S-1: EWSB Bancorp Files for IPO, Aiming to Raise Up to $11.6 Million

EWSB Bancorp, the proposed holding company for East Wisconsin Savings Bank, has filed an S-1 registration statement for a mutual-to-stock conversion, seeking to raise up to $11.6 million through a common stock offering.

Summary

• EWSB Bancorp, Inc., the proposed holding company for East Wisconsin Savings Bank, is offering shares of common stock for sale in connection with the bank's conversion from a mutual holding company to a stock holding company.
• The company is offering up to 1,006,250 shares of common stock at $10.00 per share, with a minimum of 743,750 shares required to be sold.
• Due to demand or market changes, the company may sell up to 1,157,188 shares.
• Eligible members of the MHC, the bank's tax-qualified employee benefits plan, and residents of specific Wisconsin counties will have priority in purchasing shares.
• The estimated market value of New EWSB Bancorp, as of February 23, 2024, is $8.8 million, with a valuation range from $7.4 million to $10.1 million.
• The company intends to contribute at least 50% of the net proceeds from the offering to the Bank.
• The company does not currently intend to pay cash dividends.
• The company qualifies as an emerging growth company under the JOBS Act and may take advantage of certain reduced reporting requirements.

Sentiment

Score: 5

Explanation: The document presents a mixed sentiment. While the conversion aims to improve the company's financial position, there are also significant risks and challenges associated with the company's recent performance and the conversion process itself.

Positives

• The conversion aims to increase capital to improve the regulatory capital position and support future operations and profitability.
• The conversion transitions the organization to a stock holding company structure, which gives greater flexibility to access the capital markets.
• The conversion enhances the ability to manage risk.
• The conversion enhances community ties by providing customers and community members with the opportunity to acquire an ownership interest.
• The company intends to increase loan originations and the proportion of assets consisting of loans.
• The company intends to control operating expenses.
• The company intends to continue its historical emphasis on residential mortgage lending.
• The company intends to continue to improve asset/liability management by implementing enhancements to its interest rate management framework and investment securities policies and procedures.
• The company intends to continue to manage credit risk to maintain a low level of non-performing assets.
• The company intends to continue its community-oriented focus.

Negatives

• The company experienced net losses in 2022 and 2023.
• The company's future operating results will be significantly dependent upon its ability to increase its net interest margin.
• The conversion will have an adverse impact on operating results due to additional expenses to be incurred in connection with and as a result of the conversion.
• The company may be unsuccessful in executing its business plan and may not be able to return to profitability in the timeframe it expects, or at all.
• The company is subject to a confidential memorandum of understanding (MOU) with the Department and the FDIC.
• As a Wisconsin-chartered savings bank, the company is subject to a 6% net worth ratio requirement.
• The future price of the company's shares of common stock may be less than the $10.00 purchase price per share in the stock offering.
• There will be a limited trading market in the company's common stock, which would hinder the ability to sell the common stock and may lower the market price of the stock.
• The cost of additional finance and accounting systems, procedures, compliance and controls in order to satisfy the new public company reporting requirements will increase the company's expenses.
• The company's stock-based benefit plan will increase expenses and reduce income.
• The implementation of a stock-based benefit plan may dilute ownership interest.
• The company's stock value may be negatively affected by applicable regulations that restrict stock repurchases.
• Various factors may make takeover attempts more difficult to achieve.
• The company's articles of incorporation provide that, subject to limited exceptions, state and federal courts in the State of Maryland are the sole and exclusive forum for certain stockholder litigation matters, which could limit the stockholders ability to obtain a favorable judicial forum for disputes with the company or its directors, officers, and other employees.
• Purchasers may not revoke their decision to purchase the company's common stock in the subscription offering or in any community offering after they send the company their order.
• The distribution of subscription rights could have adverse income tax consequences.

Risks

• The company's results of operations are significantly impacted by its oneto four-family residential lending.
• The company's emphasis on oneto four-family residential mortgage lending exposes it to credit risks.
• If the company's allowance for credit losses is not sufficient to cover actual credit losses, its earnings could decrease.
• The implementation of the Current Expected Credit Loss (CECL) standard may have a material adverse effect on the company's financial condition and results of operations.
• The geographic concentration of the company's loan portfolio and lending activities makes it vulnerable to a downturn in the local economy.
• The company's securities portfolio impairment in difficult market conditions could have adverse effects on its results of operations.
• Future changes in interest rates could reduce the company's profits and asset values.
• Inflationary pressures and rising prices may affect the company's results of operations and financial condition.
• The Bank has entered into a confidential memorandum of understanding (the MOU) with the Department and the FDIC.
• As a Wisconsin-chartered savings bank, the company is subject to a 6% net worth ratio requirement.
• The company has experienced net losses in recent periods, and it may not return to sustained profitability in the future.
• The company may not be able to realize the value of its deferred tax assets.
• The company faces significant operational risks because of its reliance on technology.
• The company outsources critical operations to third-party service providers.
• The company's Board of Directors takes an active role in cybersecurity risk tolerance, but it relies to a large degree on management and outside consultants in overseeing cybersecurity risk management.
• The company's business may be adversely affected by an increasing prevalence of fraud and other financial crimes.
• The company depends on its management team to implement its business strategy and execute successful operations and it could be harmed by the loss of their services.
• The company is a community bank and its ability to maintain its reputation is critical to the success of its business.
• Recently the company has relied on certificates of deposit, which has significantly increased its cost of funds and could continue to do so in the future.
• The company's funding sources may prove insufficient to replace deposits at maturity and support its future operations.
• Changes in laws and regulations and the cost of regulatory compliance with new laws and regulations may adversely affect the company's operations and/or increase its costs of operations.
• Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions.
• Monetary policies and regulations of the Federal Reserve Board could adversely affect the company's business, financial condition and results of operations.
• The company is an emerging growth company, and any decision on its part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make its common stock less attractive to investors.
• Strong competition within the company's market areas may limit its profitability.
• The company's size makes it more difficult for it to compete.
• Changes in management's estimates and assumptions may have a material impact on the company's consolidated financial statements and its financial condition or operating results.
• Changes in accounting standards could affect reported earnings.
• The company's future net income will be dependent in part on secondary market revenues, which are highly dependent on macroeconomic factors and United States real estate market, mortgage market and financial market conditions.
• Legal and regulatory proceedings could adversely affect the company.

Future Outlook

The company expects to use the net proceeds from the offering to increase its capital position and to support increased lending. The company intends to continue to pursue its business strategies after the conversion and stock offering, subject to changes necessitated by future market conditions, regulatory restrictions and other factors.

Management Comments

• Our results of operations for fiscal years 2022 and 2023 were materially adversely impacted by a historic spike in general interest rates.
• Our future operating results will be significantly dependent upon our ability to increase our net interest margin as well as our originations of oneto four-family loans, including in particular loans available-for-sale, which drive mortgage banking income.
• We have taken a number of steps to increase our core deposits and increase our residential loan volume, both of which should enhance our goals of increasing both loan originations and our net interest margin.

Industry Context

The announcement comes amid broader industry trends of mutual-to-stock conversions and consolidation in the financial services sector. The company faces competition from larger commercial banks, credit unions, and other financial service providers.

Comparison to Industry Standards

• The appraisal peer group consists of eleven publicly traded savings and loan and bank holding companies, all of which are traded on the Nasdaq Stock Market.
• The appraisal peer group consists of the following companies: 1895 Bancorp of Wisconsin, Inc., Catalyst Bancorp, Inc., Cullman Bancorp, Inc., Generations Bancorp NY, Inc., HMN Financial, Inc., Home Federal Bancorp, Inc. of Louisiana, IF Bancorp, Inc., NSTS Bancorp, Inc., PB Bankshares, Inc., TC Bancshares, Inc., and Texas Community Bancshares, Inc.
• Compared to the average pricing of the peer group, the company's pro forma pricing ratios at the midpoint of the offering range indicated a discount of 34.9% on a price-to-book value basis and a discount of 35.6% on a price-to-tangible book value basis.
• Due to the company's recent net loss, its calculated price-to-core earnings ratio at the midpoint was not meaningful and, therefore, not subject to comparison with the peer group.

Related Party Transactions

• In 2023, Old EWSB Bancorp issued $400,000 in promissory notes with an annual rate of 7.0% to various directors and officers of Old EWSB Bancorp to support future capital contributions.
• The company expects to retire these notes prior to completing the conversion.

Stakeholder Impact

• The conversion will provide customers and members of the community with the opportunity to acquire an ownership interest in New EWSB Bancorp and the Bank.
• The conversion will not affect the normal business of the Bank of accepting deposits and making loans.
• The Bank will continue to offer existing services to depositors, borrowers and other customers.
• No loan outstanding from the Bank will be affected by the conversion, and the amount, interest rate, maturity and security for each loan will remain as it was contractually fixed before the conversion.
• Upon completion of the conversion, depositors will no longer have voting rights.
• The retained earnings of the Bank will be substantially restricted after the conversion.

Next Steps

• The plan of conversion must be approved by at least a majority of the votes eligible to be cast by members of the MHC.
• The plan of conversion must be approved by the MHC, the sole stockholder of Old EWSB Bancorp.
• The company must receive and accept orders to purchase at least the minimum number of shares of common stock offered.
• The company must receive all required final approvals of the Department and the Federal Reserve Board to complete the conversion and the offering.

Key Dates

Keywords

mutual-to-stock conversion, EWSB Bancorp, East Wisconsin Savings Bank, stock offering, community bank, financial institution, regulatory capital, subscription rights, emerging growth company, Wisconsin