10-K: EWSB Bancorp Reports Wider Net Loss, Faces Capital Compliance Issues

EWSB Bancorp, Inc. reported a significant increase in its net loss to $4.1 million for the fiscal year ended December 31, 2025, alongside non-compliance with state and internal capital requirements.

Summary

• Net loss widened to $4.1 million for the year ended December 31, 2025, a 140.9% increase from the $1.7 million net loss in 2024.
• Total assets decreased by 0.9% to $271.0 million at December 31, 2025, from $273.3 million in 2024.
• Total deposits decreased by 6.2% to $217.3 million at December 31, 2025, from $231.5 million in 2024, primarily due to declines in interest-bearing brokered demand deposits and non-maturity interest-bearing deposits.
• Stockholders' equity decreased by 15.4% to $13.2 million at December 31, 2025, from $15.6 million in 2024, mainly due to the net loss.
• Net interest income increased by 36.8% to $4.6 million for the year ended December 31, 2025, from $3.4 million in 2024, driven by a higher weighted average yield on the loan portfolio.
• Loans, net, increased by 1.6% to $189.4 million at December 31, 2025, from $186.3 million in 2024, with notable growth in construction loans and home equity loans/lines of credit.
• The Bank's net worth ratio of 4.9% at December 31, 2025, was not in compliance with the Wisconsin state requirement of 6.0%.
• The Bank's Tier 1 capital as a percentage of average total assets (6.1%) was not in compliance with its internal target of 8.0% at December 31, 2025.
• A $3.3 million valuation allowance was recorded against deferred tax assets in 2025 due to cumulative taxable losses, indicating uncertainty about future taxable income realization.
• The company continues to operate under a confidential Memorandum of Understanding (MOU) with the FDIC and the Wisconsin Department of Financial Institutions, requiring improvements in capital, earnings, liquidity, and risk management, and restricting dividend payments without prior regulatory consent.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a challenging period for EWSB Bancorp, marked by a widening net loss and non-compliance with key capital ratios, despite improvements in net interest income and loan growth. The ongoing regulatory MOU and deferred tax asset valuation allowance signal significant headwinds.

Positives

• Net interest income increased by $1.2 million (36.8%) to $4.6 million for the year ended December 31, 2025, indicating improved core banking profitability.
• Interest and fees on loans increased by $1.3 million, with the weighted average yield on the loan portfolio rising to 5.05% in 2025 from 4.71% in 2024.
• Loans, net, grew by $3.1 million (1.6%) to $189.4 million, primarily driven by increases in construction loans ($5.4 million) and home equity loans and lines of credit ($840,000).
• The unrealized loss on the available-for-sale securities portfolio declined by $1.3 million to $2.6 million at December 31, 2025, due to a decline in interest rates.
• Non-performing loans to total loans decreased slightly to 0.16% at December 31, 2025, from 0.17% in 2024.
• The Bank's federal capital levels (Common Equity Tier 1, Tier 1 Risk-Based, Total Risk-Based, and Tier 1 Leverage ratios) exceeded the levels required to be considered 'well-capitalized' under federal regulatory capital regulations.
• A subsequent event in January 2026 involved the sale of a $6.3 million pool of adjustable-rate 1-4 family real estate loans at a gain of $7,000, providing liquidity and supporting loan originations.

Negatives

• Net loss significantly widened to $4.1 million in 2025, a 140.9% increase from the $1.7 million net loss in 2024.
• Total assets decreased by $2.3 million (0.9%) to $271.0 million at December 31, 2025.
• Total deposits decreased by $14.3 million (6.2%) to $217.3 million, with a $9.4 million reduction in interest-bearing brokered demand deposits and an overall decline in savings and money market account balances.
• Stockholders' equity decreased by $2.4 million (15.4%) to $13.2 million, primarily due to the net loss incurred.
• A $3.3 million valuation allowance was recorded against deferred tax assets in 2025, reflecting management's assessment that it is more likely than not that some portion of these assets will not be realized due to cumulative taxable losses.
• The Bank's net worth ratio of 4.9% at December 31, 2025, was not in compliance with the Wisconsin state requirement of 6.0%.
• The Bank's Tier 1 capital as a percentage of average total assets (6.1%) was not in compliance with its internal target of 8.0% at December 31, 2025.
• Total borrowings increased by $14.2 million (58.5%) to $38.4 million, utilized to offset deposit declines and fund loan growth.
• Income tax expense increased significantly to $2.9 million in 2025 from a benefit of $736,000 in 2024, largely due to the deferred tax asset valuation allowance.
• Gain on interest rate swap decreased by $186,804 (68.9%) year-over-year.
• Net occupancy expense decreased due to the closing of two branch locations, indicating a reduction in physical footprint.

Risks

• Vulnerability to changes in market interest rates, which could reduce margins and yields, mortgage banking revenues, the fair value of financial instruments, or increase loan defaults and losses.
• Adverse general economic conditions, nationally or in market areas, including employment levels, labor shortages, inflation, potential recession, or slowed economic growth.
• Changes in the level and direction of loan delinquencies and write-offs, and changes in estimates of the adequacy of the allowance for credit losses.
• Inability to comply with the confidential Memorandum of Understanding (MOU) with the Wisconsin Department of Financial Institutions and the FDIC, potentially leading to further enforcement actions.
• Changes in liquidity, including the size and composition of the deposit portfolio and the percentage of uninsured deposits, and the ability to access cost-effective funding.
• Fluctuations in real estate values and residential real estate market conditions, impacting collateral values and loan recovery.
• Intense competition among depository and other financial institutions, including from financial technology companies, which could limit growth in loans and deposits.
• Technological changes that may be more difficult or expensive to implement than expected, or the inability of third-party providers to perform as expected.
• Failure or breach of operational or security systems or infrastructure, including cyberattacks, despite defensive measures.
• Increased potential for default by borrowers on adjustable-rate mortgage loans as interest rates increase, and adverse effects on collateral marketability.
• Additional risks in construction lending due to uncertain project values, potential cost overruns, and dependence on project completion and market conditions.
• Greater risk in marine and recreational vehicle loans due to depreciating collateral, difficulty in appraisal, and potential for inadequate repayment sources.
• Higher risk in consumer loans, particularly unsecured ones or those secured by rapidly depreciating assets, with collections dependent on borrowers' continuing financial stability.
• Multifamily and other commercial real estate loans involve larger balances and greater risk, with repayment dependent on property operations and management, and susceptibility to adverse real estate market conditions.
• Commercial loans carry higher risk, relying on the borrower's business cash flows for repayment, and collateral may depreciate or be difficult to appraise.
• Inability to generate core deposits may lead to heavier reliance on wholesale funding strategies, potentially adversely affecting net interest margin and profitability.
• Uncertainty regarding the realization of deferred tax assets due to cumulative taxable losses, which required a significant valuation allowance.

Future Outlook

The company expects to continue growing originations of oneto four-family residential real estate loans, and to a limited degree, marine and recreational vehicle loans and commercial real estate loans, while managing interest rate risk by selling longer-term fixed-rate loans and retaining shorter-term fixed-rate and adjustable-rate loans. Efforts are underway to increase core deposits and prudently manage wholesale funding. The company anticipates having sufficient funds to meet current funding commitments, expecting to retain a significant portion of maturing time deposits or utilize Federal Home Loan Bank (FHLB) advances.

Management Comments

• Our success as a financial institution in our market areas is dependent on a workforce that embrace and are dedicated to our mission and culture.
• We believe actively prioritizing concern for our employees well-being, supporting our employees career goals, offering competitive wages and providing valuable fringe benefits aids in retention of our top-performing employees.
• Management of interest rate risk is one of the Bank's highest priorities.
• Through these and other enhancements, we have significantly improved our ability to manage our interest rate risk and minimize the exposure of our earnings and capital to changes in interest rates.
• It is management's opinion, as of December 31, 2025, that the Bank meets all applicable statutory capital adequacy requirements.

Industry Context

StockSavvy.ai notes that EWSB Bancorp's experience with deposit outflows and the shift to higher-yielding term deposits aligns with broader industry trends in a rising interest rate environment. The increased reliance on FHLB borrowings to offset deposit declines is a common strategy for community banks facing competitive funding pressures. The focus on selling longer-term fixed-rate mortgages and retaining adjustable-rate loans reflects a strategic response to interest rate volatility, a key concern across the banking sector. The ongoing regulatory scrutiny via the MOU highlights the challenges smaller institutions face in maintaining robust capital and risk management frameworks amidst evolving regulatory expectations.

Comparison to Industry Standards

• EWSB Bancorp's 5.2% FDIC-insured deposit market share in Outagamie County, ranking eighth out of 19 banks, indicates a competitive local market, typical for community banks operating alongside larger regional and money center institutions.
• The increase in net interest margin to 1.74% in 2025 from 1.35% in 2024, while positive, remains below the average net interest margin for U.S. commercial banks, which often ranges from 2.5% to 3.5% or higher, suggesting room for improvement in asset yield optimization or liability cost management.
• The Bank's federal capital ratios exceeding 'well-capitalized' thresholds (e.g., Common Equity Tier 1 of 10.8% vs. 6.5% minimum) are generally favorable compared to federal regulatory benchmarks, but the non-compliance with Wisconsin's 6.0% net worth ratio and its own internal 8.0% Tier 1 leverage target indicates specific local or internal challenges that diverge from broader industry best practices for capital strength.
• The allowance for credit losses to total loans at 0.60% is on the lower end compared to some industry averages for community banks, which can range from 0.8% to 1.5% depending on loan portfolio mix and economic outlook, potentially indicating a conservative view on future losses or a very high-quality portfolio, though the widening net loss suggests potential underlying issues.

Corporate Governance

Legal Proceedings

• Not involved in any pending legal proceedings as a plaintiff or defendant other than routine legal proceedings occurring in the ordinary course of business.
• As of December 31, 2025, not involved in any legal proceedings the outcome of which would be material to financial condition or results of operations.

Related Party Transactions

• Loans to directors, executive officers, and their affiliates totaled $16,031 at December 31, 2025, compared to $44,715 at December 31, 2024.
• Deposits from directors, executive officers, and their affiliates totaled $2,697,856 at December 31, 2025, compared to $2,514,749 at December 31, 2024.
• The Bank entered into an agreement with EWSB Bancorp to provide administrative support services for compensation not less than the fair market value of the services provided.
• The Bank and EWSB Bancorp entered into an agreement to establish a method for allocating and for reimbursing the payment of their consolidated tax liability.

Stakeholder Impact

• Shareholders: Negative impact due to widening net loss, decrease in stockholders' equity, and regulatory restrictions on dividend payments. Uncertainty regarding future profitability due to deferred tax asset valuation allowance.
• Employees: Generally good relationship, competitive total rewards programs, opportunities for growth, and focus on health and wellness. Employee Stock Ownership Plan (ESOP) in place.
• Customers: Continued provision of a variety of financial services, with efforts to attract and retain local deposits through personalized service and community image. Potential impact from branch closures.
• Regulators: Ongoing engagement and compliance efforts related to the confidential MOU, addressing capital, earnings, liquidity, and risk management. Non-compliance with Wisconsin net worth ratio and internal capital targets requires corrective action.
• Creditors (e.g., FHLB): Increased reliance on borrowings to offset deposit declines, but unused borrowing capacity remains available.

Next Steps

• Continue to develop and adhere to a comprehensive strategic plan as required by the Memorandum of Understanding (MOU).
• Improve the Bank's funds management practices and formulate and adopt a plan for improving the Bank's liquidity position.
• Develop a plan to reduce and better manage interest rate risk exposure.
• Increase the Bank's Tier 1 capital and total risk-based capital ratios to levels above federal regulatory requirements and maintain a Wisconsin net worth ratio of at least 6%.
• Improve oversight of the Bank's information technology audit program and implement a vendor management program.
• Operate within the parameters of adopted strategic and capital plans, requiring prior regulatory approval for material deviations.
• Continue efforts to comply with the MOU to avoid further enforcement actions.
• Implement strategies to further improve interest rate risk management, including maintaining strong capital, prudent liquidity, originating shorter-term/adjustable-rate loans, increasing core deposits, and managing wholesale funding.
• Monitor the impact of the preliminary injunction on new CRA regulations and prepare for their eventual applicability.

Key Dates

Recommendation

The company's significant widening of net losses, coupled with non-compliance with key state-level and internal capital targets, signals fundamental financial weakness. The imposition of a regulatory Memorandum of Understanding (MOU) restricting dividends and requiring corrective actions further underscores operational challenges and limits financial flexibility. The substantial valuation allowance against deferred tax assets indicates management's uncertainty about future profitability, making the stock a high-risk proposition with limited near-term upside potential for investors.

Keywords

EWSB Bancorp, East Wisconsin Savings Bank, 10-K, Annual Report, Financial Results, Net Loss, Deposits, Loans, Capital Ratios, Regulatory Compliance, Memorandum of Understanding, Interest Rate Risk, Community Bank, Mortgage Lending, Consumer Lending, Commercial Lending, Cybersecurity, Deferred Tax Assets, Wisconsin Banking