10-Q: EWSB Bancorp Reports Net Loss for Q2 2024 Amid Rising Interest Expenses

EWSB Bancorp, the proposed stock holding company for East Wisconsin Savings Bank, reported a net loss for the second quarter of 2024, primarily due to increased funding costs.

Summary

• EWSB Bancorp, Inc. reported a net loss of $463,000 for the three months ended June 30, 2024, compared to a net loss of $215,000 for the same period in 2023.
• The increased loss was primarily due to a $396,000 decline in net interest income and a $55,000 increase in noninterest expense, partially offset by a $104,000 increase in noninterest income.
• Net interest income decreased by 32.7% to $816,000, driven by a lower interest rate spread of 1.28% compared to 1.86% in the prior year.
• Total assets increased slightly to $267.5 million, driven by loan growth, but offset by declines in investment securities.
• Total deposits decreased by 3.3% to $222.9 million, with a shift from non-interest bearing to higher-yielding certificates of deposit.
• The company borrowed $17.0 million from the Federal Reserve Bank under the Bank Term Funding Program (BTFP) in January 2024.
• Total equity decreased to $10.9 million due to the net loss incurred during the period.
• The company's plan of conversion to a fully stock holding company structure is subject to final regulatory approval and member approval on August 19, 2024.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While there are some positives like loan growth and increased noninterest income, the net loss, declining deposits, and regulatory concerns weigh negatively on the overall sentiment.

Positives

• Interest income increased by 7.9% to $2.4 million, driven by a 44 basis point increase in the weighted average yield on the loan portfolio.
• Noninterest income increased by 32.4% to $426,000, primarily due to increased mortgage banking revenue and a gain on an interest rate swap.
• Loans, net increased $5.5 million, or 3.1%, to $179.8 million at June 30, 2024 from $174.3 million at December 31, 2023.
• The company's disclosure controls and procedures were effective as of June 30, 2024.

Negatives

• The company reported a net loss of $463,000 for Q2 2024, a larger loss than the $215,000 net loss in Q2 2023.
• Net interest income decreased by $396,000, or 32.7%, to $816,000 due to increased funding costs.
• Total deposits decreased by $7.6 million, or 3.3%, to $222.9 million.
• The company's net worth ratio of 4.31% was not in compliance with the minimum requirement of 6% set by the State of Wisconsin.

Risks

• The company's sensitivity to changes in interest rates could negatively impact net interest income and economic value of equity.
• The company operates under an MOU with the Department and the FDIC, requiring it to maintain specific capital levels.
• The company's net worth ratio for purposes of compliance with Wisconsin law is calculated differently from the federal regulatory capital regulations.
• The company's plan of conversion to a fully stock holding company structure is subject to final regulatory approval and member approval on August 19, 2024.

Future Outlook

The company anticipates that it will have sufficient funds to meet its current funding commitments and that a significant portion of maturing time deposits will be retained.

Industry Context

The deposit mix changes are consistent with industry trends as consumers are transitioning to higher yielding term deposits in the current interest rate environment.

Comparison to Industry Standards

• The document does not provide enough information to make a detailed comparison to industry standards.
• However, the shift in deposit mix from non-interest bearing to certificates of deposit is a common trend in the banking industry as interest rates rise, as customers seek higher yields.
• Many banks are facing pressure on net interest margins due to rising deposit costs and competition for loans.

Legal Proceedings

• The Company is 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 Company's financial condition or results of operations.

Related Party Transactions

• In 2023, the Company entered into subordinated promissory note agreements with various directors and officers of the Company to support future capital contributions.
• Deposits from directors, executive officers, and their affiliates totaled $1,165,725 and $1,300,864 at June 30, 2024 and December 31, 2023, respectively.
• A summary of loans to directors, executive officers, and their affiliates as of June 30, 2024 and December 31, 2023 is as follows: Balance at beginning of period $ 27,004 $ 42,708 New loans Repayments (5,242) (15,704) Balance at end of period $ 21,762 $ 27,004

Stakeholder Impact

• Shareholders: The net loss and potential dilution from the stock offering could negatively impact shareholder value.
• Employees: The company's financial performance could impact employee compensation and job security.
• Customers: Changes in interest rates and deposit offerings could impact customers.
• Regulators: The company's compliance with regulatory capital requirements is critical for maintaining its banking charter.

Next Steps

• The company's plan of conversion to a fully stock holding company structure is subject to final regulatory approval and member approval on August 19, 2024.

Key Dates

Keywords

EWSB Bancorp, East Wisconsin Savings Bank, Net Loss, Interest Rate Risk, Deposits, Loans, Capital, Conversion, Federal Reserve Bank, BTFP, FHLB, Regulatory Capital, MOU