of capital, with a limit of 20% of capital on investments in securities issued by a single obligor. A universal bank may invest in equity securities up to 20% of capital, or more if approved by the Wisconsin Department of Financial Institutions. Universal banks are also permitted to engage, directly or indirectly through a subsidiary, in activities that are reasonably or incident to the purposes of the universal bank. Subject to prior approval of the

Wisconsin Department of Financial Institutions, compliance with capital requirements and certain other restrictions, universal banks may invest in residential housing development projects. Universal banks may also invest in service corporations or certain other subsidiaries without limit.

Wisconsin Loans to One Borrower Limit. Generally, a Wisconsin universal bank, like Home Savings Bank, may not make a loan or extend credit to a single or related group of borrowers in excess of 20% of bank capital. As of September 30, 2015 and 2014 Home Savings Bank was in compliance with such loans-to-one-borrower limitations.

Federal Law and Regulation. Federal Deposit Insurance Corporation regulations also govern the activity and investments of Home Savings Bank and, notwithstanding Wisconsin law and regulations, Federal Deposit Insurance Corporation regulations generally limit Home Savings Bank’s equity investments to those that are permissible for national banks and their subsidiaries. Under Federal Deposit Insurance Corporation regulations, Home Savings Bank must obtain prior Federal Deposit Insurance Corporation approval before directly, or indirectly through a majority-owned subsidiary, engaging “as principal” in any activity that is not permissible for a national bank unless certain exceptions apply. The activity regulations provide that state banks that meet applicable minimum capital requirements would be permitted to engage in certain activities that are not permissible for national banks, including certain real estate and securities activities conducted through subsidiaries. The Federal Deposit Insurance Corporation will not approve an activity that it determines presents a significant risk to the Federal Deposit Insurance Corporation insurance fund. The current activities of Home Savings Bank and its subsidiary are permissible under applicable federal regulations.

Loans to, and other transactions with, affiliates of Home Savings Bank, such as Home Bancorp Wisconsin, are restricted by the Federal Reserve Act and regulations issued by the Federal Reserve Board thereunder. See “—Transactions with Affiliates and Insiders” below.

Lending Standards

Wisconsin Law and Regulation. Wisconsin law and regulations issued by the Wisconsin Department of Financial Institutions impose on Wisconsin savings banks certain fairness in lending requirements and prohibit savings banks from discriminating against a loan applicant based upon the applicant’s physical condition, developmental disability, sex, marital status, race, color, creed, national origin, religion or ancestry.

Federal Law and Regulation. The federal banking agencies have adopted uniform regulations prescribing standards for extensions of credit that are secured by liens on interests in real estate or made for the purpose of financing the construction of a building or other improvements to real estate. Under the joint regulations adopted by the federal banking agencies, all insured depository institutions, such as Home Savings Bank, must adopt and maintain written policies that establish appropriate limits and standards for extensions of credit that are secured by liens or interests in real estate or are made for the purpose of financing permanent improvements to real estate. These policies must establish loan portfolio diversification standards, prudent underwriting standards (including loan-to-value limits) that are clear and measurable, loan administration procedures, and documentation, approval and reporting requirements. The real estate lending policies must reflect consideration of the Interagency Guidelines for Real Estate Lending Policies that have been adopted by the federal bank regulators.

The Interagency Guidelines, among other things, require a depository institution to establish internal loan-to-value limits for real estate loans that are not in excess of the following supervisory limits:

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for loans secured by raw land, the supervisory loan-to-value limit is 65% of the value of the collateral;

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for land development loans (i.e., loans for the purpose of improving unimproved property prior to the erection of structures), the supervisory limit is 75%;

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for loans for the construction of commercial, over four-family or other non-residential property, the supervisory limit is 80%;

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for loans for the construction of one- to four-family properties, the supervisory limit is 85%; and

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for loans secured by other improved property (e.g., farmland, completed commercial property and other income-producing property, including non-owner occupied, one- to four-family property), the limit is 85%.

Although no supervisory loan-to-value limit has been established for owner-occupied, one- to four-family and home equity loans, the Interagency Guidelines state that for any such loan with a loan-to-value ratio that equals or exceeds 90% at origination, an institution should require appropriate credit enhancement in the form of either mortgage insurance or readily marketable collateral.

Deposits

Under Wisconsin law, Home Savings Bank is permitted to establish deposit accounts and accept deposits. Home Savings Bank’s board of directors, or its designee, generally determines the rate and amount of interest to be paid on or credited to deposit accounts.

Deposit Insurance

Wisconsin Law and Regulation. Under Wisconsin law, Home Savings Bank is required to obtain and maintain insurance on its deposits from a deposit insurance corporation. The deposits of Home Savings Bank are insured up to the applicable limits by the Federal Deposit Insurance Corporation.

Federal Law and Regulation. Home Savings Bank is a member of the Deposit Insurance Fund, which is administered by the Federal Deposit Insurance Corporation. Home Savings Bank’s deposit accounts are insured by the Federal Deposit Insurance Corporation, generally up to a maximum of $250,000.

The Federal Deposit Insurance Corporation imposes an assessment against all depository institutions. An institution’s assessment rate depends upon the supervisory category to which it is assigned and certain adjustments specified by Federal Deposit Insurance Corporation regulations, with institutions deemed less risky paying lower rates. Assessment rates (inclusive of possible adjustments) currently range from 2.5 to 45 basis points of each institution’s total assets less tangible capital. The Federal Deposit Insurance Corporation’s current system represents a change, required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), from its prior practice of basing the assessment on an institution’s aggregate deposits. The Federal Deposit Insurance Corporation may increase or decrease the range of assessments uniformly, except that no adjustment can deviate more than two basis points from the base assessment rate without notice and comment rulemaking.

The Federal Deposit Insurance Corporation has the authority to increase insurance assessments. A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of Home Savings Bank. We cannot predict what insurance assessment rates will be in the future.

Insurance of deposits may be terminated by the Federal Deposit Insurance Corporation upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the Federal Deposit Insurance Corporation. We do not know of any practice, condition or violation that might lead to termination of deposit insurance.

In addition to the Federal Deposit Insurance Corporation assessments, the Financing Corporation (FICO) is authorized to impose and collect, with the approval of the Federal Deposit Insurance Corporation, assessments for anticipated payments, issuance costs and custodial fees on bonds issued by the FICO in the 1980s to recapitalize the former Federal Savings and Loan Insurance Corporation. The bonds issued by the FICO are due to mature in 2017 through 2019. For the fourth quarter of calendar 2014, the annualized FICO assessment is 62 basis points of total assets less tangible capital.

Capitalization

Wisconsin Law and Regulation. Wisconsin savings banks are required to maintain a minimum capital to assets ratio of 6% and must maintain total capital necessary to ensure the continuation of insurance of deposit accounts by the Federal Deposit Insurance Corporation. If the Wisconsin Department of Financial Institutions determines that the financial condition, history, management or earning prospects of a savings bank are not adequate, the Wisconsin Department of Financial Institutions may require a higher minimum capital level for the savings bank. If a Wisconsin savings bank’s capital ratio falls below the required level, the Wisconsin Department of Financial Institutions may direct the savings bank to adhere to a specific written plan established by the Wisconsin Department of Financial Institutions to correct the savings bank’s capital deficiency, as well as a number of other restrictions on the savings bank’s operations, including a prohibition on the declaration of dividends. At September 30, 2015, Home Savings Bank’s capital to assets ratio, as calculated under Wisconsin law, was 9.2%.

Federal Law and Regulation. Under Federal Deposit Insurance Corporation regulations, federally insured state-chartered banks that are not members of the Federal Reserve System (“state non-member banks”), such as Home Savings Bank, are required to comply with minimum capital requirements. For an institution determined by the Federal Deposit Insurance Corporation to not be anticipating or experiencing significant growth and to be, in general, a strong banking organization, rated composite 1 under the Uniform Financial Institutions Ranking System established by the Federal Financial Institutions Examination Council, the minimum Tier I leverage capital to total assets ratio is 3%. For all other institutions, the minimum leverage capital ratio is not less than 4%. Tier I leverage capital is the sum of common shareholders’ equity, non-cumulative perpetual preferred stock (including any related surplus) and minority investments in certain subsidiaries, less intangible assets (except for certain servicing rights and credit card relationships) and certain other specified items.

The Federal Deposit Insurance Corporation regulations require state non-member banks to maintain certain levels of regulatory capital in relation to regulatory risk-weighted assets. The ratio of regulatory capital to regulatory risk-weighted assets is referred to as a bank’s “risk-based capital ratio.” Risk-based capital ratios are determined by allocating assets and specified off-balance sheet items (including recourse obligations, direct credit substitutes and residual interests) to four risk-weighted categories generally ranging from 0% to 200%, with higher levels of capital being required for the categories perceived as representing greater risk. For example, under the Federal Deposit Insurance Corporation’s risk-weighting system, cash and securities backed by the full faith and credit of the U.S. government are given a 0% risk weight, loans secured by one- to four-family residential properties generally have a 50% risk weight, and commercial loans have a risk weighting of 100%.

State non-member banks, such as Home Savings Bank, must maintain a minimum ratio of total capital to risk-weighted assets of at least 8%, of which at least one-half must be Tier I capital. Total capital consists of Tier I capital plus Tier 2 or supplementary capital items, which include allowances for loan losses in an amount of up to 1.25% of risk-weighted assets, cumulative preferred stock and certain other capital instruments, and a portion of the net unrealized gain on equity securities. The includable amount of Tier 2 capital cannot exceed the amount of the institution’s Tier I capital. Savings banks that engage in specified levels of trading activities are subject to adjustments in their risk based capital calculation to ensure the maintenance of sufficient capital to support market risk.

The Federal Deposit Insurance Corporation, along with the other federal banking agencies, has adopted a regulation providing that the agencies will take into account the exposure of a bank’s capital and economic value to changes in interest rate risk in assessing a bank’s capital adequacy. The Federal Deposit Insurance Corporation also has authority to establish individual minimum capital requirements in appropriate cases upon a determination that an institution’s capital level is, or is likely to become, inadequate in light of the particular circumstances.

In July 2013, the Federal Deposit Insurance Corporation and the other federal bank regulatory agencies issued a final rule that revised their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. The final rule applies to all depository institutions, top-tier bank holding companies with total consolidated assets of $1 billion or more. Among other things, the rule established a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increased the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigned a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The final rule also required unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt-out is exercised. Home Savings Bank elected to opt-out of this requirement. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. The final rule became effective for Home Savings Bank on January 1, 2015. The capital conservation buffer requirement will be phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer requirement will be effective.

Safety and Soundness Standards

Each federal banking agency, including the Federal Deposit Insurance Corporation, has adopted guidelines establishing general standards relating to internal controls, information and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, asset quality, earnings and compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director, or principal shareholder.

Prompt Corrective Regulatory Action

Federal bank regulatory authorities are required to take “prompt corrective action” with respect to institutions that do not meet minimum capital requirements. For these purposes, the statute establishes five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Under the regulations, a bank shall be deemed to be (i) “well capitalized” if it has total risk-based capital of 10.0% or more, has a Tier I risk-based capital ratio of 6.0% or more, has a Tier I leverage capital ratio of 5.0% or more and a common equity Tier I ratio of 6.5% or more, and is not subject to any written capital order or directive; (ii) “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or more, a Tier I risk-based capital ratio of 4.0% or more, a Tier I leveraged capital ratio of 4.0% or more (3.0% under certain circumstances) and a common equity Tier I ratio of 4.5% or more and does not meet the definition of “well capitalized”; (iii) “undercapitalized” if it has a total risk-based capital ratio that is less than 8.0%, a Tier I risk-based capital ratio that is less than 4.0%, a Tier I leverage capital ratio that is less than 4.0% (3.0% under certain circumstances) or a common equity Tier I ratio of less than 4.5%; (iv) “significantly undercapitalized” if it has a total risk-based capital ratio that is less than 6.0%, a common equity Tier I ratio of less then 3.0%, or a Tier I risk-based capital ratio that is less than 3.0%; and (v) “critically

undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. Federal law and regulations also specify circumstances under which a federal banking agency may reclassify a well capitalized institution as adequately capitalized and may require an institution that is classified as less than well capitalized to comply with supervisory actions as if it were in the next lower classification (except that the Federal Deposit Insurance Corporation may not reclassify a significantly undercapitalized institution as critically undercapitalized).

The Federal Deposit Insurance Corporation may order savings banks which have insufficient capital to take corrective actions. For example, a savings bank which is categorized as “undercapitalized” would be subject to growth limitations and would be required to submit a capital restoration plan, and a holding company that controls such a savings bank would be required to guarantee that the savings bank complies with the restoration plan. A “significantly undercapitalized” savings bank would be subject to additional restrictions. Savings banks deemed by the Federal Deposit Insurance Corporation to be “critically undercapitalized” would be subject to the appointment of a receiver or conservator.

At September 30, 2015, Home Savings Bank’s capital levels exceeded the levels required to be considered well-capitalized.

Dividends

Under Wisconsin law and applicable regulations, a Wisconsin savings bank that meets its regulatory capital requirement may declare dividends on capital stock based upon net profits, provided that its paid-in surplus equals its capital stock. If the paid-in surplus of the savings bank does not equal its capital stock, the board of directors may not declare a dividend unless at least 10% of the net profits of the preceding half year, in the case of quarterly or semi-annual dividends, or 10% of the net profits of the preceding year, in the case of annual dividends, has been transferred to paid-in surplus. In addition, prior Wisconsin Department of Financial Institutions approval is required before dividends exceeding 50% of profits for any calendar year may be declared and before a dividend may be declared out of retained earnings. Under Wisconsin Department of Financial Institutions regulations, a Wisconsin savings bank which has converted from mutual to stock form also is prohibited from paying a dividend on its capital stock if the payment causes the regulatory capital of the savings bank to fall below the amount required for its liquidation account.

The Federal Deposit Insurance Corporation has the authority to prohibit Home Savings Bank from paying dividends if, in its opinion, the payment of dividends would constitute an unsafe or unsound practice in light of the financial condition of Home Savings Bank. Institutions may not pay dividends if they would be “undercapitalized” following payment of the dividend within the meaning of the prompt corrective action regulations.

Liquidity and Reserves

Wisconsin Law and Regulation. Under Wisconsin Department of Financial Institutions regulations, all Wisconsin savings banks are required to maintain a certain amount of their assets as liquid assets, consisting of cash and certain types of investments. The exact amount of assets a savings bank is required to maintain as liquid assets is set by the Wisconsin Department of Financial Institutions, but generally ranges from 4% to 15% of the saving bank’s average daily balance of net withdrawable accounts plus short-term borrowings (the “Required Liquidity Ratio”). At September 30, 2015, Home Savings Bank’s Required Liquidity Ratio was 15.44%, and Home Savings Bank was in compliance with this requirement. In addition, 50% of the liquid assets maintained by Wisconsin savings banks must consist of “primary liquid assets,” which are defined to include securities issued by the United States government and United States government agencies. At September 30, 2015, Home Savings Bank was in compliance with this requirement.

Federal Law and Regulation. Under federal law and regulations, Home Savings Bank is required to maintain sufficient liquidity to ensure safe and sound banking practices. Regulation D, promulgated by the Federal Reserve Board, imposes reserve requirements on all depository institutions, including Home Savings Bank, which maintain transaction accounts or non-personal time deposits. Checking accounts, NOW accounts, Super NOW checking accounts, and certain other types of accounts that permit payments or transfers to third parties fall within the definition of transaction accounts and are subject to Regulation D reserve requirements, as are any non-personal time deposits (including certain money market deposit accounts) at a savings institution. For calendar 2015, a depository institution is required to maintain average daily reserves equal to 3% on the first $103.6 million of transaction accounts. The first $14.5 million of otherwise reservable balances (subject to adjustment by the Federal Reserve Board) are exempt from the reserve requirements. These percentages and threshold limits are subject to adjustment by the Federal Reserve Board. Savings institutions have authority to borrow 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. As of September 30, 2015, Home Savings Bank met its Regulation D reserve requirements.

Transactions with Affiliates and Insiders

Wisconsin Law and Regulation. Under Wisconsin law, Home Savings Bank may not make a loan to a person owning 10% or more of its stock, an affiliated person, agent, or attorney of the savings bank, either individually or as an agent or partner of another, except as approved by the Wisconsin Department of Financial Institutions and regulations of the Federal Deposit Insurance Corporation. In addition, unless the prior approval of the Wisconsin Department of Financial Institutions is obtained, Home Savings Bank may not purchase, lease or acquire a site for an office building or an interest in real estate from an affiliated person, including a shareholder owning more than 10% of its capital stock, or from any firm, corporation, entity or family in which an affiliated person or 10% shareholder has a direct or indirect interest.

Federal Law and Regulation. Sections 23A and 23B of the Federal Reserve Act govern transactions between an insured savings bank, such as Home Savings Bank, and any of its affiliates, including Home Bancorp Wisconsin. The Federal Reserve Board has adopted Regulation W, which comprehensively implements and interprets Sections 23A and 23B, in part by codifying prior Federal Reserve Board interpretations under Sections 23A and 23B.

An affiliate of a bank is any company or entity that controls, is controlled by or is under common control with Home Savings Bank. A subsidiary of a bank that is not also a depository institution or a “financial subsidiary” under federal law is not treated as an affiliate of Home Savings Bank for the purposes of Sections 23A and 23B; however, the Federal Deposit Insurance Corporation has the discretion to treat subsidiaries of a bank as affiliates on a case-by-case basis. Sections 23A and 23B limit the extent to which a bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of such bank’s capital stock and surplus, and limit all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus. The statutory sections also require that all such transactions be on terms that are consistent with safe and sound banking practices. The term “covered transaction” includes the making of loans, purchase of assets, issuance of guarantees and other similar types of transactions. Further, most loans and other extensions of credit by a bank to any of its affiliates must be secured by collateral in amounts ranging from 100% to 130% of the loan amounts, depending on the type of collateral. In addition, any covered transaction by Home Savings Bank with an affiliate and any purchase of assets or services by Home Savings Bank from an affiliate must be on terms that are substantially the same, or at least as favorable, to Home Savings Bank as those that would be provided to a non-affiliate.

A savings bank’s loans to its executive officers, directors, any owner of more than 10% of its stock (each, an insider) and any of certain entities affiliated with any such person (an insider’s related interest) are subject to the conditions and limitations imposed by Section 22(h) of the Federal Reserve Act and the Federal Reserve Board’s Regulation O thereunder. Under these restrictions, the aggregate amount of the loans to any insider and the insider’s related interests may not exceed the loans-to-one-borrower limit applicable to national banks, which is comparable to the loans-to-one-borrower limit applicable to Home Savings Bank’s loans. All loans by Home Savings Bank to its insiders and insiders’ related interests in the aggregate may not exceed Home Savings Bank’s unimpaired capital and unimpaired surplus. With certain exceptions, loans to an executive officer, other than loans for the education of the officer’s children and certain loans secured by the officer’s residence, may not exceed the greater of $25,000 or 2.5% of the savings bank’s unimpaired capital and unimpaired surplus, but in no event more than $100,000.

Regulation O also requires that any proposed loan to an insider or a related interest of that insider be approved in advance by a majority of the board of directors of the savings bank, with any interested director not participating in the voting, if such loan, when aggregated with any existing loans to that insider and the insider’s related interests, would exceed either $500,000 or the greater of $25,000 or 5% of the savings bank’s unimpaired capital and surplus. Generally, such loans must be made on substantially the same terms as, and follow credit underwriting procedures that are no less stringent than, those that are prevailing at the time for comparable transactions with other persons and must not present more than a normal risk of collectibility. An exception to this requirement is made for extensions of credit made pursuant to a benefit or compensation plan of a bank that is widely available to employees of the savings bank and that does not give any preference to insiders of the savings bank over other employees of the savings bank.

Transactions between Bank Customers and Affiliates

Under Wisconsin and federal laws and regulations, Wisconsin savings banks, such as Home Savings Bank, are subject to the prohibitions on certain tying arrangements. A savings bank is prohibited, subject to certain exceptions, from extending credit to or offering any other service to a customer, or fixing or varying the consideration for such extension of credit or service, on the condition that such customer obtain some additional service from the institution or certain of its affiliates or not obtain services of a competitor of the institution.

Examinations and Assessments

Home Savings Bank is required to file periodic reports with and is subject to periodic examinations by the Wisconsin Department of Financial Institutions and Federal Deposit Insurance Corporation. Federal regulations require annual on-site

examinations for all depository institutions, except certain well-capitalized and highly rated institutions with assets of less than $500 million, which are generally examined every 18 months. Federal law also requires Home Savings Bank to pay examination fees and annual assessments to fund its supervision. Home Savings Bank paid an aggregate of $119,000 in assessments for the fiscal year ended September 30, 2015. A savings bank may be placed in receivership or conservatorship in certain circumstances, such as where the institution is determined to be an unsafe or unsound condition to transact business or where its capital has been impaired.

Enforcement

The Wisconsin Department of Financial Institutions and the FDIC have extensive enforcement authority over savings banks, including Home Savings Bank. This enforcement authority may include, among other things, the ability to assess civil money penalties, to issue cease and desist orders and to remove directors and officers. In general, these enforcement actions may be initiated in response to violations of laws and regulations and to unsafe or unsound practices.

Customer Privacy

Under Wisconsin and federal law and regulations, savings banks, such as Home Savings Bank, are required to develop and maintain privacy policies relating to information on its customers, restrict access to and establish procedures to protect customer data. Applicable privacy regulations further restrict the sharing of non-public customer data with non-affiliated parties if the customer requests.

Community Reinvestment Act

Under the Community Reinvestment Act, Home Savings Bank has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The Community Reinvestment Act does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the Community Reinvestment Act. The Community Reinvestment Act requires the Federal Deposit Insurance Corporation in connection with its examination of Home Savings Bank, to assess its record of meeting the credit needs of its community and to take that record into account in its evaluation of certain applications by Home Savings Bank. For example, the regulations specify that a bank’s Community Reinvestment Act performance will be considered in its expansion (e.g., branching) proposals and may be the basis for approving, denying or conditioning the approval of an application. As of the date of its most recent regulatory examination, Home Savings Bank was rated “outstanding” with respect to its Community Reinvestment Act compliance.

Federal Home Loan Bank System

The Federal Home Loan Bank System, consisting of twelve Federal Home Loan Banks, is under the jurisdiction of the Federal Housing Finance Board. The designated duties of the Federal Housing Finance Board are to supervise the Federal Home Loan Banks; ensure that the Federal Home Loan Banks carry out their housing finance mission; ensure that the Federal Home Loan Banks remain adequately capitalized and able to raise funds in the capital markets; and ensure that the Federal Home Loan Banks operate in a safe and sound manner.

Home Savings Bank, as a member of the Federal Home Loan Bank of Chicago, is required to acquire and hold shares of capital stock in the Federal Home Loan Bank of Chicago in specified amounts. Home Savings Bank is in compliance with this requirement with an investment in Federal Home Loan Bank of Chicago stock of $646,000 at September 30, 2015.

Among other benefits, the Federal Home Loan Banks provide a central credit facility primarily for member institutions. It is funded primarily from proceeds derived from the sale of consolidated obligations of the Federal Home Loan Bank System. It makes advances to members in accordance with policies and procedures established by the Federal Housing Finance Board and the board of directors of the Federal Home Loan Bank of Chicago. At September 30, 2015, Home Savings Bank had $13.0 million in advances from the Federal Home Loan Bank of Chicago.

USA PATRIOT Act

The USA PATRIOT Act gives the federal government powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements. The USA PATRIOT Act also required the federal banking agencies to take into consideration the effectiveness of controls designed to combat money laundering activities in determining whether to approve a merger or other acquisition application of a member institution. Accordingly, if we engage in a merger or other acquisition, our controls designed to combat money laundering would be considered as part of the application process. We have established policies, procedures and systems designed to comply with these regulations.

Dodd-Frank Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) is making extensive changes in the regulation of insured depository institution. The Dodd-Frank Act created a new Consumer Financial Protection Bureau as an independent bureau of the Federal Reserve Board. The Consumer Financial Protection Bureau has assumed responsibility for the implementation of the federal financial consumer protection and fair lending laws and regulations, a function previously assigned to prudential regulators, and has authority to impose new requirements. Institutions of less than $10 billion in assets, however, such as Home Savings Bank, will continue to be examined for compliance with consumer protection and fair lending laws and regulations by, and be subject to the primary enforcement authority of, their prudential regulators rather than the Consumer Financial Protection Bureau.

In addition to creating the Consumer Financial Protection Bureau, the Dodd-Frank Act, among other things, directed changes in the way that institutions are assessed for deposit insurance, required originators of securitized loans to retain a percentage of the risk for the transferred loans, provided for regulatory rate-setting for certain debit card interchange fees, repealed restrictions on the payment of interest on commercial demand deposits and contained a number of reforms related to mortgage originations. Many of the provisions of the Dodd-Frank Act are subject to delayed effective dates and/or require the issuance of implementing regulations. Their impact on operations cannot yet be fully assessed. However, there is a significant possibility that the Dodd-Frank Act will, at a minimum, result in increased regulatory burden, compliance costs and interest expense for Home Savings Bank and Home Bancorp Wisconsin.

Holding Company Regulation

Home Bancorp Wisconsin is a bank holding company subject to examination, regulation, and periodic reporting under the Bank Holding Company Act of 1956, as amended, as administered by the Federal Reserve Board. Home Bancorp Wisconsin will be required to obtain the prior approval of the Federal Reserve Board to acquire all, or substantially all, of the assets of any bank or bank holding company. Prior Federal Reserve Board approval would be required for Home Bancorp Wisconsin to acquire direct or indirect ownership or control of any voting securities of any bank or bank holding company if, after such acquisition, it would, directly or indirectly, own or control more than 5% of any class of voting shares of the bank or bank holding company. In addition to the approval of the Federal Reserve Board, before any bank acquisition can be completed, prior approval may also be required to be obtained from other agencies having supervisory jurisdiction over the bank to be acquired.

A bank holding company is generally prohibited from engaging in, or acquiring direct or indirect control of more than 5% of the voting securities of any company engaged in, non-banking activities. One of the principal exceptions to this prohibition is for activities found by the Federal Reserve Board to be closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the principal activities that the Federal Reserve Board has determined by regulation to be so closely related to banking are: (i) making or servicing loans; (ii) performing certain data processing services; (iii) providing discount brokerage services; (iv) acting as fiduciary, investment or financial advisor; (v) leasing personal or real property; (vi) making investments in corporations or projects designed primarily to promote community welfare; and (vii) acquiring a savings and loan association.

The Gramm-Leach-Bliley Act of 1999 authorizes a bank holding company that meets specified conditions, including being “well capitalized” and “well managed,” to opt to become a “financial holding company” and thereby engage in a broader array of financial activities than previously permitted. Such activities can include insurance underwriting and investment banking.

The Federal Reserve Board has consolidated capital adequacy guidelines for bank holding companies (on a consolidated basis) structured similarly to those of the FDIC for Home Savings Bank. The capital adequacy guidelines for bank holding companies have historically allowed certain instruments to be included in Tier 1 capital that are not includable in Tier 1 capital at the bank level. The Dodd-Frank Act requires the Federal Reserve Board to revise their holding company capital standards so that they are no less stringent than those applicable to the subsidiary financial institutions themselves, including restricting Tier 1 Capital instruments to those permissible for the institution. The previously mentioned proposed capital rules would implement this requirement. The Federal Reserve Board maintains an exception to the applicability of the bank holding company capital requirements for bank holding companies, such as Home Bancorp Wisconsin, which have consolidated assets of less than $500 million.

A bank holding company is generally required to give the Federal Reserve Board prior written notice of any purchase or redemption of then outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the company’s consolidated net worth. The Federal Reserve Board may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, Federal Reserve Board order or directive, or any condition imposed by, or written agreement with, the Federal Reserve Board. The Federal Reserve Board has adopted an exception to this approval requirement for well-capitalized bank holding companies that meet certain other conditions.

In addition, the Federal Reserve Board has issued a policy statement regarding the payment of dividends by bank holding companies. In general, the Federal Reserve Board’s policies provide that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the bank holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. The Federal Reserve Board’s policies also require that a bank holding company serve as a source of financial strength to its subsidiary banks by standing ready to use available resources to provide adequate capital funds to those banks during periods of financial stress or adversity and by maintaining the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks where necessary. Under the prompt corrective action laws, the ability of a bank holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. These regulatory policies could affect the ability of Home Bancorp Wisconsin to pay dividends or otherwise engage in capital distributions.

Under the Federal Deposit Insurance Act, depository institutions are liable to the FDIC for losses suffered or anticipated by the FDIC in connection with the default of a commonly controlled depository institution or any assistance provided by the FDIC to such an institution in danger of default. This law would have potential applicability if Home Bancorp Wisconsin ever held as a separate subsidiary a depository institution in addition to Home Savings Bank.

Home Bancorp Wisconsin and Home Savings Bank are affected by the monetary and fiscal policies of various agencies of the United States Government, including the Federal Reserve System. In view of changing conditions in the national economy and in the money markets, it is impossible for management to accurately predict future changes in monetary policy or the effect of such changes on the business or financial condition of Home Bancorp Wisconsin or Home Savings Bank.

The status of Home Bancorp Wisconsin as a registered bank holding company under the Bank Holding Company Act will not exempt it from certain federal and state laws and regulations applicable to corporations generally, including, without limitation, certain provisions of the federal securities laws.

Federal Securities Laws

Home Bancorp Wisconsin common stock is registered with the Securities and Exchange Commission. Home Bancorp Wisconsin is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.

The registration under the Securities Act of 1933 of shares of common stock issued in Home Bancorp Wisconsin’s public offering does not cover the resale of those shares. Shares of common stock purchased by persons who are not affiliates of Home Bancorp Wisconsin may be resold without registration. Shares purchased by an affiliate of Home Bancorp Wisconsin will be subject to the resale restrictions of Rule 144 under the Securities Act of 1933. If Home Bancorp Wisconsin meets the current public information requirements of Rule 144 under the Securities Act of 1933, each affiliate of Home Bancorp Wisconsin that complies with the other conditions of Rule 144, including those that require the affiliate’s sale to be aggregated with those of other persons, would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of 1% of the outstanding shares of Home Bancorp Wisconsin, or the average weekly volume of trading in the shares during the preceding four calendar weeks. In the future, Home Bancorp Wisconsin may permit affiliates to have their shares registered for sale under the Securities Act of 1933.

Emerging Growth Company Status

The Jumpstart Our Business Startups Act (the “JOBS Act”), which was enacted in April 2012, has made numerous changes to the federal securities laws to facilitate access to capital markets. Under the JOBS Act, a company with total annual gross revenues of less than $1.0 billion during its most recently completed fiscal year, and which did not complete its first sale of common equity securities pursuant to an effective registration statement on or before December 8, 2011, qualifies as an “emerging growth company.” Home Bancorp Wisconsin qualifies as an emerging growth company under the JOBS Act.

An “emerging growth company” may choose not to hold stockholder votes to approve annual executive compensation (more frequently referred to as “say-on-pay” votes) or executive compensation payable in connection with a merger (more frequently referred to as “say-on-golden parachute” votes). An emerging growth company also is not subject to the requirement that its auditors attest to the effectiveness of the company’s internal control over financial reporting, and can provide scaled disclosure regarding executive compensation; however, Home Bancorp Wisconsin will also not be subject to the auditor attestation requirement or additional executive compensation disclosure so long as it remains a “smaller reporting company” under Securities and Exchange Commission regulations (generally less than $75 million of voting and non-voting equity held by non-affiliates). Finally, an emerging growth company may elect to comply with new or amended accounting pronouncements in the same manner as a private company, but must make such election when the company is first required to file a registration statement. Such an election is irrevocable during the period a company is an emerging growth company. Home Bancorp Wisconsin has elected to comply with new or amended accounting pronouncements in the same manner as a private company.

A company loses emerging growth company status on the earlier of: (i) the last day of the fiscal year during which it had total annual gross revenues of $1.0 billion or more; (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of common equity securities of the company pursuant to an effective registration statement under the Securities Act of 1933; (iii) the date on which such company has, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (iv) the date on which such company is deemed to be a “large accelerated filer” under Securities and Exchange Commission regulations (generally, at least $700 million of voting and non-voting equity held by non-affiliates).

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 is intended to improve corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. We have policies, procedures and systems designed to comply with these regulations, and we review and document such policies, procedures and systems to ensure continued compliance with these regulations.

Change in Control Regulations

Under the Change in Bank Control Act, no person may acquire control of a bank holding company such as Home Bancorp Wisconsin unless the Federal Reserve Board has been given 60 days’ prior written notice and has not issued a notice disapproving the proposed acquisition, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition. Control, as defined under federal law, means ownership, control of or holding irrevocable proxies representing more than 25% of any class of voting stock, control in any manner of the election of a majority of the institution’s directors, or a determination by the regulator that the acquiror has the power, directly or indirectly, to exercise a controlling influence over the management or policies of the institution. Acquisition of more than 10% of any class of a bank holding company’s voting stock constitutes a rebuttable determination of control under the regulations under certain circumstances including where, as will be the case with Home Bancorp Wisconsin, the issuer has registered securities under Section 12 of the Securities Exchange Act of 1934.

In addition, federal law provides that no company may acquire “control” of a bank holding company, within the meaning of the Bank Holding Company Act, without the prior approval of the Federal Reserve Board. Any company that acquires such control becomes a “bank holding company” subject to registration, examination and regulation by the Federal Reserve Board.

ITEM 1A.

RISK FACTORS

You should consider carefully the following risk factors in evaluating an investment in the shares of common stock.

We incurred net losses in seven of our last eight fiscal years, and we may not achieve profitability from our business strategies in the timeframe we expect, or at all.

During the years ended September 30, 2015, 2014, 2013, 2011, 2010, 2009 and 2008, we had net losses of $679,000, $1.2 million, $2.7 million, $877,000, $673,000, $439,000, and $120,000, respectively. Although we recorded net earnings of $183,000 for fiscal 2012, such earnings were due to a $1.1 million gain on sale from the sale and partial leaseback of the building in which one of our four branch offices is located. We project that we will have net income for fiscal 2016.

The primary reasons for our net losses in 2008 through 2011 were increases in our provision for loan losses and loans charged off, as well as an increase in noninterest expenses. While our provision for loan losses decreased significantly since 2012, our net interest income after provision for loan losses decreased as we continued to reduce our interest earning assets due to regulatory capital concerns. During fiscal 2015 the downward trend reversed as our net interest income after provision for loan loss increased by $631,000. During fiscal 2014 and 2013 our noninterest income was significantly lower than in prior years. During fiscal 2015 the downward trend in noninterest income was reversed as noninterest income increased $26,000 to $649,000. Our results of operations will continue to be negatively impacted until we are able to increase our net interest income and noninterest income relative to our noninterest expenses. Although we have focused on reducing the growth of our noninterest expenses, we do not believe that we can materially reduce such expenses in the current environment without impairing our competitiveness and our ability to maintain regulatory compliance. To improve our results of operations we have adopted a plan to grow our earnings base, especially our higher yielding loans, while reducing our noninterest expenses to the extent feasible. Although the capital raised in our mutual-to-stock conversion helped support this effort, additional expenses incurred in connection with the conversion have been incurred and some of these expenses will continue to be incurred. These additional expenses include costs related to operating as a public company, increased compensation expenses associated with our employee stock ownership plan and our stock-based benefit plan approved by the shareholders.

Based on the above, we do not anticipate net income until we experience additional growth pursuant to our business plan. Assuming the continued successful execution of our business plan, we expect that we will return to profitability in fiscal 2016. We may be unsuccessful, however, in executing on our business plan and may not be able to return to profitability in the timeframe we expect, or at all. A number of factors may inhibit us from executing on our business plan or impair our ability to achieve profitability as expected, or at all, including adverse economic conditions, the level of competition from other financial institutions, adverse changes in the interest rate environment and the securities markets and other risks and uncertainties outlined in this “Risk Factors” section.

We intend to increase the origination of adjustable rate and short-term fixed rate commercial real estate loans and residential mortgage loans secured by multi-family properties and non-owner occupied one- to four-family properties, which will increase our credit risk.

We intend to emphasize the origination of commercial real estate loans and loans secured by multi-family properties and non-owner occupied one- to four-family properties (which we refer to as “one- to four-family investment property loans”). At September 30, 2015, commercial real estate loans, multi-family residential loans and one- to four-family investment property loans totaled $64.6 million, or 57.5% of total loans. Our one- to four-family investment property loans are underwritten and priced in accordance with our commercial real estate standards. These loans, and our commercial real estate loans and multi-family residential real estate loans, generally have more credit risk than owner-occupied one- to four-family residential loans. This is because repayment of such loans often depends primarily on the tenant’s continuing ability to pay rent to the property owner, who is our borrower, or, if the property owner is unable to find a tenant, the property owner’s ability to repay the loan without the benefit of a rental income stream. In addition, the physical condition of non-owner-occupied properties can be below that of owner-occupied properties due to lax property maintenance standards, which can have a negative impact on the value of the collateral properties. In addition, our commercial real estate and non owner-occupied residential properties generally involve larger principal amounts and a greater degree of risk, including concentration risk, than owner-occupied one- to four-family residential mortgage loans. For example, at September 30, 2015, the largest loan in our largest lending relationship was a commercial real estate loan for $1.7 million. In addition to this loan, at September 30, 2015, the same borrower had provided guarantees for an additional $4.7 million of loans from Home Savings Bank. This concentration of loans to, or guaranteed by, one borrower increases our risk of incurring a large loss compared to the extension of the same amount of credit to several unrelated borrowers.

As a result of the above, an increase in commercial real estate loans, multi-family residential real estate loans and one- to four-family investment property loans will expose us to a greater risk of nonpayment and loss then loans secured by owner-occupied properties.

Our small size makes it more difficult for us to compete.

Our small asset size makes it more difficult to compete with other financial institutions which are generally larger and can more easily afford to invest in the marketing and technologies needed to attract and retain customers. At September 30, 2015, we had $133.5 million of total assets, $109.9 million of loans, net of the allowance for loan losses, $5.6 million of investment securities, $105.7 million of total deposits and $12.1 million of total equity. Because our principal source of income is the net interest income we earn on our loans and investments after deducting interest paid on deposits and other sources of funds, our ability to generate the revenues needed to cover our expenses and finance such investments is limited by the size of our loan and investment portfolios. Our small size also means that we are not always able to offer new products and services as quickly as our competitors, and our lack of earnings makes it more difficult to offer competitive salaries and benefits. In addition, our smaller customer base makes it relatively more difficult to generate meaningful noninterest income from other activities such as securities and insurance brokerage. Finally, as a smaller institution, we are disproportionately affected by the continually increasing costs of compliance with new banking and other regulations.

To improve our results of operations we have adopted a plan to grow our earnings base, especially the size of our loan portfolio. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Strategy.” However, we do not anticipate net income until we experience growth in our earnings base pursuant to our business plan. Assuming the successful execution of our business plan, we expect that we will return to profitability in fiscal 2016. We may be unsuccessful, however, in executing on our business plan and may not be able to return to profitability in the timeframe we expect, or at all.

Historically low interest rates may adversely affect our net interest income and profitability.

In recent years it has been the policy of the Board of Governors of the Federal Reserve System to maintain interest rates at historically low levels through its targeted federal funds rate and the purchase of mortgage-backed securities. As a result, interest rates on the loans we have originated and the yields on securities we have purchased have been at historically low levels. As a general matter, our interest-bearing liabilities reprice or mature more quickly than our interest-earning assets, which resulted in increases in net interest income in the short term. However, our ability to reduce our interest expense is limited at these interest rate levels while the average yield on our interest-earning assets may continue to decrease. Accordingly, our net interest income (the difference between interest income earned on assets and interest expense paid on liabilities) may decrease, which may have an adverse affect on our profitability. For information with respect to changes in interest rates, see “—Changes in interest rates could adversely affect our results of operations and financial condition” below.

If our allowance for loan losses is not sufficient to cover actual loan losses, our results of operations would be negatively impacted.

We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. In determining the amount of the allowance for loan losses, we review our loans and our loss and delinquency experience, and we evaluate economic conditions. If our assumptions are incorrect, our allowance for loan losses may not be sufficient to cover probable incurred losses in our loan portfolio, resulting in additions to our allowance for loan losses. Additions to the allowance for loan losses are established through the provision for losses on loans which is charged against income.

Additionally, under our business strategy we intend to increase our home equity loans and lines of credit and one- to four-family residential real estate loans secured by non-owner occupied properties. The unseasoned nature of these loans will increase the risk that our allowance may be insufficient to absorb losses without significant additional provisions. Material additions to our allowance could materially decrease our net income. In addition, bank regulators periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize further loan charge-offs. Any increase in our allowance for loan losses or loan charge-offs as required by these regulatory authorities might have a material adverse effect on our financial condition and results of operations.

Strong competition within our market areas may limit our growth and profitability.

Competition in the banking and financial services industry within our market area, which includes Dane County, Wisconsin and contiguous counties, is intense. In our market area we compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, and brokerage and investment banking firms operating

locally and elsewhere. Most of these competitors have substantially greater resources and lending limits than we have and offer certain services that we do not or cannot provide. Our profitability depends upon our continued ability to successfully compete in our market area. The greater resources and broader range of deposit and loan products offered by our competition may limit our ability to increase our interest-earning assets and profitability. We expect competition to remain intense in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Technological advances, for example, have lowered barriers to entry, allowed banks to expand their geographic reach by providing services over the Internet and made it possible for non-depository institutions to offer products and services that traditionally have been provided by banks. Competition for deposits and the origination of loans could limit our ability to successfully implement our business plan, and could adversely affect our results of operations in the future.

We depend on our management team to implement our business strategy and execute successful operations and we could be harmed by the loss of their services.

We are dependent upon the services of the members of our senior management team who direct our strategy and operations. We have benefited from consistency within our senior management team. Members of our senior management team, or commercial lending specialists who possess expertise in our markets and key business relationships, could be difficult to replace. Our loss of these persons, or our inability to hire additional qualified personnel, could impact our ability to implement our business strategy and could have a material adverse effect on our results of operations and our ability to compete in our markets.

Government responses to economic conditions may adversely affect our operations, financial condition and earnings.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) has changed the bank regulatory framework. For example, it has created an independent Consumer Financial Protection Bureau that has assumed the consumer protection responsibilities of the various federal banking agencies, established more stringent capital standards for banks and bank holding companies and resulted in new regulations affecting the lending, funding, trading and investment activities of banks and bank holding companies. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions such as Home Savings Bank, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The new legislation also gives state attorneys general the ability to enforce applicable federal consumer protection laws. The Dodd-Frank Act also requires the federal banking agencies to promulgate rules requiring mortgage lenders to retain a portion of the credit risk related to loans that are securitized and sold to investors. We expect that such rules would make it more difficult for us to sell loans into the secondary market. Bank regulatory agencies also have been responding aggressively to concerns and adverse trends identified in examinations. Ongoing uncertainty and adverse developments in the financial services industry and in the domestic and international credit markets, and the effect of new legislation and regulatory actions in response to these conditions, may adversely affect our operations by restricting our business activities, including our ability to originate or sell loans, modify loan terms, or foreclose on property securing loans.

The full impact of the Dodd-Frank Act on our business will not be known until all of the regulations implementing the statute are adopted and implemented. As a result, we cannot at this time predict the extent to which the Dodd-Frank Act will impact our business, operations or financial condition. However, compliance with these new laws and regulations may require us to make changes to our business and operations and will likely result in additional costs and divert management’s time from other business activities, any of which may adversely impact our results of operations, liquidity or financial condition.

Furthermore, the Board of Governors of the Federal Reserve System, in an attempt to help the overall economy, has, among other things, adopted a low interest rate policy through its targeted federal funds rate and the purchase of mortgage-backed securities. If the Board of Governors of the Federal Reserve System increases the federal funds rate, market interest rates would likely rise, which may negatively affect the housing markets and the U.S. economic recovery.

We operate in a highly regulated environment and may be adversely affected by changes in laws and regulations.

We are subject to extensive regulation, supervision and examination by the Wisconsin Department of Financial Institutions and the Federal Deposit Insurance Corporation. As a bank holding company, Home Bancorp Wisconsin also will be subject to regulation and oversight by the Board of Governors of the Federal Reserve System. Such regulation and supervision govern the activities in which an institution and its holding companies may engage and are intended primarily for the protection of the insurance fund and depositors. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of an institution, the classification of assets by the institution and the adequacy of an institution’s allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, or legislation, including changes in the regulations governing bank holding companies, could have a material impact on Home Savings Bank, Home Bancorp Wisconsin, and our operations.

In addition to regulation and supervision by bank regulatory agencies, Home Bancorp Wisconsin’s common stock will be registered with the Securities and Exchange Commission after the conversion and stock offering. Home Bancorp Wisconsin will be subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.

The short-term and long-term impact of the changing regulatory capital requirements and new capital rules is uncertain.

In July, 2013, the Federal Deposit Insurance Corporation and the Federal Reserve Board approved a new rule that will substantially amend the regulatory risk-based capital rules applicable to Home Savings Bank and Home Bancorp Wisconsin. The final rule implements the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act.

The final rule includes new minimum risk-based capital and leverage ratios, which was effective for Home Savings Bank and Home Bancorp Wisconsin on January 1, 2015, and refines the definition of what constitutes “capital” for purposes of calculating these ratios. The new minimum capital requirements will be: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4%. The final rule also establishes a “capital conservation buffer” of 2.5% above the new regulatory minimum capital ratios, and when fully effective in 2019, will result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 to risk-based assets capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement would be phased in beginning in January 2016 at 0.625% of risk-weighted assets and would increase each year until fully implemented in January 2019. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations will establish a maximum percentage of eligible retained income that can be utilized for such activities.

The application of more stringent capital requirements for Home Savings Bank and Home Bancorp Wisconsin could, among other things, result in lower returns on equity, require the raising of additional capital, and result in regulatory actions such as the inability to pay dividends or repurchase shares if we were to be unable to comply with such requirements.

We own investments in securities available for sale. This increases the risk of adverse adjustments to our capital due to declines in the market value of our securities and the risk of other than temporary impairments of such securities.

We hold securities we acquired on an “available for sale” basis. This means that such securities are reported at fair value. As a result, if the fair value of such securities relative to the book value of such securities declines in the future whether as a result of a change in interest rates, prepayments or credit risk, the after tax effect of such decline would be recorded as a reduction in book capital and would not impact regulatory capital.

We review securities with significant declines in fair value relative to book value on a periodic basis to determine whether they should be considered temporarily or other than temporarily impaired. If one or more of our securities is determined to be other than temporarily impaired, the credit loss must be recognized on our income statement.

Risks associated with system failures, interruptions, or breaches of security could negatively affect our earnings.

Information technology systems are critical to our business. We use various technology systems to manage our customer relationships, general ledger, securities, deposits, and loans. We have established policies and procedures to prevent or limit the impact of system failures, interruptions, and security breaches, but such events may still occur and may not be adequately addressed if they do occur. In addition any compromise of our systems could deter customers from using our products and services. Although we rely on security systems to provide security and authentication necessary to effect the secure transmission of data, these precautions may not protect our systems from compromises or breaches of security. Threats to information security also exist in our processing of customer information through various third-party vendors and their personnel.

The occurrence of any system failures, interruption, breach of security or cyber attack could damage our reputation and result in a loss of customers and business, subject us to additional regulatory scrutiny or expose us to litigation and possible financial liability. Any of these events could have a material adverse effect on our financial condition and results of operations.

A downturn in the local economy or a decline in real estate values could hurt our ability to realize profits and adversely affect our results of operations.

Our future growth opportunities depend on the growth and stability of our regional economy and our ability to expand our market area as nearly all of our loans are to customers in Dane County, Wisconsin and contiguous counties. A downturn or anemic growth in our local economy may limit funds available for deposit and may negatively affect our borrowers’ ability to repay their loans on a timely basis, both of which could negatively affect our results of operations. Also, a decline in real estate valuations in this market would lower the value of the collateral securing our loans.

We intend to grow our portfolio of home equity loans and lines of credit, which will increase our credit risk.

At September 30, 2015, home equity loans and lines of credit totaled $9.7 million, or 8.6% of total loans. Most of our home equity loans and lines of credit are secured by real estate in Dane County, Wisconsin and contiguous counties. In addition, many of the properties securing our home equity loans and lines of credit are subject to senior liens. As a result, a downturn in local real estate values could cause some of our home equity loans and lines of credit to become inadequately collateralized, which would expose us to a greater risk of loss.

Changes in interest rates could adversely affect our results of operations and financial condition.

Our results of operations depends substantially on our net interest income, which is the difference between the interest income earned on our interest-earning assets and the interest expense paid on our interest-bearing liabilities. Increases in interest rates may decrease loan demand and make it more difficult for borrowers to repay adjustable-rate loans. In addition, as market interest rates rise, we will have competitive pressures to increase the rates we pay on deposits. Because interest rates we pay on our deposits would be expected to increase more quickly than the increase in the yields we earn on our interest-earning assets, our net interest income would be adversely affected.

We also are subject to reinvestment risk associated with changes in interest rates. Changes in interest rates may affect the average life of loans and mortgage-related securities. Decreases in interest rates can result in increased prepayments of loans and mortgage-related securities, as borrowers refinance to reduce borrowing costs. Under these circumstances, we are subject to reinvestment risk to the extent that we are unable to reinvest the cash received from such prepayments at rates that are comparable to the interest rates on existing loans and securities.

Increased interest rates and changes in secondary mortgage market conditions could reduce our earnings from our mortgage banking operations.

Our mortgage banking operations have historically provided a significant portion of our non-interest income. Our mortgage banking income varies with movements in interest rates, and increases in interest rates could negatively affect our ability to originate loans in the same volume as we have in recent years. On December 16, 2015 the Federal Reserve raised its benchmark interest rate for the first time since 2006. In addition to being affected by interest rates, the secondary mortgage markets are also subject to investor demand for residential mortgage loans and increased investor yield requirements for these loans. These conditions may fluctuate or worsen in the future. In light of current conditions, there is greater risk in retaining mortgage loans pending their sale to investors. As a result, a prolonged period of secondary market illiquidity may reduce our loan mortgage production volume and could have a material adverse effect on our financial condition and results of operations.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.

ITEM 2.

PROPERTIES

As of September 30, 2015, the net book value of Home Savings Bank’s real properties was $5.0 million. The following table sets forth information regarding the Bank’s offices.

Location

Leased or
Owned

Year Acquired
or Leased

Net Book Value
of Real Property

(In thousands)

Main Office:

3762 East Washington Avenue

Madison, Wisconsin 53704

Owned

2004

2,950

Other Branch Offices:

2 South Carroll Street

Madison, Wisconsin 53703

Leased

⁽¹⁾

2011

7701 Mineral Point Road

Madison, Wisconsin 53717

Owned

1989

1,831

400 West Main Street

Stoughton, Wisconsin 53589

Owned

1976

161

(1)	Lease expires December 31, 2016, with two five-year options to renew.

ITEM 3.

LEGAL PROCEEDINGS

Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market and Dividend Information.

Our common stock is quoted on the OTCPink operated by OTC Markets Group, Inc. under the symbol “HWIS.” Beginning January 28, 2015 our stock has traded on the OTCPink, operated by OTC Markets Group, Inc. after previously trading on the OTCQB. The Company completed its initial public offering on April 23, 2014, and its stock commenced trading on April 24, 2014. Accordingly, there is no market information prior to April 24, 2014. The following table sets forth the high and low bid quotations for shares of the Company’s common stock for the periods indicated, as obtained from the OTCPink. The stated high and low bid quotations reflect inter-dealer prices, without retail markup, markdown or commission, and may not represent actual transactions. The Company has not paid any dividends to its stockholders to date. See “Dividends” below.


	High		Low
Fiscal 2015:
Fourth Quarter	$	8.00	$	7.60
Third Quarter		8.30		7.10
Second Quarter		8.00		7.65
First Quarter		8.30		7.70

Fiscal 2014:
Fourth Quarter	$	8.55	$	8.20
Third Quarter (from April 24, 2014)		10.15		8.25

Holders.

As of December 16, 2015, there were approximately 187 holders of record of the Company’s common stock.

Dividends.

The Company has not paid any dividends to its stockholders to date. The payment of dividends in the future will depend upon a number of factors, including capital requirements, the Company’s financial condition and results of operations, tax considerations, statutory and regulatory limitations and general economic conditions. In addition, the Company’s ability to pay dividends is dependent on dividends received from Home Savings Bank. For more information regarding restrictions on the payment of cash dividends by the Company and by Home Savings Bank see “Business—Regulation and Supervision—Holding Company Regulation”, and “Business—Regulation and Supervision—Dividends”. No assurances can be given that any dividends will be paid or that, if paid, such dividend will not be reduced or eliminated in the future.

Securities Authorized for Issuance under Equity Compensation Plans.

None.

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities.

None.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

There were no shares repurchased by the Company in the fourth quarter of fiscal year 2015.

ITEM 6.

SELECTED FINANCIAL DATA

The following tables set forth selected consolidated historical financial and other data of Home Savings Bank for the periods and at the dates indicated. The information at and for the years ended September 30, 2015 and 2014 is derived in part from, and should be read together with, the audited financial statements and notes thereto of Home Savings Bank beginning at page F-1 of this Annual Report on Form 10-K. The information at and for the year ended September 30, 2013 is derived in part from audited financial statements that are not included in this Annual Report on Form 10-K. The following information is only a summary, and should be read in conjunction with our consolidated financial statements and notes beginning on page F-1.


	At September 30,
	2015		2014		2013
	(In thousands)
Selected Financial Condition Data:
Total assets	$	133,526	$	119,432	$	115,207
Cash and cash equivalents		2,533		4,047		11,652
Investment securities		5,635		11,815		9,350
Loans receivable, net		109,860		84,757		77,116
Deposits		105,720		97,685		100,132
Borrowings (1)		13,005		5,000		5,500
Total equity		12,145		12,766		7,270


	For the Years Ended September 30,
	2015			2014			2013
	(In thousands)
Selected Operating Data:
Interest and dividend income	$	4,386		$	4,008		$	4,156
Interest expense		504			506			738
Net interest income		3,882			3,502			3,418
Provision for loan losses		105			356			547
Net interest income after provision for loan losses		3,777			3,146			2,871
Noninterest income		649			623			1,025
Noninterest expenses		5,105			4,985			5,135
Income (loss) before income taxes		(679	)		(1,216	)		(1,239	)
Income tax expense (2)		—			—			1,499
Net income (loss)		(679	)		(1,216	)		(2,738	)

(1)	At September 30, 2015 and September 30, 2014, excludes overnight federal funds of $616,000 and $2.0 million, respectively.

(2)	During fiscal 2013 we recognized a valuation allowance of $2.0 million against our deferred tax asset.


	At or For the Years Ended September 30,
	2015			2014			2013
Performance Ratios:
Return on average assets		(0.53	)%		(1.03	)%		(2.23	)%
Return on average equity		(5.30	)%		(12.49	)%		(28.04	)%
Interest rate spread (1)		3.30	%		3.38	%		3.18	%
Net interest margin (2)		3.34	%		3.39	%		3.19	%
Noninterest expense to average assets		4.01	%		4.21	%		4.18	%
Efficiency ratio (3)		112.67	%		120.85	%		115.58	%
Average equity to average assets		10.07	%		8.22	%		7.95	%

Capital Ratios (Bank):
Total capital to risk weighted assets		13.50	%		15.75	%		11.57	%
Common equity tier 1 capital to risk weighted assets (4)		12.25	%		NA			NA
Tier 1 capital to risk weighted assets		12.25	%		14.49	%		10.31	%
Tier 1 capital to average assets		8.31	%		9.72	%		6.05	%

Asset Quality Ratios:
Allowance for loan losses as a percentage of total loans (5)		1.33	%		1.62	%		1.46	%
Allowance for loan losses as a percentage of non-performing loans (6)		890.36	%		178.95	%		191.96	%
Net charge-offs to average outstanding loans during the period		0.03	%		0.12	%		0.63	%
Non-performing loans as a percentage of total loans		0.15	%		0.91	%		0.76	%
Non-performing assets as a percentage of total assets		0.12	%		1.31	%		1.39	%
Total non-performing assets and accruing troubled debt restructurings as a percentage of total assets		0.88	%		1.64	%		2.12	%

Other:
Number of offices		4			4			4

(1)	Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost of interest-bearing liabilities.

(2)	Represents net interest income as a percentage of average interest-earning assets.

(3)	Represents noninterest expense divided by the sum of net interest income and noninterest income.

(4)	Reporting of common equity tier 1 capital became effective for periods ending at March 31, 2015 and thereafter.

(5)	Includes loans held for sale.

(6)	Excludes accruing troubled debt restructurings.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

This discussion and analysis reflects our consolidated financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from the audited consolidated financial statements, which appear beginning on page F-1 of this Annual Report on Form 10-K. You should read the information in this section in conjunction with the business and financial information regarding Home Bancorp Wisconsin provided in this Annual Report.

Overview

Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets, consisting primarily of loans, investment securities and other interest-earning assets (primarily cash equivalents), and the interest we pay on our interest-bearing liabilities, consisting primarily of money market accounts, certificates of deposit, savings accounts, NOW accounts and borrowings. Our results of operations also are affected by our provisions for loan losses, noninterest income, and noninterest expense. Noninterest income consists of fees and service charges, mortgage banking income, income from bank-owned life insurance and other income. Noninterest expense consists of employee compensation and benefits, occupancy and equipment, data processing and office expense, professional fees, operations of other real estate owned, advertising and promotions, examinations and FDIC assessments, and other expenses.

Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities. Additionally, because our lending activity is concentrated in loans secured by residential and commercial real estate located in Dane County, Wisconsin and contiguous counties, downturns in this regional economy could have a negative impact on our earnings.

Total assets increased $14.1 million, or 11.8%, to $133.5 million at September 30, 2015 from $119.4 million at September 30, 2014. Loans, net increased $25.1 million and investment securities decreased $6.2 million. The increase in assets was primarily due to the approximately $7.4 million of net proceeds from the mutual-to-stock conversion completed on April 23, 2014. Following the completion of the conversion, we have begun to increase our interest earning assets.

During the years ended September 30, 2015 and 2014 we recorded losses of $679,000 and $1.2 million, respectively.

We recorded net losses in each of the fiscal years from 2008 through 2011, and in fiscal years 2013 through 2015. Although we recorded net earnings for fiscal 2012, such earnings were due to a gain on sale and partial leaseback of the building in which one of our four branch offices is located. The primary reasons for our net losses in 2008 through 2011 were increases in our provision for loan losses due to loans charged off, as well as an increase in noninterest expenses. The increase in the provision for loan losses was due to loans charged off primarily related to participations in out-of-market construction and land development loans that we did not originate. To address these issues we have focused on improving our asset quality and reducing the growth of noninterest expenses. With respect to asset quality, we have reduced our participations in out-of-market construction and land development loans, enhanced our delinquent loan monitoring system, and tightened our loan approval authorities. At September 30, 2015, non-performing assets totaled $426,000, or 0.32% of total assets, compared to 1.31% at September 30, 2014 and 3.8% at September 30, 2010. Our provision for loan losses for fiscal 2015 was $105,000 compared to $1.9 million for fiscal 2011. Our net interest income has increased as we have deployed funds raised in the mutual-to-stock conversion and our resultant improved capital position. Our results of operations will continue to be negatively impacted until we are able to increase out net interest income and noninterest income relative to our noninterest expenses.

Although we have focused on reducing the growth of our noninterest expenses, we do not believe that we can materially reduce such expenses in the current environment without impairing our customer service, competitiveness and our ability to maintain regulatory compliance. As a result, to improve our results of operations we have adopted a plan to grow our earnings base, especially the size of our loan portfolio, while reducing our noninterest expenses to the extent feasible. Although the capital raised in the conversion supports this effort, the conversion had increased expenses due to ongoing expenses related to being a public company. These additional expenses include costs related to becoming a public company, increased compensation expenses associated with our employee stock ownership plan and the possible implementation of one or more stock-based benefit plans after the completion of the conversion.

Based on the above and the growth achieved in 2015, we do not anticipate net income until we experience additional growth in our earnings base pursuant to our business plan. Assuming the successful execution of our business plan, we expect that we will return to profitability in the first quarter of fiscal 2016. There can be no assurances, however, that we will successfully execute on our business plan and be able to return to profitability in the timeframe we expect or at all.

Critical Accounting Policies

The discussion and analysis of the financial condition and results of operations are based on our financial statements, which are prepared in conformity with generally accepted accounting principles used in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policies discussed below to be critical accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.

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 September 30, 2015 and September 30, 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.

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, 2014 and 2015, estimated future operating results, tax planning strategies and the timing of reversals of temporary differences. At September 30, 2013, 2014 and 2015, 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 at September 30, 2013, 2014 and 2015. See Note 11 to Consolidated Financial Statements for further discussion regarding the valuation allowance on the deferred tax asset.

Comparison of Financial Condition at September 30, 2015 and 2014

Total assets increased $14.1 million, or 11.8%, to $133.5 million at September 30, 2015 from $119.4 million at September 30, 2014. Loans, net of allowance for loan losses increased $25.1 million and total investment securities decreased $6.2 million. The increase in assets was primarily funded by an $8.0 million increase in deposits and an $8.0 million increase in borrowed funds.

Cash and cash equivalents decreased $1.5 million, or 37.4%, to $2.5 million at September 30, 2015.

Net loans, excluding loans held for sale, increased $25.1 million, or 29.6%, to $109.9 million at September 30, 2015 from $84.8 million at September 30, 2014. The increase in net loans during fiscal 2015 was the result of increases in each category of loans except home equity loans and lines of credit and consumer loans. Multi-family residential loans increased $10.5 million, one-to four-family investment property loans increased $6.7 million, one- to four-family residential loans increased $4.5 million, construction loans increased $4.1 million, commercial business loans increased $520,000, commercial real estate loans increased $322,000, while home equity loans and lines of credit decreased $376,000 and consumer loans decreased 159,000.

Loans held for sale decreased $169,000 to $151,000 on September 30, 2015.

Total investment securities decreased $6.2 million to $5.6 million at September 30, 2015, as proceeds from maturities, calls and sales of securities were invested in loans to enhance the yield on our assets. Securities available for sale decreased $5.2 million and securities held to maturity decreased by $1.0 million.

Our investment in bank-owned life insurance increased $78,000, or 2.4%, to $3.3 million during the fiscal year ended September 30, 2015. 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. Federal regulations generally limit our investment in bank-owned life insurance to 25% of our Tier 1 capital plus our allowance for loan losses.

Foreclosed assets decreased $515,000, or 66.5%, to $260,000 at September 30, 2015. The decrease in foreclosed assets was primarily due to our efforts to convert nonearning assets into earning assets to improve our financial performance. At September 30, 2015 our foreclosed asset balance represents our interest in one property, which was sold and closed on December 21, 2015.

Total deposits increased $8.0 million, or 8.2%, to $105.7 million at September 30, 2015 from $97.7 million at September 30, 2014. As part of our growth plan we continued our efforts to increase core deposits, which we consider to be all deposits except brokered deposits. All categories of deposits experienced growth from September 30, 2014 to September 30, 2015. Certificates of deposit grew $6.2 million to $32.6 million on September 30, 2015 from $26.4 million at September 30, 2014 as money market and savings deposits increased $114,000 to $43.1 million and demand deposits increased $1.8 million to $30.1 million over the fiscal year.

Our borrowings consist predominantly of Federal Home Loan Bank of Chicago advances. Federal Home Loan Bank advances increased $8.0 million, or 160.1%, to $13.0 million at September 30, 2015 from $5.0 million at September 30, 2014. At September 30, 2015 and 2014, we also had $616,000 and $2.0 million of overnight federal funds, respectively, through the Bankers’ Bank of Wisconsin.

Total equity decreased $621,000, or 4.9%, to $12.1 million at September 30, 2015 from $12.8 million at September 30, 2014. Our $679,000 net loss was the primary reason for the equity decline. Total equity was also impacted by the recognition of earned ESOP of $23,000 and a $35,000 increase in accumulated other comprehensive income.

Comparison of Results of Operations for the Years Ended September 30, 2015 and September 30, 2014

General. For the year ended September 30, 2015 we incurred a net loss of $679,000 compared to a net loss of $1.2 million for fiscal 2014. Factors impacting the decrease in the net loss for fiscal 2015 included a $380,000 increase in net interest income as we increased our loan balance, a $251,000 decrease in the provision for loan losses and a $26,000 increase in noninterest income. These changes were partially offset by a $120,000 increase in noninterest expense.

Net Interest Income. Net interest income increased $380,000, or 10.9%, to $3.9 million for the year ended September 30, 2015 from $3.5 million for fiscal 2014. The increase resulted from an increase of $378,000 in interest and dividend income and a decrease of $2,000 in interest expense on deposits and borrowings. The increase in interest and dividend income for the year ended September 30, 2015 was primarily due to a $13.2 million increase in average balances of interest-earning assets, partially offset by a 0.11% decrease in the average yield on those assets. The decrease in interest expenses for the 2015 period was primarily due to a 3 basis point decrease in the cost of interest-bearing liabilities, partially offset by a $6.9 million increase in the average balance of our interest-bearing liabilities.

Interest and Dividend Income. Interest and dividend income increased $378,000, or 9.4%, to $4.4 million in fiscal 2015. The increase was primarily due to a $424,000 increase in interest income on loans and a $16,000 increase in interest income on other interest-earning assets, partially offset by a $62,000 decrease in interest and dividends on investment securities.

Interest income on loans increased $424,000, or 11.6%, to $4.1 million for the year ended September 30, 2015 from $3.7 million for fiscal 2014. The increase resulted from an increase of $15.8 million in the average balance of loans to $98.7 million for the year ended September 30, 2015 compared to $82.9 million for fiscal 2014, partially offset by a decrease of 28 basis points in the average yield to 4.15% for the year ended September 30, 2015 from 4.43% for fiscal 2014.

Interest and dividend income on investment securities decreased $62,000, or 26.4%, to $173,000 for the year ended September 30, 2015 from $235,000 for fiscal 2014. The decrease was primarily due to a $1.7 million decrease in the average balance of investment securities to $9.5 million for the 2015 period compared to $11.3 million for fiscal 2014, as we invested proceeds from maturities, calls and sales of securities into loans. The decrease in interest and dividend income on investment securities was also due to a 27 basis point decrease in the average yield on the portfolio. These results are consistent with our business strategy to reduce our investment portfolio balances as we increase loan balances. Because investment securities available-for-sale are carried at fair value, a decrease in such securities will decrease the volatility of our equity.

Interest and dividend income on other interest-earning assets increased $16,000, or 15.5%, to $119,000 for the year ended September 30, 2015. The increase was primarily due to a 33 basis point increase in the average yield on such assets, partially offset by an $874,000 decrease in the average balance of other interest-earning assets as we increased loan balances.

Interest Expense. Interest expense, consisting of interest-bearing deposits and borrowings, decreased $2,000, or 0.4%, to $504,000 for the year ended September 30, 2015 from $506,000 for fiscal 2014. The decrease was due to a $43,000, or 13.4%, decrease in the cost of interest-bearing deposits, partially offset by a $41,000, or 22.3%, increase in the cost of borrowings. At September 30, 2015, our borrowings consisted of $13.0 million of Federal Home Loan Bank of Chicago advances and $616,000 of overnight federal funds.

The $43,000 decrease in interest expense from deposits was primarily the result of a $40,000, or 15.6%, decrease in interest expense from certificates of deposit. The average balance of certificates of deposit declined $330,000 during the year ended September 30, 2015 compared to fiscal 2014, while the average cost of these deposits decreased to 0.76% for 2015 from 0.89% for 2014.

The cost of borrowings increased $41,000, or 22.3%, to $225,000 for the year ended September 30, 2015 from $184,000 for fiscal 2014. The increase was due to a $5.7 million increase in the average balance of Federal Home Loan Bank advances used to fund a portion of the loan growth, partially offset by a 1.51% reduction in average borrowing rates.

Provision for loan losses. We recorded a provision for loan losses of $105,000 for the year ended September 30, 2015, compared to $356,000 for fiscal 2014. The decrease in the provision for loan losses was primarily due to a reduction in historical loan loss. The allowance for loan losses increased $75,000 to $1.5 million at September 30, 2015.

Noninterest Income. Noninterest income increased $26,000, or 4.2%, to $649,000 in fiscal 2015 primarily due to a $67,000 increase in mortgage banking income to $144,000, partially offset by a $54,000 decrease in service fees.

Noninterest Expense. Noninterest expense increased $120,000, or 2.4%, to $5.1 million for fiscal 2015. The increase was primarily due to increases in foreclosed asset expense and professional fees, partially offset by expense reductions from broad based cost control efforts.

Income Tax Expense. We recorded no income tax benefit or expense for the years ended September 30, 2015 and 2014 and maintain a valuation allowance on our deferred tax asset.

Average Balance Sheet

The following tables set forth average balance sheets, average yields and costs, and certain other information for the years indicated. No tax-equivalent yield adjustments have been made, as we had no tax-free interest-earning assets during the years. All average balances are daily average balances based upon amortized costs. Non-accrual loans were included in the computation of average balances. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense.


	For the Years Ended September 30,
	2015								2014
	Average Outstanding Balance			Interest		Average Yield/Rate			Average Outstanding Balance			Interest		Average Yield/Rate
	(Dollars in thousands)
Interest-earning assets:
Loans	$	98,724		$	4,094		4.15	%	$	82,902		$	3,670		4.43	%
Securities (1)		9,548			173		1.81			11,279			235		2.08
Other interest-earning assets (2)		8,184			119		1.47			9,058			103		1.14

Total interest-earning assets		116,356			4,386		3.77			103,239			4,008		3.88
Non-interest-earning assets		10,912								15,236

Total assets	$	127,268							$	118,475


Interest-bearing liabilities:
Savings, transaction and money market accounts	$	67,810		$	63		0.09		$	66,292		$	66		0.10
Certificates of deposit		28,476			216		0.76			28,806			256		0.89

Total interest-bearing deposits		96,286			279		0.29			95,098			322		0.34
Borrowings		10,836			225		2.08			5,120			184		3.59

Total interest-bearing liabilities		107,122			504		0.47			100,218			506		0.50
Noninterest-bearing liabilities:
Noninterest-bearing deposits		6,560								4,995
Other noninterest-bearing liabilities		770								3,525

Total liabilities		114,452								108,738
Total equity		12,816								9,737

Total liabilities and total equity	$	127,268							$	118,475

Net interest income				$	3,882							$	3,502

Net interest rate spread (3)							3.30	%							3.38	%
Net interest-earning assets (4)	$	9,233							$	3,021

Net interest margin (5)							3.34	%							3.39	%
Average interest-earning assets to interest-bearing liabilities expressed as a percentage		108.62	%							103.01	%

(1)	Includes interest and dividend income on FHLB stock.

(2)	Includes interest on certificates of deposit with other financial institutions and interest on deposits with the Federal Reserve.

(3)	Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(4)	Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

(5)	Net interest margin represents net interest income divided by average total interest-earning assets.

Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on our net interest income for the years indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume.


	Years Ended September 30, 2015 vs. 2014
	Increase (Decrease) Due to						Total Increase (Decrease)
	Volume			Rate			Total Increase (Decrease)
	(In thousands)
Interest-earning assets:
Loans	$	701		$	(277	)	$	424
Securities		(36	)		(26	)		(62	)
Other interest-earning assets		(10	)		26			16

Total interest-earning assets		655			(277	)		378

Interest-bearing liabilities:
Savings, transaction and money market accounts		2			(5	)		(3	)
Certificates of deposit		(3	)		(37	)		(40	)

Total interest-bearing deposits		(1	)		(42	)		(43	)
Borrowings		205			(164	)		41

Total interest-bearing liabilities		204			(206	)		(2	)

Change in net interest income	$	451		$	(71	)	$	380

Management of Market Risk

General. Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our financial condition and results of operations to changes in market interest rates. Our Asset-Liability Committee meets weekly and is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the policy and guidelines approved by our board of directors. Our Asset-Liability Committee provides our board of directors with quarterly updates on our exposure to interest rate risk.

Historically, we operated as a traditional thrift institution and a significant portion of our assets consisted of one- to four-family residential real estate loans (including both owner-occupied and investor loans), multi-family real estate loans, home equity loans and lines of credit, and mortgage-backed securities, which we funded primarily with deposits and Federal Home Loan Bank advances. Interest rate adjustment provisions on our portfolio first mortgages typically included interest rate adjustment caps. Since the 1970’s we have sold our fixed-rate loans with terms of 15 years or more in the secondary market. Beginning in 2003, we revised our business strategy to increase our emphasis on the origination of commercial real estate and multi-family real estate loans, which generally have shorter maturities than one- to four-family residential real estate loans. More recently, we have focused on the origination and refinance of adjustable rate and short-term fixed rate loans, including commercial real estate loans and loans secured by multi-family residential properties and non owner occupied one- to four-family residential properties. These loans have higher yields than owner occupied one- to four-family residential real estate loans and also assist us in managing interest rate risk in the current interest rate environment. We intend to continue to emphasize the origination of such loans.

Net Interest Income Analysis. We analyze our sensitivity to changes in interest rates through our net interest income simulation model which is provided to us by an independent third party. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings. We estimate what our net interest income would be for a one-year period based on current interest rates. We then calculate what the net interest income would be for the same period under different interest rate assumptions. The following table shows the estimated impact on net interest income for the one-year period beginning September 30, 2015 resulting from potential changes in interest rates, expressed in basis points. These estimates require certain assumptions to be made, including loan and

mortgage-related investment prepayment speeds, reinvestment rates, and deposit maturities and decay rates. These assumptions are inherently uncertain. As a result, no simulation model can precisely predict the impact of changes in interest rates on our net interest income. Although the net interest income table below provides an indication of our interest rate risk exposure at a particular point in time, such estimates are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results.


Rate Shift (1)	Net Interest Income Year 1 Forecast		Year 1 Change from Level
	(Dollars in thousands)
+400	$	4,567		8.88	%
+300	$	4,553		8.53	%
+200	$	4,508		7.46	%
+100	$	4,383		4.49	%
Level	$	4,195		—
-100	$	3,868		(7.80	)%

(1)	The calculated changes assume an immediate shock of the static yield curve.

Economic Value of Equity Analysis. We also analyze the sensitivity of our financial condition to changes in interest rates through our economic value of equity model, which is also provided to us by an independent third party. This analysis measures the difference between predicted changes in the present value of our assets and predicted changes in the present value of our liabilities assuming various changes in current interest rates. The following table sets forth, as of September 30, 2015, the estimated impact on the economic value of our equity resulting from potential changes in interest rates. As with the net interest income simulation model, the estimates of changes in the economic value of our equity require certain assumptions to be made. These assumptions include loan and mortgage-related investment prepayment speeds, reinvestment rates, and deposit maturities and decay rates. These assumptions are inherently uncertain and, as a result, we cannot precisely predict the impact of changes in interest rates on the economic value of our equity. Although our economic value of equity analysis provides an indication of our interest rate risk exposure at a particular point in time, such estimates are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on the economic value of our equity and will differ from actual results.


Rate Shift (1)	Economic Value of Equity		% Change In Equity from Level
	(Dollars in thousands)
+400	$	18,811		(6.43	)%
+300	$	19,956		(5.71	)%
+200	$	19,121		(4.89	)%
+100	$	19,771		(1.66	)%
Level	$	20,104		—
-100	$	16,598		(17.44	)%

(1)	The calculated changes assume an immediate shock of the static yield curve.

We do not engage in hedging activities, such as engaging in futures, options or swap transactions, or investing in high-risk mortgage derivatives, such as collateralized mortgage obligation residual interests, real estate mortgage investment conduit residual interests or stripped mortgage backed securities.

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 September 30, 2015, we had approximately $13.0 million in borrowings from the Federal Home Loan Bank of Chicago. At that same date, we had the capacity to borrow up to an additional $9.6 million from the Federal Home Loan Bank of Chicago, subject to purchasing an additional $322,000 of Federal Home Loan Bank of Chicago stock. At September 30, 2015, 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 $7.1 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. During the years ended September 30, 2015 and 2014, loan originations totaled $60.0 million and $34.6 million, respectively. Our investment securities balance has fallen $6.2 million from September 30, 2014 to September 30, 2015 as the proceeds from investment securities maturities, calls, and sales have been invested in loans.

Total deposits increased $8.0 million during the year ended September 30, 2015, while total deposits decreased $2.4 million during the year ended September 30, 2014. Deposit flows are affected by the level of interest rates, the interest rates and products offered by competitors and other factors. At September 30, 2015, certificates of deposit scheduled to mature within one year totaled $16.5 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 September 30, 2015 our 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.

Recent Accounting Pronouncements

For a discussion of the impact of recent accounting pronouncements, see Note 1 of the notes to our consolidated financial statements beginning on page F-1 of this prospectus.

Impact of Inflation and Changing Price

Our consolidated financial statements and related notes have been prepared in accordance with U.S. GAAP. U.S. GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration of changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this item is incorporated herein by reference to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation.”

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements of Home Bancorp Wisconsin, Inc. begin on page F-1 of this Annual Report.

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

The Company’s President and Chief Executive Officer, its Chief Financial Officer, and other members of its senior management team have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) or 15d-15(e)), as of September 30, 2015. Based on such evaluation, the President and Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this report, were adequate and effective to provide reasonable assurance that information required to be disclosed by the Company in reports that are filed or submitted under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.

Changes in Internal Controls Over Financial Reporting.

There have been no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Annual Report on Internal Controls over Financial Reporting.

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s system of internal control over financial reporting is designed, under the supervision of management, including our Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of the Company’s consolidated financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles (“GAAP”).

Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that receipts and expenditures are made only in accordance with the authorization of management and the Board of Directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on our consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections on any evaluation of effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions or that the degree of compliance with policies and procedures may deteriorate.

As of September 30, 2015, management assessed the effectiveness of the Company’s internal control over financial reporting based upon the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework of 1992. Based upon its assessment, management believes that the Company’s internal control over financial reporting as of September 30, 2015 is effective using these criteria. This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company (as a smaller reporting company) to provide only management’s report in this annual report.

ITEM 9B.

OTHER INFORMATION

Not applicable.

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information relating to the directors and officers of the Company, information regarding compliance with Section 16(a) of the Exchange Act, information regarding any changes in procedures for stockholders to recommend director nominees, and information regarding the audit committee and any audit committee financial experts is incorporated herein by reference to the Company’s Proxy Statement for the Annual Meeting of Stockholders to be held on February 23, 2016 (the “Proxy Statement”) under the captions “Proposal 1—Election of Directors,” “Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Nominating Committee Procedures—Procedures to be Followed by Stockholders,” “Corporate Governance and Board Matters—Committees of the Board of Directors” and “Corporate Governance and Board Matters—Committees of the Board of Directors.

The Company has adopted a code of ethics that applies to its principal executive officer, the principal financial officer and principal accounting officer. The Code of Ethics is posted on the Company’s Internet Web site.

ITEM 11.

EXECUTIVE COMPENSATION

Information regarding executive and director compensation is incorporated herein by reference to the Proxy Statement under the captions “Executive Officers—Executive Compensation” and “Director Compensation.”

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS

(a)

Security Ownership of Certain Beneficial Owners

Information required by this item is incorporated herein by reference to the section captioned “Stock Ownership—Stock Ownership of Certain Beneficial Owners” in the Proxy Statement.

(b)

Security Ownership of Management

Information required by this item is incorporated herein by reference to the section captioned “Stock Ownership—Stock Ownership of Management” in the Proxy Statement.

(c)

Changes in Control

Management of the Company knows of no arrangements, including any pledge by any person or securities of the Company, the operation of which may at a subsequent date result in a change in control of the registrant.

(d)

Equity Compensation Plan Information

The following table sets forth information as of December 31, 2015 about Company common stock that may be issued upon the exercise of options under the Home Bancorp Wisconsin, Inc. 2015 Equity Incentive Plan. The plan was approved by the Company’s stockholders.

Plan Category

Number of securities
to be issued upon
the exercise of
outstanding options,
warrants and rights

Weighted-average
exercise price of
outstanding options,
warrants and rights

Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in the first column)

Equity compensation plans approved by security holders

125,866

N/A

125,866

Equity compensation plans not approved by security holders

N/A

Total

125,866

N/A

125,866

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information relating to certain relationships and related transactions and director independence is incorporated herein by reference to the Proxy Statement under the captions “Transactions with Related Persons” and “Proposal 1 — Election of Directors.”

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

The information relating to the principal accounting fees and expenses is incorporated herein by reference to the Proxy Statement under the captions “Proposal 2—Ratification of Independent Registered Public Accounting Firm — Audit Fees” and “—Pre-Approval of Services by the Independent Registered Public Accounting Firm.”

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(1)

The financial statements required in response to this item are incorporated by reference from Item 8 of this report.

(2)

All financial statement schedules are omitted because they are not required or applicable, or the required information is shown in the consolidated financial statements or the notes thereto.

(3)

Exhibits


		3.1		Articles of Incorporation of Home Bancorp Wisconsin, Inc. (Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (File No. 333-189668) as amended, initially filed with the SEC on June 28, 2013).

		3.2		Bylaws of Home Bancorp Wisconsin, Inc. (Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 (File No. 333-189668) as amended, initially filed with the SEC on June 28, 2013).

		4		Form of Common Stock Certificate of Home Bancorp Wisconsin, Inc. (Incorporated by reference to Exhibit 4 to the Company’s Registration Statement on Form S-1 (File No. 333- 189668) as amended, initially filed with the SEC on June 28, 2013).

		10.1		Salary Continuation Agreement by and between Home Savings Bank and James R. Bradley, Jr. (Incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-1 (File No. 333-189668) as amended, initially filed with the SEC on June 28, 2013).

		10.2		Employment Agreement between Home Savings Bank and James R. Bradley, Jr. (Incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-1 (File No. 333-189668) as amended, initially filed with the SEC on June 28, 2013).

		21		Subsidiaries of Registrant (Incorporated by reference to Exhibit 21 to the Company’s Registration Statement on Form S-1 (File No. 333-189668) as amended, initially filed with the SEC on June 28, 2013).

		23		Consent of Wipfli LLP

		31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

		31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

		32.0		Section 1350 Certifications

		101.0		The following materials from the Company’s Annual Report on Form 10-K for the year ended September 30, 2015, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Financial Condition; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Changes in Shareholders’ Equity; (iv) Consolidated Statements of Cash Flows; and (v) the Notes to the Consolidated Financial Statements.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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: December 23, 2015		By:	/s/ James R. Bradley, Jr.
			James R. Bradley, Jr.
			President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.


Signatures	Title	Date

/s/ James R. Bradley, Jr.	President, Chief Executive Officer and Director (Principal Executive Officer)	December 23, 2015
James R. Bradley, Jr.

/s/ Mark A. Fritz	Senior Vice President, Chief Financial Officer and Treasurer (Principal Accounting and Financial Officer)	December 23, 2015
Mark A. Fritz

/s/ George E. Austin	Director	December 23, 2015
George E. Austin

/s/ Mark P. Finster	Director	December 23, 2015
Mark P. Finster

/s/ Lynn K. Hobbie	Director	December 23, 2015
Lynn K. Hobbie

/s/ Richard M. Lynch	Director	December 23, 2015
Richard M. Lynch

Home Bancorp Wisconsin, Inc.

and Subsidiary

Madison, Wisconsin

Financial Statements

Years Ended September 30, 2015 and 2014

Home Bancorp Wisconsin, Inc. and Subsidiary

Financial Statements

Years Ended September 30, 2015 and 2014

Table of Contents


Report of Independent Registered Public Accounting Firm			F-1

Financial Statements

Consolidated Balance Sheets			F-2
Consolidated Statements of Operations			F-3
Consolidated Statements of Comprehensive Income (Loss)			F-5
Consolidated Statements of Stockholders’ Equity			F-6
Consolidated Statements of Cash Flows			F-7
Notes to Financial Statements			F-9

LOGO

Report of Independent Registered Public Accounting Firm

Board of Directors

Home Bancorp Wisconsin, Inc.

Madison, Wisconsin

We have audited the accompanying consolidated balance sheets of Home Bancorp Wisconsin, Inc. and Subsidiary (the Company) as of September 30, 2015 and 2014, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the two years in the period ended September 30, 2015. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Home Bancorp Wisconsin, Inc. and Subsidiary as of September 30, 2015 and 2014, and the results of their operations and their cash flows for each of the two years in the period ended September 30, 2015, in conformity with accounting principles generally accepted in the United States.

/s/ Wipfli LLP

Wipfli LLP

December 23, 2015

Madison, Wisconsin

F-1

Home Bancorp Wisconsin, Inc. and Subsidiary

Consolidated Balance Sheets

September 30, 2015 and 2014 (Dollars in Thousands)


	2015			2014
Assets
Cash and due from banks	$	2,222		$	2,474
Interest-bearing deposits		311			1,573

Cash and cash equivalents		2,533			4,047
Other interest-bearing deposits		5,011			7,556
Securities available for sale		2,765			7,922
Securities held to maturity (fair value of $2,933 and $3,927 for 2015 and 2014 respectively)		2,870			3,893
Loans held for sale		151			320
Loans, net of allowance for loan losses of $1,478 and $1,403 for 2015 and 2014, respectively		109,860			84,757
Premises and equipment, net		5,212			5,423
Foreclosed assets		260			775
Cash value of life insurance		3,316			3,238
Federal Home Loan Bank stock		646			652
Other assets		902			849

TOTAL ASSETS	$	133,526		$	119,432

Liabilities and Stockholders’ Equity
Liabilities:
Demand deposits	$	30,055		$	28,280
Money market and savings deposits		43,105			42,991
Time deposits		32,560			26,414

Total deposits		105,720			97,685
Advance payments by borrowers for taxes and insurance		793			830
Federal funds purchased		616			1,965
Borrowed funds		13,005			5,000
Other liabilities		1,247			1,186

Total liabilities		121,381			106,666

Commitments and contingencies (Note 14)
Stockholders’ Equity:
Common stock $0.01 par value, 30,000,000 shares authorized; 899,190 shares issued and outstanding at September 30, 2015 and September 30, 2014	$	9		$	9
Additional paid-in capital		7,407			7,413
Retained earnings		5,371			6,050
Unearned Employee Stock Ownership Plan (ESOP) shares		(669	)		(698	)
Accumulated other comprehensive income (loss)		27			(8	)

Total stockholders’ equity		12,145			12,766

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	133,526		$	119,432

The accompanying notes are an integral part of these financial statements

F-2

Home Bancorp Wisconsin, Inc. and Subsidiary

Consolidated Statements of Operations

Years Ended September 30, 2015 and 2014 (Dollars in Thousands, except per share data)


	2015		2014
Interest and dividend income:
Loans, including fees	$	4,094	$	3,670
Interest-bearing deposits		119		103
Securities		173		235

Total interest and dividend income		4,386		4,008

Interest expense:
Deposits		279		322
Borrowed funds		225		184

Total interest expense		504		506

Net interest income		3,882		3,502
Provision for loan losses		105		356

Net interest income after provision for loan losses		3,777		3,146

Noninterest income:
Service fees		223		277
Mortgage banking income		144		77
Net gain on sale of securities		9		20
Increase in cash value of life insurance		78		83
Net gain on sale of premises and equipment		63		44
Rental income		98		105
Other		34		17

Total noninterest income		649		623

The accompanying notes are an integral part of these financial statements.

F-3


	2015			2014
Noninterest expense:
Compensation and employee benefits	$	2,369		$	2,327
Occupancy and equipment		743			761
Data processing and office expense		922			950
Foreclosed assets, net		276			17
Advertising and promotions		125			208
Professional fees		226			149
Examinations and assessments		128			154
Other		316			419

Total noninterest expense		5,105			4,985

Loss before income taxes		(679	)		(1,216	)
Provision for income taxes		—			—

Net loss	$	(679	)	$	(1,216	)


Earnings per share:
Basic		(.82	)		(.68	)*
Diluted		(.82	)		(.68	)*

*	Earnings per share for the year ended September 30, 2014, is adjusted to include the loss attributed to the period subsequent to the initial public offering for the common shares issued.

The accompanying notes are an integral part of these financial statements.

F-4

Home Bancorp Wisconsin, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income (Loss)

Years Ended September 30, 2015 and 2014 (Dollars in Thousands)


	2015			2014
Net loss	$	(679	)	$	(1,216	)

Other comprehensive income (loss), net of tax:
Unrealized gain on securities during the year		44			8
Reclassification adjustment for gains realized in net loss		(9	)		(20	)
Income tax effect		—			—

Net unrealized gain (loss) on securities		35			(12	)

Other comprehensive income (loss), net of tax		35			(12	)

Comprehensive loss	$	(644	)	$	(1,228	)

The accompanying notes are an integral part of these financial statements.

F-5

Home Bancorp Wisconsin, Inc. and Subsidiary

Consolidated Statements of Stockholders’ Equity

Years Ended September 30, 2015 and 2014 (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
Stock conversion proceeds, net		9		7,415			—			—			—			7,424
Net loss		—		—			(1,216	)		—			—			(1,216	)
Purchase of 71,935 shares by ESOP		—		—			—			(719	)		—			(719	)
Allocation of 2,158 Shares from ESOP		—		(2	)		—			21			—			19
Other comprehensive loss		—		—			—			—			(12	)		(12	)

Balance at September 30, 2014	$	9	$	7,413		$	6,050		$	(698	)	$	(8	)	$	12,766
Net loss		—		—			(679	)		—			—			(679	)
Allocation of 2,158 Shares from ESOP		—		(6	)		—			29			—			23
Other comprehensive loss		—		—			—			—			35			35

Balance at September 30, 2015	$	9	$	7,407		$	5,371		$	(669	)	$	27		$	12,145

The accompanying notes are an integral part of these financial statements.

F-6

Home Bancorp Wisconsin, Inc. and Subsidiary

Consolidated Statements of Cash Flows

Years Ended September 30, 2015 and 2014 (Dollars in Thousands)


	2015			2014
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net loss	$	(679	)	$	(1,216	)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation		249			259
Net amortization of premiums and discounts		35			27
ESOP compensation expense		23			19
Provision for loan losses		105			356
Net gain on sale of securities		(9	)		(20	)
Gain on sale of premises and equipment		(63	)		(44	)
Net loss on foreclosed assets		257			140
Increase in cash surrender value		(78	)		(83	)
Changes in operating assets and liabilities:
Loans held for sale		169			(320	)
Other assets		(53	)		549
Other liabilities		124			22

Total adjustments		759			905

Net cash provided by (used in) operating activities		80			(311	)

Cash flows from investing activities:
Net decrease (increase) in other interest-bearing deposits		2,545			(2,311	)
Purchases of securities available for sale		—			(6,888	)
Proceeds from sales of securities available for sale		1,281			2,307
Proceeds from maturities, prepayments, and calls of securities available for sale		3,890			3,494
Purchases of securities held to maturity		—			(2,194	)
Proceeds from maturities, prepayments, and calls of securities held to maturity		1,018			797
Net increase in loans		(25,447	)		(8,047	)
Purchases of FHLB stock		(144	)		—
Proceeds from sale of FHLB stock		150			—
Proceeds from sale of foreclosed assets		497			141
Proceeds from sale of premises and equipment		—			57
Capital expenditures		(38	)		(127	)

Net cash used in investing activities		(16,248	)		(12,771	)

The accompanying notes are an integral part of these financial statements.

F-7


Cash flows from financing activities:
Net increase (decrease) in deposits	$	8,035		$	(2,447	)
Net (decrease) increase in advance payments by borrowers for taxes and insurance		(37	)		58
Net (decrease) increase in federal funds purchased		(1,349	)		1,661
Net proceeds from open line advances		1,550			—
Proceeds from borrowings		6,500			—
Repayments of borrowed funds		(45	)		(500	)
Proceeds from issuance of common stock, net of cost		—			7,424
Shares acquired by employee stock ownership (ESOP)		—			(719	)

Net cash provided by financing activities		14,654			5,477

Net decrease in cash and cash equivalents		(1,514	)		(7,605	)
Cash and cash equivalents at beginning		4,047			11,652

Cash and cash equivalents at end	$	2,533		$	4,047

Supplemental cash flow information:
Cash paid during the year for interest	$	496		$	538
Noncash operating and investing activities:
Loans transferred to foreclosed assets	$	239		$	50

The accompanying notes are an integral part of these financial statements

F-8

Home Bancorp Wisconsin, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in Thousands, except per share data)

Note 1

Summary of Significant Accounting Policies

Nature of operations: Home Bancorp Wisconsin, Inc. (the Company) is a Maryland chartered corporation established in June 2013 to become the holding company for Home Savings Bank (the Bank) in connection with the Bank’s mutual-to-stock conversion. The Company’s business activity is the ownership of the Bank’s capital stock and the management of the offering proceeds it retained in connection with the Bank’s conversion. The Company owns 100% of the stock of the Bank. The Bank is a Wisconsin chartered savings bank that provides community banking services to customers in and around Madison, Wisconsin. The Bank accepts deposits and makes loans from our four full-service banking offices, with three offices located in Madison, Wisconsin, and our fourth office located in Stoughton, Wisconsin. The Bank emphasizes permanent and construction loans secured by real estate. Since the Bank’s operations rely heavily on mortgage banking activities, the Bank is exposed to risks relative to changing interest rates and their impact on loan demand. The Bank has a wholly owned subsidiary, Home Agency, Inc., which is no longer active. The Company is subject to competition from other financial institutions and non-financial institutions providing financial products. The Company is subject to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities. In the future, the Company may acquire or organize other operating subsidiaries; however, there are no current plans, arrangements, agreements or understandings, written or oral, to do so.

Principles of consolidation: The consolidated financial statements include the accounts of the Company and the Bank. All significant intercompany balances and transactions have been eliminated in consolidation.

Jumpstart Our Business Startups Act: The Jumpstart Our Business Startups Act (the JOBS Act), which was signed into law on April 5, 2012, has made numerous changes to the federal securities laws to facilitate access to capital markets. Under the JOBS Act, a company with total annual gross revenues of less than $1.0 billion during its most recently completed fiscal year qualifies as an “emerging growth company.” The Company qualifies as an “emerging growth company” and believes that it will continue to qualify as an “emerging growth company” until five years from completion of the initial stock offering. As an “emerging growth company,” the Company has elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, the financial statements may not be comparable to the financial statements of companies that comply with such new or revised accounting standards.

Use of estimates: The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, fair values of securities, foreclosed assets, fair value of financial instruments, and valuation of deferred tax assets. Actual results could differ from those estimates.

Cash and cash equivalents: For purposes of reporting cash flows in the consolidated financial statements, cash and cash equivalents include cash on hand and interest-bearing and non-interest-bearing accounts in other financial institutions, all of which have original maturities of three months or less.

Other Interest-Bearing Deposits: Other interest-bearing deposits consist of certificates of deposit and are carried at cost.

Securities: Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity and recorded at amortized cost. Securities not classified as held to maturity are classified as available for sale and are carried at fair value, with unrealized gains and losses reported in other comprehensive income (loss). Amortization of premiums and accretion of discounts are recognized in interest income using the interest method over the estimated lives of the securities. Gains and losses on the sale of securities are recorded on the trade date and determined using the specific-identification method.

Declines in fair value of securities that are deemed to be other than temporary, if applicable, are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers the length of time and the extent to which fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

F-9

Loans Held for Sale: Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.

Mortgage loans held for sale are sold with the mortgage servicing rights released by the Company. Gains or losses on sales of mortgage loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loan sold.

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 maintained at the level considered adequate by management to provide for losses that are probable. 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 Company’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 Company 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 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.

Troubled debt restructurings: Loans are accounted for as troubled debt restructurings when a borrower is experiencing financial difficulties that lead to a restructuring of the loan, and the Company grants a “concession” to the borrower that they would not otherwise consider. These concessions include a modification of terms such as a reduction of the stated interest rate or loan balance, a reduction of accrued interest, an extension of the maturity date at an interest rate lower than a current market rate for a new loan with similar risk, or some combination thereof to facilitate repayment. Troubled debt restructurings are considered impaired loans.

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. Costs relating to the development and improvement of property are capitalized; holding costs are charged to expense. 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. Revenue and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets.

Premises and Equipment: Land is carried at cost. Buildings and equipment are stated at cost less accumulated depreciation computed on the straight-line method over the estimated useful lives of the assets.

Federal Home Loan Bank (FHLB) Stock: FHLB stock is carried at cost. The Company is required to hold the stock as a member of FHLB, and transfer of the stock is substantially restricted. The stock is pledged as collateral for outstanding FHLB advances. FHLB stock is evaluated for impairment on an annual basis, and no impairment has been identified as a result of these reviews.

F-10

Transfers of Financial Assets: Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Rate Lock Commitments: The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (rate lock commitments). Rate lock commitments on mortgage loans that are intended to be sold are considered to be derivatives. Accordingly, such commitments, along with any related fees received from potential borrowers, are recorded at fair value in derivative assets or liabilities, with changes in fair value recorded in the net gain or loss on sale of mortgage loans. Fair value is based on fees currently charged to enter into similar agreements and, for fixed rate commitments, also considers the value of the servicing release premium and the difference between current levels of interest rates and the committed rates.

Income Taxes: Deferred tax assets and liabilities have been determined 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. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. Provision (credit) for deferred taxes is the result of changes in the deferred tax assets and liabilities.

The Company may also recognize a liability for unrecognized tax benefits from uncertain tax positions. Unrecognized tax benefits represent the differences between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured in the consolidated financial statements. Interest and penalties related to unrecognized tax benefits are classified as income taxes.

Employee Stock Ownership Plan: The Company has an employee stock ownership plan (ESOP) covering substantially all employees. The cost of shares issued to the ESOP, but not yet allocated to participants, is presented in the consolidated balance sheet as a reduction of stockholders’ equity. Compensation expense is recorded based on the market price of the shares as they are committed to be released for allocation to participant accounts.

Stock-based compensation: The Company adopted the Home Bancorp Wisconsin, Inc. 2015 Equity Incentive Plan (the Plan) in 2015. In June 2015, the Company’s stockholders approved the Plan which provides for the grant of stock options and restricted stock awards to eligible employees and outside directors of the Company. The Company registered 125,866 shares of the Company’s common stock for the issuance of common stock upon the exercise of stock options or the distribution of restricted stock awards.

Options are granted with an exercise price equal to no less than the market price of the Company’s shares at the date of grant. Those options generally vest over five years of service and have a 10-year contractual terms. Restricted stock awards typically vest over a five year period. As of September 30, 2015 there were no stock options or restricted stock awards granted under the Plan, as a result there are 125,866 options or restricted stock awards available for future grants.

Advertising: Advertising costs are expensed as incurred.

Other Comprehensive Income (Loss): Other comprehensive income (loss) is shown on the consolidated statements comprehensive income (loss). The Company’s accumulated other comprehensive income (loss) is composed of the unrealized gain on securities available for sale, net of tax and is shown on the consolidated statements of comprehensive income (loss). Reclassification adjustments out of other comprehensive income (loss) for gains realized on sales of securities available for sale comprise the entire balance of “net gain on sale of securities” on the consolidated statements of operations.

Off-Balance-Sheet Financial Instruments: In the ordinary course of business, the Company has entered into off-balance-sheet financial instruments including commitments to extend credit, unfunded commitments under lines of credit, and standby letters of credit. Such financial instruments are recorded in the consolidated financial statements when they become payable.

Segment Reporting: The Company views the Bank as one reporting segment, therefore, separate reporting of financial segment information is not considered necessary.

Reclassifications: Certain reclassifications have been made to the 2014 consolidated financial statements to conform to the 2015 classifications.

Subsequent Events: Management has reviewed the Company’s operations for potential disclosure or financial statement impacts related to events occurring after September 30, 2015, but prior to the release of these consolidated financial statements. Based on the results of this review, no subsequent event disclosure or financial statement impacts to these consolidated financial statements are required as of December 23, 2015.

Recent accounting pronouncements: In May 2015, FASB issued ASU No. 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value (“NAV”) per Share (or Its Equivalent). The new disclosure guidance eliminates the requirement to categorize investments measured using the net asset value practical expedient in the fair value hierarchy table. Entities will be required to disclose the fair value of investments measured using the net asset value

F-11

practical expedient so that financial statement users can reconcile amounts reported in the fair value hierarchy table to amounts reported on the balance sheet. This disclosure will be presented for interim and annual reporting periods beginning after December 15, 2015 on a retrospective basis. Early adoption is permitted. The adoption of this disclosure guidance is not expected to have a material impact our financial condition or results of operations.

In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-03, Interest-Imputation of Interest (subtopic 835-30): Simplify the Presentation of Debt Issuance Costs. The primary purpose of this new guidance is to present debt issuance costs as a direct deduction from the carrying amount of the debt liability. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. The adoption of the guidance is not expected to have a material impact on the consolidated financial statements or the Notes thereto.

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 supersedes 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. In August 2015, FASB issued ASU No. 2015-14 Revenue from Contracts with Customer (Topic 606), Deferral of the Effective Date. The amendment defers the effective date of ASU No. 2014-09 by one year. Adoption of ASU No. 2014-04 and ASU 2015-14 is not expected to have a material impact on the consolidated financial statements, but significant disclosures to the Notes thereto will be required.

In June 2014, FASB issued ASU No. 2014-12, Compensation-Stock Compensation: Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The new accounting guidance clarifies how to account for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. This accounting guidance will be effective for interim and annual reporting periods beginning after December 15, 2015 and can be implemented using either a retrospective method or a prospective method. Early adoption is permitted. The adoption of this accounting guidance is not expected to have a material effect on our financial condition or results of operations.

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.

F-12

Note 2

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:


	2015			2014*
Net loss	$	(679	)	$	(567	)

Basic potential common shares:
Weighted average shares outstanding		899,190			899,190
Weighted average unallocated Employee Stock Ownership Plan shares		(68,338	)		(69,777	)

Basic weighted average shares outstanding		830,852			829,413

Dilutive potential common shares		—			—

Dilutive weighted average shares outstanding		830,852			829,413

Basic earnings per share	$	(.82	)	$	(.68	)

Diluted earnings per share	$	(.82	)	$	(.68	)

*	Earnings per share for the year ended September 30, 2014, is adjusted to include the loss attributed to the period subsequent to the initial public offering for the common shares issued.

Note 3

Cash and Cash Equivalents

The Company is required to maintain reserve balances, in cash or on deposit with the Federal Reserve Bank, based on a percentage of deposits. The total required reserve balance as of September 30, 2015 and 2014 was approximately $501 and $434, respectively.

In the normal course of business, the Company maintains cash and due from bank balances with correspondent banks. Balances in these accounts may exceed the Federal Deposit Insurance Corporation’s insured limit of $250. Management believes these financial institutions have strong credit ratings and that the credit risk related to these deposits is minimal.

F-13

Note 4

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
September 30, 2015

Securities available for sale:
U.S. agency pass-through	$	2,738	$	27	$	—	$	2,765

Securities held to maturity:
U.S. agency pass-through	$	2,870	$	63	$	—	$	2,933


	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

F-14

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.

There were no securities in an unrealized loss position At September 30, 2015.

The following table shows the fair value and gross unrealized losses of securities with unrealized losses at September 30, 2014, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:


	Less Than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Securities available for sale:
U.S. agency notes	$	1,488	$	12	$	—	$	—	$	1,488	$	12
U.S. agency pass-through		2,243		16		—		—		2,243		16

Totals	$	3,731	$	28	$	—	$	—	$	3,731	$	28

At September 30, 2014, eight debt securities have unrealized losses with aggregate depreciation of less than 1% from the Company’s amortized cost basis. In analyzing whether unrealized losses on debt securities are other than temporary, management considers whether the securities are issued by a government body or agency, whether a rating agency has downgraded the securities, industry analysts’ reports, the financial condition and performance of the issuer, and the quality of any underlying assets or credit enhancements. Since management has the ability to hold debt securities for the foreseeable future, no declines are deemed to be other than temporary.

The following is a summary of amortized cost and estimated fair value of debt securities by contractual maturity as of September 30, 2015. Contractual maturities will differ from expected maturities because borrowers may have the right to call or prepay obligations without penalties.


	Available for Sale				Held to Maturity
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due through one year	$	—	$	—	$	—	$	—
Due after one year through three years		—		—		—		—
Due after three years through five years		498		503		—		—
Due after five years through ten years		472		479		688		701
Due after ten years		1,768		1,783		2,182		2,232

Total	$	2,738	$	2,765	$	2,870	$	2,933

Following is a summary of the proceeds from sales of securities available for sale, as well as gross gains and losses, for the years ended September 30:


	2015		2014
Proceeds from sale of securities	$	1,281	$	2,307
Gross gains on sales		9		20

As of September 30, 2015 and 2014, no securities were pledged to secure public deposits or for other purposes required or permitted by law.

F-15

Note 5

Loans

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


	2015			2014
Commercial:
Commercial and industrial	$	2,182		$	1,662
Commercial real estate		19,595			19,273
Multifamily real estate		25,224			14,718
Construction		5,179			1,092
Residential real estate:
One- to four-family residential		48,284			37,076
Second mortgage		9,668			10,044
Consumer		2,311			2,470

Subtotals		112,443			86,335

Allowance for loan losses		(1,478	)		(1,403	)
Net deferred loan expenses		(51	)		(47	)
Undisbursed loan proceeds		(1,054	)		(128	)

Loans, net	$	109,860		$	84,757

Analysis of the allowance for loan losses for the years ended September 30, 2015 and 2014 follows:


	Commercial			Residential			Consumer			Totals
Balance at September 30, 2013		637			480			29			1,146
Provision for loan losses		240			120			(4	)		356
Loans charged off		(1	)		(100	)		(13	)		(114	)
Recoveries of loans previously charged off		1			4			10			15

Balance at September 30, 2014	$	877		$	504		$	22		$	1,403

Provision for loan losses		53			37			15			105
Loans charged off		—			(21	)		(16	)		(37	)
Recoveries of loans previously charged off		—			2			5			7

Balance at September 30, 2015	$	930		$	522		$	26		$	1,478

Allowance for loan losses at September 30, 2015:
Individually evaluated for impairment	$	142		$	34		$	—		$	176
Collectively evaluated for impairment		788			488			26			1,302

Totals	$	930		$	522		$	26		$	1,478

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

F-16

Analysis of loans evaluated for impairment as of September 30, 2015 and 2014, follows:


	Commercial		Residential		Consumer		Totals
Loans at September 30, 2015:
Individually evaluated for impairment	$	847	$	845	$	—	$	1,692
Collectively evaluated for impairment		51,333		57,107		2,311		110,751

Totals	$	52,180	$	57,952	$	2,311	$	112,443

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 September 30, 2015, follows:


	Recorded Investment		Principal Balance		Related Allowance		Average Investment		Interest Recognized
Loans with no related allowance for loan losses:
Commercial and industrial	$	80	$	80		N/A	$	81	$	—
Commercial real estate		532		532		N/A		553		33
One-to four-family		473		473		N/A		470		30

Totals		1,085		1,085		N/A		1,104		63

Loans with an allowance for loan losses:
Commercial and industrial		158		158		129		159		—
Construction		77		77		13		77		4
One-to four-family		372		372		34		375		22

Totals		607		607		176		611		26

Grand totals	$	1,692	$	1,692	$	176	$	1,715	$	89

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
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
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.

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.

F-17

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.

Information regarding the credit quality indicators most closely monitored for commercial loans by class as of September 30, 2015 and 2014, follows:


	Pass		Special Mention/ Watch		Substandard		Doubtful		Totals
September 30, 2015

Commercial and industrial	$	1,944	$	—	$	238	$	—	$	2,182
Commercial real estate		17,990		1,073		532		—		19,595
Multifamily real estate		25,002		222		—		—		25,224
Construction		5,103		76		—		—		5,179

Totals	$	50,039	$	1,371	$	770	$	—	$	52,180

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

Information regarding the credit quality indicators most closely monitored for residential real estate and consumer loans by class as of September 30, 2015 and 2014, follows:


	Performing		Non-performing		Totals
September 30, 2015
One- to four-family	$	48,284	$	—	$	48,284
Second mortgage		9,652		16		9,668
Consumer		2,303		8		2,311

Totals	$	60,239	$	24	$	60,263

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

F-18

Loan aging information as of September 30, 2015, follows:


	Loans Past Due 30-89 Days		Loans Past Due 90+ Days		Total Past Due Loans
Commercial and industrial	$	—	$	80	$	80
Commercial real estate		—		62		62
Construction		—		—		—
One- to four-family		487		—		487
Second mortgage		46		16		62
Consumer		3		8		11

Totals	$	536	$	166	$	702


	Total Past Due Loans		Total Current Loans		Total Loans		Loans 90+ Days Past Due and Accruing Interest		Total Nonaccrual Loans
Commercial and industrial	$	80	$	2,102	$	2,182	$	—	$	80
Commercial real estate		62		19,533		19,595		—		62
Multifamily real estate		—		25,224		25,224		—		—
Construction		—		5,179		5,179		—		—
One- to four-family		487		47,797		48,284		—		—
Second mortgage		62		9,606		9,668		—		16
Consumer		11		2,300		2,311		—		8

Totals	$	702	$	111,741	$	112,443	$	—	$	166

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

F-19

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. Three new troubled debt restructurings were entered into during the year ended September 30, 2015; $262 on two one-to-four family residential real estate loans and $159 one commercial business loan. There were no differences between the pre- and post-modification investment in these loans.

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

One troubled debt restructuring was past due more than 30 days within 12 months of its modification date during the 12 months ended September 30, 2015. No troubled debt restructurings defaulted within 12 months of their modification during the 12 months ended September 30, 2014.

Note 6

Premises and Equipment

An analysis of premises and equipment at September 30, 2015 and 2014, is as follows:


	2015			2014
Land	$	1,675		$	1,675
Buildings		5,284			5,272
Furniture and equipment		1,441			1,415

Totals		8,400			8,362
Accumulated depreciation		(3,188	)		(2,939	)

Premises and equipment, net	$	5,212		$	5,423

Depreciation and amortization of premises and equipment charged to operating expense totaled $249 and $259 for the years ended September 30, 2015 and 2014, respectively.

The Company is leasing office space under a non-cancelable operating lease with an initial term of five years and options to extend the lease for two additional five-year periods. The Company pays for real estate taxes, insurance, and maintenance under this net lease. Rent expense under this lease was $113 and $106 for the years ended September 30, 2015 and 2014, respectively.

Future minimum rental payments under non-cancelable lease terms are as follows for each of the years ending September 30:


2016		92
2017		23

Total	$	115

Note 7

Time Deposits

Time deposits of $250 or more totaled approximately $3,167 and $252 at September 30, 2015 and 2014, respectively.

The scheduled maturities of time deposits for each of the years ending September 30 are summarized as follows:


2016	$	16,478
2017		4,405
2018		6,227
2019		1,482
2020		3,692
Thereafter		276

Total	$	32,560

F-20

Note 8

Borrowed Funds

Borrowed funds consisted of the following at September 30, 2015 and 2014:


	2015			2014
	Rates	Amount		Rates	Amount
Federal Home Loan Bank (FHLB):
Open line of credit	0.30%	$	1,550	—		—
Fixed rate fixed term	0.91 - 3.89%	$	11,455	3.05 - 3.89%	$	5,000

Total		$	13,005		$	5,000

The following is a summary of scheduled maturities of fixed rate borrowed funds for each of the years ending September 30:


	Fixed Rate Fixed Term Advances
	Weighted Average Rate			Amount
2016		1.87	%		297
2017		2.05	%		2,287
2018		2.12	%		2,292
2019		3.17	%		4,298
2020		1.87	%		1,504
Thereafter		2.35	%		777

Total				$	11,455

Actual maturities may differ from the scheduled principal maturities because of call options on the various advances.

The Company has a master contract agreement with FHLB that provides for borrowing up to the lesser of 20 times the FHLB stock owned, a determined percentage of the book value of the Company’s qualifying real estate loans, or a determined percentage of the Company’s assets. FHLB provides both fixed and floating rate advances. Floating rates are tied to short-term market rates of interest, such as London InterBank Offered Rate (LIBOR), federal funds, or treasury bill rates. Advances with call provisions permit the FHLB to request payment beginning on the call date and quarterly thereafter. FHLB advances are subject to a prepayment penalty if they are repaid prior to maturity. The Company pledged approximately $22,633 and $21,463 of one- to four-family residential construction and residential real estate loans to secure FHLB advances as of September 30, 2015 and 2014, respectively.

FHLB advances are also secured by $646 and $652 of FHLB stock owned by the Company at September 30, 2015 and 2014, respectively.

At September 30, 2015, the Company’s available and unused portion of this borrowing agreement totaled approximately $3,208.

The Company also has an agreement with the Federal Reserve Bank’s Borrower in Custody program. Under this program, the Company has pledged approximately $8,220 and $8,880 of consumer and home equity loans at September 30, 2015 and 2014, respectively. There were no borrowings under this agreement at September 30, 2015, and September 30, 2014. At September 30, 2015, the Company’s available and unused portion of this borrowing agreement totaled approximately $7,097.

Note 9

Employee Benefit Plan

The Company sponsors a 401(k) profit sharing plan covering substantially all employees. Employees are allowed to make voluntary contributions to the plan up to 15% of their compensation. Matching contributions are at the discretion of the Company’s Board of Directors. Matching contributions were $34 and $31 for the years ended September 30, 2015 and 2014, respectively.

F-21

Note 10

Deferred Compensation

The Company has entered into various deferred compensation agreements with key officers. The liability outstanding under the agreements is $271 at September 30, 2015 and 2014. There was no expense recognized during the years ended September 30, 2015 and 2014.

Note 11

Income Taxes

The components of the provision for income taxes were as follows for the years ended September 30:


	2015			2014
Current tax expense:
Federal	$	—		$	—
State		—			—

Total current		—			—

Deferred tax expense (benefit):
Federal		(234	)		(433	)
State		(57	)		(110	)
Change in valuation allowance		291			543

Total deferred		—			—

Total provision for income taxes	$	—		$	—

A summary of the sources of differences between income taxes at the federal statutory rate and the provision for income taxes for the years ended September 30 follows:


	2015						2014
	Amount			% of Pretax Income			Amount			% of Pretax Income
Tax provision (benefit) at statutory rate	$	(230	)		(34.0	)	$	(413	)		(34.0	)
Increases (decreases) in taxes resulting from:
Bank-owned life insurance		(27	)		(3.9	)		(28	)		(2.3	)
State taxes		(38	)		(5.5	)		(72	)		(6.0	)
Other		4			0.6			(30	)		(2.4	)
Change in valuation allowance		291			42.8			543			44.7

Total provision for income taxes	$	—			—		$	—			—

F-22

Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. The major components of the net deferred tax asset as of September 30, 2015 and 2014 are presented below:


	2015			2014
Deferred tax assets:
Allowance for loan losses	$	630		$	589
Deferred gain on sale of building		29			54
Deferred compensation		107			107
Nonaccrued interest		—			8
Net operating loss carryforward		2,075			1,731
Alternative minimum tax carryforward		64			64
Unrealized gain on securities available for sale		—			3
Other		32			102

Total deferred tax assets		2,937			2,658

Deferred tax liabilities:
Premises and equipment		32			45
Rate lock commitment		8			4
FHLB stock		55			55
Unrealized gain on securities available for sale		9			—

Total deferred tax liabilities		104			104

Deferred tax asset before valuation allowance		2,833			2,554
Valuation allowance		(2,833	)		(2,554	)

Net deferred tax asset	$	—		$	—

The Company has federal and state net operating loss carryforwards totaling approximately $5,200 and $4,300, respectively, that may be applied against future federal and state taxable income and begin to expire in 2030. The Company has available alternative minimum tax credit carryforwards for federal tax purposes of approximately $64, which may be used indefinitely to reduce regular federal income taxes.

Deferred tax assets are deferred tax consequences attributable to deductible temporary differences and carryforwards. After the deferred tax asset has been measured using the applicable enacted tax rate and provisions of the enacted tax law, it is then necessary to assess the need for a valuation allowance. A valuation allowance is needed when, based on the weight of the available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized. As required by generally accepted accounting principles, available evidence is weighted heavily on cumulative losses with less weight placed on future projected profitability. Realization of the deferred tax asset is dependent on whether there will be sufficient future taxable income of the appropriate character in the period during which deductible temporary differences reverse or within the carryforward periods available under tax law. Based on the available evidence, valuation allowances of $2,842 and $2,551 were recognized as of September 30, 2015 and 2014, respectively while ($9) and $3 were the portion of the changes in net deferred tax asset related to changes that flowed through comprehensive loss, as of September 30, 2015 and 2014, respectively.

With few exceptions, the Company is no longer subject to federal or state examinations by tax authorities for years before 2010.

F-23

Note 12

Related-Party Transactions

A summary of loans to directors, executive officers, and their affiliates for the years ended September 30, is as follows:


	2015			2014
Balance at beginning	$	24		$	24
Adjustments due to changes in executive officers		—			(4	)
New loans		21			4
Repayments		(11	)		—

Balance at end	$	34		$	24

Deposits from directors, executive officers, and their affiliates totaled approximately $209 and $220 as of September 30, 2015 and 2014, respectively.

A director is a senior executive for a local public company that has been granted a $1 million line of credit in 2015. This line of credit has never been drawn upon.

Note 13

Regulatory Matters

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.

Federal and state banking agencies have adopted regulations that substantially amend the capital regulations currently applicable to us. The regulations implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act.

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

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

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

The new requirements also include changes in the risk-weights of assets to better reflect credit risk and other risk exposures. These include a 150% risk weight (increased from 100%) for certain high volatility commercial real estate acquisition, development and construction loans and for non-residential mortgage loans that are 90 days past due or otherwise in non-accrual status; a 20% (increased for 0%) credit conversion factor for the unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancellable; a 250% risk weight (increased form 100%) for mortgage servicing and deferred tax assets that are not deducted from capital; and increased risk weights (0% to 600%) for equity exposures.

In addition to the minimum common equity tier 1, tier 1 and total capital ratios, the Bank will have to maintain a capital conservation buffer consisting of additional common equity tier 1 capital greater than 2.5% to risk weighted assets above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions. This new capital conservation buffer requirement will be phased in beginning in January 2016 at 0.635% of risk-weighted assets and increasing each year until fully implemented in January 2019.

The FDIC’s prompt corrective action standards also changed effective January 1, 2015. Under the new standards, in order to be considered well-capitalized, the Bank must have a common equity tier 1 ratio of 6.5% (new), a tier 1 ratio of 8.0% (increased from 6.0%), a total risk-based capital ratio of 10.0% (unchanged) and a leverage ratio of 5.0% (unchanged). The Bank meets all these new requirements, including the full capital conservation buffer.

As of September 30, 2015, the Bank was well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since September 30, 2015, that management believes have changed the Bank’s category.

F-24

The Bank’s actual capital amounts and ratios as of September 30 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
September 30, 2015

Total capital (to risk-weighted assets)	$	12,277		13.5	%	³	$	7,275	³		8.0	%	³	$	9,094	³		10.0	%
Tier I capital (to risk-weighted assets)		11,136		12.2	%	³		5,456	³		6.0	%	³		7,275	³		8.0	%
Common equity tier 1 capital to risk-weighted assets		11,136		12.2	%	³		4,092	³		4.5	%	³		5,911	³		6.5	%
Tier I capital (to average assets)		11,136		8.3	%	³		5,357	³		4.0	%	³		6,697	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
September 30, 2015	$	12,277		9.2	%	$	8,012		6.0	%
September 30, 2014	$	12,822		10.7	%	$	7,166		6.0	%

Note 14

Commitments, Contingencies, and Credit Risk

Credit 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 instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.

The Company’s exposure to credit loss is represented by the contractual, or notional, amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance-sheet instruments. Since some of the commitments are expected to expire without being drawn upon and some of the commitments may not be drawn upon to the total extent of the commitment, the notional amount of these commitments does not necessarily represent future cash requirements.

F-25

The following commitments were outstanding at September 30:


	Notional Amount
	2015		2014
Commitments to extend credit	$	593	$	902
Unused lines of credit and credit card lines		9,919		11,682
Undisbursed portion of loan proceeds		2,297		128
Standby letters of credit		25		651

Commitments to extend credit (including undisbursed loans under rate lock commitments) are agreements to lend to a customer as long as there is no violation of any condition established in the contract. All of these commitments are at fixed rates. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The amount of collateral obtained upon extension of credit is based on management’s credit evaluation of the customer.

Unused commitments under lines of credit and credit card lines are commitments for possible future extensions of credit to existing customers. These lines of credit may or may not require collateral and may or may not contain a specific maturity date.

The undisbursed portion of loan proceeds represents undrawn amounts under construction loans. These loans are generally secured by real estate and generally have a specific maturity date.

Standby letters of credit are conditional lending commitments issued by the Company to guarantee the performance of a customer to a third party. Generally all standby letters of credit issued have expiration dates within one year. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company generally holds collateral supporting these commitments. Standby letters of credit are not reflected in the consolidated financial statements, since recording the fair value of these guarantees would not have a significant impact on the consolidated financial statements.

Legal Contingencies

Various legal claims arise from time to time in the normal course of business. In the opinion of management, any liability resulting from such proceedings would not have a material impact on the consolidated financial statements.

Concentration of Credit Risk

The majority of the Company’s loans and commitments have been granted to customers in the Company’s market area. The concentrations of credit by type are set forth in Note 4. The ability of the Company’s debtors to honor their contracts is dependent on the real estate and general economic conditions in this area. Management believes the diversity of the local economy will prevent significant losses in the event of an economic downturn.

Note 15

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.

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.

F-26

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.

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 September 30 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)
2015
Assets - Securities available for sale	$	2,765	$	—	$	2,765	$	—

2014
Assets - Securities available for sale	$	7,922	$	—	$	7,922	$	—

Information regarding the fair value of assets measured at fair value on a nonrecurring basis as of September 30 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)
2015
Loans	$	431	$	—	$	—	$	431
Foreclosed assets		260		—		—		260

Totals	$	691	$	—	$	—	$	691

2014
Loans	$	593	$	—	$	—	$	593
Foreclosed assets		775		—		—		775

Totals	$	1,368	$	—	$	—	$	1,368

F-27

Loans with a carrying amount of $607 and $825 were considered impaired and were written down to their estimated fair value of $431 and $593 as of September 30, 2015 and 2014, respectively. As a result, the Company recognized a specific valuation allowance against these impaired loans totaling $176 and $232 during the years ended September 30, 2015 and 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.

At September 30, 2015 and 2014, foreclosed assets with a fair value less estimated costs to sell of $260 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.

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.

F-28

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.

The carrying value and estimated fair value of financial instruments at September 30 follow:


	September 30, 2015
					Fair Value
	Carrying Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	2,533	$	2,533	$	—	$	—
Other interest-bearing deposits		5,011		—		—		5,037
Securities available for sale		2,765		—		2,765		—
Securities held to maturity		2,870		—		2,933		—
Loans held for sale		151		—		151		—
Loans		109,860		—		—		108,713
Accrued interest receivable		395		395		—		—
Cash value of life insurance		3,316		—		—		3,316
Federal Home Loan Bank stock		646		—		—		646

Financial liabilities:
Deposits	$	105,720	$	73,160	$	—	$	32,787
Advance payments by borrowers for taxes and insurance		793		793		—		—
Federal funds purchased		616		616		—		—
Borrowed funds		13,005		—		—		13,475
Accrued interest payable		55		55		—		—


	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.

F-29

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 16

Employee Stock Ownership Plan

The Company maintains a leveraged employee stock ownership plan (“ESOP”) that covers substantially all employees. The ESOP was established in conjunction with the Company’s stock offering completed in April 2014. The loan to fund the acquisition of stock by the ESOP was made by the Company. The Bank makes annual contributions to the ESOP equal to the ESOP’s debt service. The ESOP shares initially were pledged as collateral for this debt. As the debt is repaid, shares are released from collateral and allocated to active participants, based on the proportion of debt service paid in the year. 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.

As shares are committed to be released from collateral and allocated to active participants, the Company reports compensation expense equal to the current market price of the shares and the shares will become outstanding for earnings-per-shares (EPS) computations. During the year ended September 30, 2015, 2,158 shares, with an average fair value of $7.94 per share, were committed to be released resulting in ESOP compensation expense of $23 for the year ended September 30, 2015, 719 shares of the 2,158 shares committed to be released were released, along with the 2,158 shares previously committed to be released, to total 2,877 shares released. During the year ended September 30, 2014, 2,158 shares, with an average fair value of $9.11 per share, were committed to be released resulting in ESOP compensation expense of $19 for the year ended September 30, 2014. The ESOP shares as of September 30 were as follows:


	2015		2014
Allocated shares		2,877		—
Shares committed to be released and allocated to participants		2,158		2,158
Total unallocated shares		66,900		69,777
Total ESOP shares		71,935		71,935

F-30

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company