Home Bancorp Wisconsin, Inc. - FORM 10-Q

Attached files

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EX-31.2 - EXHIBIT 31.2 - Home Bancorp Wisconsin, Inc.	ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - Home Bancorp Wisconsin, Inc.	ex31-1.htm
EX-32 - EXHIBIT 32 - Home Bancorp Wisconsin, Inc.	ex32.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended December 31, 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 No. 000-55183

Home Bancorp Wisconsin, Inc.

(Exact name of registrant as specified in its charter)

Maryland	46-3383278
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

3762 East Washington Avenue, Madison, Wisconsin	53704
(Address of Principal Executive Offices)	Zip Code

(608) 282-6000

(Registrant’s telephone number)

N/A

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

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

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

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

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☐ (Do not check if smaller reporting company)	Smaller reporting company	☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

There were 899,190 shares of the Registrant’s common stock, par value $0.01 per share issued and outstanding as of February 8, 2016.

Home Bancorp Wisconsin, Inc.

Form 10-Q

Index

		Page
	Part I. Financial Information
Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of December 31, 2015 (unaudited) and September 30, 2015	2

	Condensed Consolidated Statements of Operations for the Three Months Ended December 31, 2015 and 2014 (unaudited)	3

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended December 31, 2015 and 2014 (unaudited)	4

	Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended December 31, 2015 and 2014 (unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2015 and 2014 (unaudited)	6

	Notes to Condensed Consolidated Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28

Item 4.	Controls and Procedures	28

	Part II. Other Information

Item 1.	Legal Proceedings	28

Item 1A.	Risk Factors	28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

Item 3.	Defaults upon Senior Securities	28

Item 4.	Mine Safety Disclosures	28

Item 5.	Other Information	28

Item 6.	Exhibits	28

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

Home Bancorp Wisconsin, Inc. and Subsidiary

Condensed Consolidated Balance Sheets

December 31, 2015 and September 30, 2015

(Dollars in Thousands)

	(Unaudited)
	December 31, 2015			September 30, 2015
Assets
Cash and due from banks	$	4,289		$	2,222
Interest-bearing deposits		964			311
Cash and cash equivalents		5,253			2,533
Other interest-bearing deposits		5,011			5,011
Securities available for sale		2,637			2,765
Securities held to maturity (fair value of $2,764 and $2,933 for December 31, 2015 and September 30, 2015, respectively)		2,729			2,870
Loans held for sale		1,185			151
Loans, net of allowance for loan losses of $1,482 and $1,478 for December 31, 2015 and September 30, 2015, respectively		112,497			109,860
Premises and equipment, net		5,221			5,212
Foreclosed assets		—			260
Cash value of life insurance		3,335			3,316
Federal Home Loan Bank stock		646			646
Other assets		834			902
TOTAL ASSETS	$	139,348		$	133,526

Liabilities and Stockholders’ Equity
Liabilities:
Demand deposits	$	34,709		$	30,055
Money market and savings deposits		44,248			43,105
Time deposits		32,544			32,560
Total deposits		111,501			105,720
Advance payments by borrowers for taxes and insurance		387			793
Federal funds purchased		517			616
Borrowed funds		12,960			13,005
Other liabilities		1,811			1,247
Total liabilities		127,176			121,381

Commitments and contingencies (Note 1)
Stockholders’ Equity:
Common stock $0.01 par value, 30,000,000 shares authorized; 899,190 shares issued and outstanding at December 31, 2015 and September 30, 2015	$	9		$	9
Additional paid-in capital		7,406			7,407
Retained earnings		5,423			5,371
Unearned Employee Stock Ownership Plan (ESOP) shares		(662	)		(669	)
Accumulated other comprehensive income (loss)		(4	)		27
Total stockholders’ equity		12,172			12,145

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	139,348		$	133,526

The accompanying notes are an integral part of these financial statements

Home Bancorp Wisconsin, Inc. and Subsidiary

Condensed Consolidated Statements of Operations

Three Months Ended December 31, 2015 and 2014

(Unaudited)

(Dollars in Thousands)

	Three Months Ended December 31,
	2015		2014

Interest and dividend income:
Loans, including fees	$	1,151	$	938
Interest-bearing deposits		25		33
Securities		28		54
Total interest and dividend income		1,204		1,025

Interest expense:
Deposits		85		68
Borrowed funds		74		47
Total interest expense		159		115

Net interest income		1,045		910
Provision for loan losses		5		30
Net interest income after provision for loan losses		1,040		880
Noninterest income:
Service fees		73		62
Mortgage banking income		36		25
Net gain (loss) on sale of securities		—		7
Increase in cash value of life insurance		19		20
Net gain on sale of premises and equipment		15		16
Rental income		24		26
Other		12		7
Total noninterest income		179		163

Noninterest expense:
Compensation and employee benefits		574		599
Occupancy and equipment		175		187
Data processing and office expense		224		234
Foreclosed assets, net		23		44
Advertising and promotions		26		28
Professional fees		60		31
Examinations and assessments		39		39
Other		46		62
Total noninterest expense		1,167		1,224

Income (loss) before income taxes		52		(181	)
Provision for income taxes		—		—
Net income (loss)	$	52	$	(181	)
Earnings per share:
Basic		.06		(.22	)
Diluted		.06		(.22	)

The accompanying notes are an integral part of these financial statements

Home Bancorp Wisconsin, Inc. and Subsidiary

Condensed Consolidated Statements of Comprehensive Income (Loss)

Three Months Ended December 31, 2015 and 2014

(Unaudited)

(Dollars in Thousands)

	Three Months Ended December 31,
	2015			2014

Net income (loss)	$	52		$	(181	)
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities		(31	)		27
Reclassification adjustment for (gains) losses realized in net loss		—			(7	)
Income tax effect		—			—
Net unrealized gain (loss) on securities		(31	)		20

Other comprehensive income (loss), net of tax		(31	)		20
Comprehensive income (loss)	$	21		$	(161	)

The accompanying notes are an integral part of these financial statements

Home Bancorp Wisconsin, Inc. and Subsidiary

Condensed Consolidated Statements of Stockholders’ Equity

Three Months Ended December 31, 2015 and 2014

(Unaudited)

(Dollars in Thousands)

	Common Stock		Additional Paid In Capital			Retained Earnings			Unearned ESOP Shares			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
Balance at October 1, 2014	$	9	$	7,413		$	6,050		$	(698	)	$	(8	)	$	12,766
Net loss		—		—			(181	)		—			—			(181	)
Allocation of 719 Shares from ESOP		—		(1	)		—			8			—			7
Other comprehensive loss		—		—			—			—			20			20
Balance at December 31, 2014	$	9	$	7,412		$	5,869		$	(690	)	$	12		$	12,612
Balance at October 1, 2015	$	9	$	7,407		$	5,371		$	(669	)	$	27		$	12,145
Net income		—		—			52			—			—			52
Allocation of 719 Shares from ESOP		—		(1	)		—			7			—			6
Other comprehensive loss		—		—			—			—			(31	)		(31	)
Balance at December 31, 2015	$	9	$	7,406		$	5,423		$	(662	)	$	(4	)	$	12,172

The accompanying notes are an integral part of these financial statements

Home Bancorp Wisconsin, Inc. and Subsidiary

Condensed Consolidated Statements of Cash Flows

Three Months Ended December 31, 2015 and 2014

(Unaudited)

(Dollars in Thousands)

	Three Months Ended December 31,
	2015			2014
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income (loss)	$	52		$	(181	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation		58			65
Net amortization of premiums and discounts		5			8
ESOP compensation expense		6			7
Provision for loan losses		5			30
Net gain on sale of securities		—			(7	)
Gain on sale of premises and equipment		(15	)		(16	)
Net loss on foreclosed assets		23			33
Increase in cash surrender value		(19	)		(20	)
Changes in operating assets and liabilities:
Loans held for sale		(1,034	)		(446	)
Other assets		68			51
Other liabilities		579			643
Total adjustments		(324	)		348
Net cash (used in) provided by operating activities		(272	)		167
Cash flows from investing activities:
Net increase in other interest-bearing deposits		—			655
Proceeds from sales of securities available for sale		—			836
Proceeds from maturities, prepayments, and calls of securities available for sale		93			1,221
Proceeds from maturities, prepayments, and calls of securities held to maturity		140			114
Net increase in loans		(2,642	)		(6,964	)
Proceeds from sale of foreclosed assets		237			127
Capital expenditures		(67	)		(3	)
Net cash used in investing activities		(2,239	)		(4,014	)
Cash flows from financing activities:
Net increase in deposits		5,781			1,653
Net decrease in advance payments by borrowers for taxes and insurance		(406	)		(451	)
Net increase (decrease) in federal funds purchased		(99	)		766
Proceeds from borrowings		—			1,500
Repayments of borrowed funds		(45	)		—
Net cash provided by (used in) financing activities		5,231			3,468
Net increase (decrease) in cash and cash equivalents		2,720			(379	)
Cash and cash equivalents at beginning		2,533			4,047
Cash and cash equivalents at end	$	5,253		$	3,668
Supplemental cash flow information:
Cash paid for interest	$	157		$	129
Noncash operating and investing activities:
Loans transferred to foreclosed assets	$	—		$	100

The accompanying notes are an integral part of these financial statements

Home Bancorp Wisconsin, Inc. and Subsidiary

Form 10-Q

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollars in Thousands, except per share data)

Note 1

Basis of Financial Statement Presentation

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

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial reporting and with instructions for Form 10-Q and Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the period. Actual results could differ from these estimates.

In the opinion of management, the preceding unaudited condensed financial statements contain all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial condition of the Company as of December 31, 2015 and September 30, 2015, and the results of its operations, comprehensive income (loss), and the statements of stockholders’ equity, and cash flows for the three months ended December 31, 2015 and 2014. These financial statements should be read in conjunction with the financial statements of the Company for the year ended September 30, 2015 included as part of Home Bancorp Wisconsin, Inc.’s 10-K dated December 23, 2015 as filed with the Securities and Exchange Commission.

The results of operations for the three month period ended December 31, 2015 are not necessarily indicative of the results that may be expected for the entire year. For further information, refer to the financial statements and footnotes thereto in the Annual Report on Form 10-K.

Note 2

New Accounting Pronouncements

In January 2016, Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The new standard makes a number of changes to the recognition and measurement standards of financial instruments, including the following changes: 1) equity securities with a readily determinable fair value will have to be measured at fair value with changes in fair value recognized in net income; 2) entities that are public business entities will no longer be required to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost; and 3) entities that are public business entities will be required to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. This new standard is effective for consolidated financial statements issued for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2017. The adoption of this new standard is not expected to have a material impact on our financial condition or results of operations, except that the Company will no longer disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments measured at amortized cost.

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 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 on our financial condition or results of operations.

In April 2015, FASB issued 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 Company adopted this guidance for the December 31, 2015 reporting period. Adoption of this standard reduced Other assets, and Time deposits by $27.

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 did not have a material impact on the consolidated financial statements or the Notes thereto.

In May 2014, FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The amendment supercedes and replaces nearly all existing revenue recognition guidance. Under the amended guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for annual and interim periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. 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 did not have a material effect on the Company’s operating results or financial condition.

Note 3

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 for the quarters ended December 31, 2015 and 2014:

	2015			2014
Net income (loss)	$	52		$	(181	)
Basic potential common shares:
Weighted average shares outstanding		899,190			899,190
Weighted average unallocated Employee Stock Ownership Plan shares		(66,540	)		(69,754	)
Basic weighted average shares outstanding		832,650			829,436

Dilutive potential common shares		—			—

Dilutive weighted average shares outstanding		832,650			829,436

Basic earnings per share	$	.06		$	(.22	)
Diluted earnings per share	$	.06		$	(.22	)

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
December 31, 2015

Securities available for sale:
U.S. agency pass-through	$	2,629	$	4	$	8	$	2,625

Securities held to maturity:
U.S. agency pass-through	$	2,729	$	35		—	$	2,764

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

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.

Note 5

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are generally 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.

The following table presents total loans by portfolio segment and class of loan as of December 31, 2015 and September 30, 2015:

	December 31, 2015			September 30, 2015
Commercial:
Commercial business	$	2,124		$	2,182
Commercial real estate		19,502			19,595
Multifamily real estate		27,076			25,224
Construction		5,050			5,179
Residential real estate:
One- to four-family residential		49,249			48,284
Second mortgage		9,097			9,668
Consumer		2,276			2,311

Subtotals		114,374			112,443

Allowance for loan losses		(1,482	)		(1,478	)
Net deferred loan expenses		(65	)		(51	)
Undisbursed loan proceeds		(330	)		(1,054	)

Loans, net	$	112,497		$	109,860

Analysis of the allowance for loan losses for the three months ended December 31, 2015 and 2014 follows:

	Commercial			Residential			Consumer			Totals
Balance at September 30, 2014	$	877		$	504		$	22		$	1,403
Provision for loan losses		96			(68	)		2			30
Loans charged off		—			—			(5	)		(5	)
Recoveries of loans previously charged off		—			—			1			1

Balance at December 31, 2014	$	973		$	436		$	20		$	1,429

Balance at September 30, 2015	$	930		$	522		$	26		$	1,478
Provision for loan losses		(72	)		75			2			5
Loans charged off		—			—			(3	)		(3	)
Recoveries of loans previously charged off		—			—			2			2

Balance at December 31, 2015	$	858		$	597		$	27		$	1,482

Allowance for loan losses at December 31, 2015:
Individually evaluated for impairment	$	171		$	31		$	—		$	202
Collectively evaluated for impairment		687			566			27			1,280

Totals	$	858		$	597		$	27		$	1,482

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

Analysis of loans evaluated for impairment as of December 31, 2015 and September 30, 2015, follows:

	Commercial		Residential		Consumer		Totals
Loans at December 31, 2015:
Individually evaluated for impairment	$	832	$	786	$	—	$	1,618
Collectively evaluated for impairment		52,920		57,560		2,276		112,756

Totals	$	53,752	$	58,346	$	2,276	$	114,374

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

Information regarding impaired loans as of December 31, 2015, follows:

	Recorded Investment		Principal Balance		Related Allowance		Average Investment		Interest Recognized
Loans with no related allowance for loan losses:
Commercial real estate	$	518	$	518		N/A	$	525	$	8
One-to four-family		618		618		N/A		619		9

Totals		1,136		1,136		N/A		1,144		17

Loans with an allowance for loan losses:
Commercial business		238		238		163		238	$	1
Construction		76		76		8		76		1
One-to four-family		168		168		31		169		1

Totals		482		482		202		483		3

Grand totals	$	1,618	$	1,618	$	202	$	1,627	$	20

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 business	$	80	$	800		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 business		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

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.

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 collectability 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 December 31, 2015 and September 30, 2015, follows:

	Pass		Special Mention/ Watch		Substandard		Doubtful		Totals
December 31, 2015

Commercial business	$	1,886	$	—	$	238	$	—	$	2,124
Commercial real estate		17,996		988		518		—		19,502
Multifamily real estate		16,854		222		—		—		27,076
Construction		4,974		76		—		—		5,050

Totals	$	51,710	$	1,286	$	756	$	—	$	53,752

September 30, 2015

Commercial business	$	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

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

	Performing		Non- performing		Totals
December 31, 2015

One- to four-family	$	49,216	$	33	$	49,249
Second mortgage		9,081		16		9,097
Consumer		2,268		8		2,276

Totals	$	60,565	$	57	$	60,622

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

Loan aging information as of December 31, 2015, follows:

	Loans Past Due 30-89 Days		Loans Past Due 90+ Days		Total Past Due Loans
Commercial business	$	—	$	80	$	80
Commercial real estate		—		62		62
Multifamily real estate		—		—		—
Construction		—		—		—
One- to four-family		224		33		257
Second mortgage		58		16		74
Consumer		11		8		19

Totals	$	293	$	199	$	492

	Total Past Due Loans		Total Current Loans		Total Loans		Loans 90+ Days Past Due and Accruing Interest		Total Nonaccrual Loans
Commercial business	$	80	$	2,044	$	2,124	$	—	$	80
Commercial real estate		62		19,440		19,502		—		62
Multifamily real estate		—		27,076		27,076		—		—
Construction		—		5,050		5,050		—		—
One- to four-family		257		48,992		49,249		—		33
Second mortgage		74		9,023		9,097		—		16
Consumer		19		2,257		2,276		—		8

Totals	$	492	$	113,882	$	114,374	$	—	$	199

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 business	$	—	$	80	$	80
Commercial real estate		—		62		62
Multifamily real estate		—		—		—
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 business	$	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

When, for economic or legal reasons related to the borrower’s financial difficulties, the Company grants a concession to the borrower that the Company would not otherwise consider, the modified loan is classified as a troubled debt restructuring. Loan modifications may consist of forgiveness of interest and/or principal, a reduction of the interest rate, interest-only payments for a period of time, and/or extending amortization terms. No new troubled debt restructurings were entered into during the three months ended December 31, 2015.

During the year ended and as of September 30, 2015, there were three new troubled debt restructurings; $262 on two one-to-four family residential real estate loans and $159 on one commercial business loan.

No troubled debt restructurings defaulted within 12 months of their modification date during the three months ended December 31, 2015 and one troubled debt restructuring was past due more than 30 days within 12 months of its modification date during the year ended September 30, 2015.

Note 6

Regulatory Capital Ratios

The Bank is subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

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 from 0%) credit conversion factor for the unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancellable; a 250% risk weight (increased 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.

At December 31, 2015 and September 30, 2015, the Bank was well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since December 31, 2015, that management believes have changed the Bank’s category.

The Bank’s actual capital amounts and ratios as of December 31, 2015 and September 30, 2015 are presented in the following table:

	Actual						For Capital Adequacy Purposes							To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio				Amount			Ratio				Amount			Ratio
December 31, 2015

Total capital (to risk-weighted assets)	$	12,364		13.2	%	>	$	7,522	>		8.0	%	>	$	9,403	>		10.0	%
Tier I capital (to risk-weighted assets)		11,189		11.9	%	>		5,642	>		6.0	%	>		7,522	>		8.0	%
Common equity tier 1 capital (to risk-weighted assets)		11,189		11.9	%	>		4,231	>		4.5	%	>		6,112	>		6.5	%
Tier I capital (to average assets)		11,189		8.2	%	>		5,476	>		4.0	%	>		6,846	>		5.0	%

September 30, 2015

Total capital (to risk-weighted assets)	$	12,277		13.5	%	>	$	7,275	>		8.0	%	>	$	9,094	>		10.0	%
Tier I capital (to risk-weighted assets)		11,136		12.2	%	>		5,456	>		6.0	%	>		7,275	>		8.0	%
Common equity tier 1 capital (to risk-weighted assets)		11,136		12.2	%	>		4,092	>		4.5	%	>		5,911	>		6.5	%
Tier I capital (to average assets)		11,136		8.3	%	>		5,357	>		4.0	%	>		6,697	>		5.0	%

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

	Actual Net Worth					Required Net Worth
	Amount		Ratio			Amount		Ratio
December 31, 2015	$	12,364		9.0	%	$	8,361		6.0	%
September 30, 2015		12,277		9.2			8,012		6.0

Note 7

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.

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 December 31, 2015 and September 30, 2015 follows:

			Recurring Fair Value Measurements Using
	Assets Measured at Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2015
Assets - Securities available for sale	$	2,625	$	—	$	2,625	$	—
September 30, 2015
Assets - Securities available for sale	$	2,765	$	—	$	2.765	$	—

Information regarding the fair value of assets measured at fair value on a nonrecurring basis as of December 31, 2015 and September 30, 2015 follows:

			Nonrecurring Fair Value Measurements Using
	Assets Measured at Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2015
Loans	$	279	$	—	$	—	$	279
Totals	$	279	$	—	$	—	$	279
September 30, 2015
Loans	$	431	$	—	$	—	$	431
Foreclosed assets		260		—		—		260
Totals	$	691	$	—	$	—	$	691

Loans with a carrying amount of $482 and $607 were considered impaired and were written down to their estimated fair value of $279 and $431 as of December 31, 2015 and September 30, 2015, respectively. As a result, the Company recognized a specific valuation allowance against these impaired loans totaling $202 and $176 during the three months ended December 31, 2015 and the year ended September 30, 2015, 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 December 31, 2015 and September 30, 2015, foreclosed assets with a fair value less estimated costs to sell of $0 and $260, 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.

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 December 31, 2015 and September 30, 2015 follow:

	December 31, 2015
			Fair Value
	Carrying Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	5,253	$	5,253	$	—	$	—
Other interest-bearing deposits		5,011		—		—		5,030
Securities available for sale		2,637		—		2,637		—
Securities held to maturity		2,729		—		2,764		—
Loans held for sale		1,185		—		1,185		—
Loans		112,497		—		—		111,188
Accrued interest receivable		392		392		—		—
Cash value of life insurance		3,335		—		—		3,335
Federal Home Loan Bank stock		646		—		—		646

Financial liabilities:
Deposits	$	111,501	$	78,957	$	—	$	32,656
Advance payments by borrowers for taxes and insurance		387		387		—		—
Federal funds purchased		517		517		—		—
Borrowed funds		12,960		—		—		13,272
Accrued interest payable		55		55		—		—

	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		—		—

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.

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 8

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 three months ended December 31, 2015, 719 shares, with an average fair value of $7.93 per share, were committed to be released resulting in ESOP compensation expense of $6 for the three months ended December 31, 2015. During the three months ended December 31, 2014 the 719 shares committed to be released were released, along with the 2,158 shares previously committed to be released, to total 2,877 shares released. ESOP compensation expense of $7 was recorded for the three months ended December 31, 2014. The ESOP shares as of December 31, 2015 and September 30, 2015 were as follows:

	December 31, 2015		September 30, 2015
Allocated shares		2,877		2,877
Shares committed to be released and allocated to participants		2,877		2,158
Total unallocated shares		66,181		66,900
Total ESOP shares		71,935		71,935

Note 9

Subsequent Events

Management has reviewed operations for potential disclosure of information or financial statement impacts related to events occurring after December 31, 2015 but prior to the release of these financial statements.

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

Home Bancorp Wisconsin, Inc. and Subsidiary

Form 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

•

statements of our goals, intentions and expectations;

•

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

•

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

•

estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

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

•

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

•

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

•

competition among depository and other financial institutions;

•

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

•

adverse changes in the securities markets;

•

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

•

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

•

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

•

changes in consumer spending, borrowing and savings habits;

•

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

•

changes in our organization, compensation and benefit plans; and

•

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

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

Critical Accounting Policies

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

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

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

The analysis has two components, specific and general allocations. Specific percentage allocations can be made for unconfirmed losses related to loans that are determined to be impaired. Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. If the fair value of the loan is less than the loan’s carrying value, a charge is recorded for the difference. The general allocation is determined by segregating the remaining loans by type of loan, risk weighting (if applicable) and payment history. Loan types are segregated into 1-4 family residential real estate, multifamily real estate, commercial real estate, real estate construction, home equity loans and lines of credit, commercial business, and consumer. We also analyze historical loss experience, delinquency trends, general economic conditions and geographic and industry concentrations. This analysis establishes factors that are applied to the loan groups to determine the amount of the general reserve. Actual loan losses may be significantly more than the allowances we have established which could result in a material negative effect on our financial results.

Securities Valuation and Impairment. We classify our investments in debt and equity securities as either held-to-maturity or available-for-sale. Securities classified as held-to maturity are recorded at cost or amortized cost. Available-for-sale securities are carried at fair value. We obtain our fair values from a third party service. This service’s fair value calculations are based on quoted market prices when such prices are available. If quoted market prices are not available, estimates of fair value are computed using a variety of techniques, including extrapolation from the quoted prices of similar instruments or recent trades for thinly traded securities, fundamental analysis, or through obtaining purchase quotes. Due to the subjective nature of the valuation process, it is possible that the actual fair values of these investments could differ from the estimated amounts, thereby affecting our financial position, results of operations and cash flows. If the estimated value of investments is less than the cost or amortized cost, we evaluate whether an event or change in circumstances has occurred that may have a significant adverse effect on the fair value of the investment. If such an event or change has occurred and we determine that the impairment is other-than-temporary, we expense the impairment of the investment in the period in which the event or change occurred. We also consider how long a security has been in a loss position in determining if it is other than temporarily impaired. Management also assesses the nature of the unrealized losses taking into consideration factors such as changes in risk-free interest rates, general credit spread widening, market supply and demand, creditworthiness of the issuer, and quality of the underlying collateral. At December 31, 2015, 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.

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. We assessed our operating results during fiscal 2008 through December 31, 2015, estimated future operating results, tax planning strategies and the timing of reversals of temporary differences. At September 30, 2015, and again at December 31, 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. 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.

Overview

For the three months ended December 31, 2015, we had net income of $52,000, a $233,000 improvement from the $181,000 net loss for the quarter ended December 31, 2014. Operating results improved in all major income statement categories; net interest income, provision for loan loss, noninterest income, and noninterest expense. Net interest income increased by $135,000 for the quarter ended December 31, 2015, compared to the quarter ended December 31, 2014. In addition, the provision for loan losses decreased by $25,000 for the quarter ended December 31, 2015 compared to the quarter ended December 31, 2014, as credit quality continued to improve. Noninterest income increased $16,000 and noninterest expense decreased by $57,000 for the quarter ended December 31, 2015 compared to the quarter ended December 31, 2014.

Total assets increased $5.8 million, or 4.4%, to $139.3 million at December 31, 2015 from $133.5 million at September 30, 2015. Loans, net increased $2.6 million, or 2.4%, to $112.5 million and cash and due from banks increased $2.1 million, or 93.0%, to $4.3 million. The Company had no foreclosed assets at December 31, 2015.

Based on the above and the growth achieved to date, we anticipate additional growth and net income pursuant to our business plan. Assuming the successful execution of our business plan, we anticipate that we will continue to be profitable in upcoming quarters. There are no assurances, however, that we will successfully execute our business plan and be able to continue achieving profitable quarterly results.

Comparison of Financial Condition at December 31, 2015 and September 30, 2015

Total assets increased $5.8 million, or 4.4% to $139.3 million at December 31, 2015 from $133.5 million at September 30, 2015. Net loans increased by $2.6 million and loans held for sale increased by $1.0 million, as total investment securities decreased by $269,000 and cash and cash equivalents increased by $2.7 million.

Cash and cash equivalents increased $2.7 million, or 107.4%, to $5.3 million at December 31, 2015.

Net loans, excluding loans held for sale, increased by $2.6 million, or 2.4%, to $112.5 million at December 31, 2015 from $109.9 million at September 30, 2015. The increase in net loans during the three months ended December 31, 2015 was primarily the result of a $1.9 million increase in multifamily real estate loans and a $1.0 million increase in one- to four-family residential mortgage loans, partially offset by a $129,000 decrease in construction loans, and a $571,000 decrease in second mortgage loans on residential real estate.

Loans held for sale increased by $1.0 million, or 684.8%, to $1.2 million from $151,000 at September 30, 2015. The increase in loans held for sale represents the timing of loan originations and loan sales.

Total investment securities decreased $269,000, or 4.8%, to $5.4 million at December 31, 2015. Securities available for sale decreased $128,000, while securities held to maturity decreased by $141,000.

Our investment in bank-owned life insurance increased $19,000 to $3.3 million during the three months ended December 31, 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 $260,000 to $0 at December 31, 2015.

Total deposits increased $5.8 million, or 5.5%, to $111.5 million at December 31, 2015 from $105.7 million at September 30, 2015. As part of our plan we continued our efforts to increase core deposits, which we consider to be all deposits except brokered deposits. Demand deposits increased $4.7 million, or 15.1%, and money market and savings deposits increased $1.1 million, or 2.7%, while time deposits decreased $16,000, during the three months ended December 31, 2015.

Advance payments by borrowers for taxes and insurance decreased $406,000, or 51.2%, as many of these balances were used to pay 2015 property taxes.

Our borrowings consist predominantly of Federal Home Loan Bank of Chicago advances. Federal Home Loan Bank advances decreased by $45,000, or 0.3%, to $13.0 million at December 31, 2015. At December 31, 2015, and September 30, 2015, we also had $517,000 and $616,000 of overnight federal funds, respectively.

Other liabilities increased $564,000 to $1.8 million on December 31, 2015.

Total equity increased $27,000, or 0.2%, to $12.2 million at December 31, 2015 from $12.1 million at September 30, 2015. The increase was primarily due to the $52,000 net income for the three months ended December 31, 2015. Total equity was also impacted by the recognition of earned ESOP of $6,000 and a $31,000 decrease in accumulated other comprehensive income.

Comparison of Results of Operations for the three months ended December 31, 2015 and 2014

General. We recorded net income of $52,000 for the three months ended December 31, 2015, compared to a net loss of $181,000 for the three months ended December 31, 2014. Operating results improved in all major income statement categories; net interest income, provision for loan loss, noninterest income, and noninterest expense. Net interest income increased by $135,000 for the quarter ended December 31, 2015, compared to the quarter ended December 31, 2014. In addition, the provision for loan losses decreased by $25,000 for the quarter ended December 31, 2015 compared to the quarter ended December 31, 2014, as credit quality continued to improve. Noninterest income increased $16,000 and noninterest expense decreased by $57,000 for the first quarter of fiscal 2016 compared to the first quarter of fiscal 2015.

Net Interest Income. Net interest income increased $135,000, or 14.8%, to $1.0 million for the three months ended December 31, 2015 from $910,000 for the three months ended December 31, 2014. The increase in net interest income resulted from an increase of $179,000 in interest and dividend income partially offset by an increase of $44,000 in interest expense.

Interest and Dividend Income. Interest and dividend income increased $179,000, or 17.5%, to $1.2 million for the three months ended December 31, 2015 from $1.0 million for the three months ended December 31, 2014. The increase resulted from a $213,000 increase in interest income on loans partially offset by a $34,000 decrease in interest and dividend income on interest-bearing deposits and securities.

Interest income on loans increased $213,000, or 22.7%, to $1.2 million for the quarter ended December 31, 2015 from $938,000 for the quarter ended December 31, 2014. This increase resulted from a $25.2 million increase in the average balance of loans to $113.2 million that was partially offset by an 18 basis point decrease in the average yield on loans to 4.02% for the quarter ended December 31, 2015 from 4.20% for the quarter ended December 31, 2015.

Interest income on interest-bearing deposits and other interest-bearing deposits decreased $8,000, or 24.2%, to $25,000 for the three month period ended December 31, 2015 from $33,000 for the three month period ended December 31, 2014.

Interest and dividend income on investment securities decreased by $26,000 to $28,000 for the quarter ended December 31, 2015 from $54,000 for the quarter ended December 31, 2014. The decrease was due to a $5.3 million decrease in the average balance of investment securities to $5.5 million for the quarter ended December 31, 2015 and a 3 basis point decrease in the average yield on investment securities to 1.94%.

Interest Expense. Interest expense, consisting of interest-bearing deposits and borrowings, increased $44,000, or 38.3%, to $159,000 for the quarter ended December 31, 2015 from $115,000 for the quarter ended December 31, 2014. The increase was due to a $17,000, or 25.0%, increase in the cost of interest-bearing deposits and a $27,000, or 57.4%, increase in the cost of borrowings. At December 31, 2015, our borrowings consisted of $13.0 million of Federal Home Loan Bank of Chicago advances and $517,000 of overnight federal funds.

The $17,000 increase in interest expense from deposits was largely the result of a $20,000 increase in interest expense from certificates of deposit. The average balance of certificates of deposit increased $6.4 million for the quarter ended December 31, 2015 compared to the quarter ended December 31, 2014, while the average cost of such deposits increased to 0.88% from 0.79% for the same periods, respectively.

The cost of borrowings increased $27,000, or 57.4%, to $74,000 for the quarter ended December 31, 2015 from $47,000 for the quarter ended December 31, 2014. The increase was due to a $7.8 million increase in average borrowings, partially offset by an 0.87% reduction in average borrowing rates to 2.07% from 2.94%.

Provision for Loan Losses. We recorded a provision for loan losses of $5,000 for the three months ended December 31, 2015, compared to a provision for loan losses of $30,000 for the three months ended December 31, 2014. The decrease in the provision for loan losses was primarily due to a reduction in historical loan losses. The allowance for loan losses increased $4,000 in the three months ended December 31, 2015 as the $5,000 provision for loan losses and the $2,000 recoveries on previously charged off loans was partially offset by net loan charge offs totaling $3,000.

Noninterest Income. Noninterest income increased $16,000 to $179,000 for the three months ended December 31, 2015, compared to $163,000 for the three months ended December 31, 2014. The growth for the quarter ended December 31, 2015 compared to the quarter ended December 31, 2014 was primarily due to an $11,000 increase in service fees to $73,000 and an $11,000 increase in mortgage banking income to $36,000, partially offset by a $7,000 decrease in net gain on sale of securities

Noninterest Expense. Noninterest expense decreased $57,000, or 4.7%, to $1.2 million for the three months ended December 31, 2015 compared to the three months ended December 31, 2014. The largest component decreases were compensation which decreased $25,000 from $599,000 and noninterest expenses on foreclosed assets which decreased $21,000 from $44,000. These decreases and others were partially offset by an increase of $29,000 in professional fees.

Income Tax Expense. We recorded no income tax benefit or expense for the three months ended December 31, 2015 and 2014 and maintain a valuation allowance on our deferred tax asset.

Liquidity and Capital Resources

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, scheduled amortization and prepayments of loan principal and mortgage-backed securities, maturities and calls of investment securities and funds provided by our operations. In addition, we have the ability to borrow from the Federal Home Loan Bank of Chicago. At December 31, 2015, we had $13.0 million in borrowings from the Federal Home Loan Bank of Chicago. At that same date, we had the capacity to borrow an additional $13.4 million from the Federal Home Loan Bank of Chicago, subject to our pledging sufficient assets. At December 31, 2015, we had $517,000 in federal funds purchased, we also had the ability to borrow an additional $1.3 million through Bankers Bank’s agent federal funds program. In addition, we have authority to borrow $6.8 million from the Federal Reserve’s “discount window,” but Federal Reserve policy generally requires savings institutions to exhaust all other sources before borrowing from the Federal Reserve.

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

Our primary investing activity is the origination of loans. We have also purchased investment securities in executing our business strategy to invest some of our excess liquidity in investment securities. Our loans, net of allowance for loan losses, increased $2.6 million during the three months ended December 31, 2015.

Total deposits increased $5.8 million during the three months ended December 31, 2015. Deposit flows are affected by the level of interest rates, the interest rates and products offered by competitors and other factors. At December 31, 2015, certificates of deposit scheduled to mature within one year totaled $17.0 million. Our ability to retain these deposits will be determined in part by the interest rates we are willing to pay on such deposits. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before December 31, 2016. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.

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.

At December 31, 2015, the Bank’s capital levels exceeded the levels required to be considered “well capitalized” under federal regulations.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

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

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

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

As of December 31, 2015, there were no material changes in interest rate risk from the analysis disclosed in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on December 23, 2015. The 25 basis point discount rate change on December 17, 2015 was considered in the interest rate risk analysis disclosed in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on December 23, 2015.

Item 4.

Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of the period covered by this report. Based upon such evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

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

Home Savings Bank

Part II — Other Information

Item 1.

Legal Proceedings

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

Item 1A.

Risk Factors

For information regarding the Company’s risk factors, see “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended September 30, 2015 as filed with the Securities and Exchange Commission on December 23, 2015. As of December 31, 2015, the risk factors of the Company have not changed materially from those disclosed in the Form 10-K.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

None.

Item 6.

Exhibits

31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Balance Sheets as of December 31, 2015 and September 30, 2015, (ii) the Statements of Income for the three months ended December 31, 2015 and 2014, (iii) the Statements of Comprehensive Income for the three months ended December 31, 2015 and 2014, (iv) the Statements of Stockholders’ Equity for the three months ended December 31, 2015 and 2014, (v) the Statements of Cash Flows for the three months ended December 31, 2015 and 2014, and (vi) the Notes to the Financial Statements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		HOME BANCORP WISCONSIN, INC.

Date: February 8, 2016		/s/ James R. Bradley
		James R. Bradley
		President and Chief Executive Officer

Date: February 8, 2016		/s/ Mark A. Fritz
		Mark A. Fritz
		Senior Vice President and Chief Financial Officer

Home Bancorp Wisconsin, Inc. - FORM 10-Q - February 8, 2016

Attached files

Home Bancorp Wisconsin, Inc. Reports