10-Q: EWSB Bancorp Reports Net Loss for Q1 2025, Cites Increased Expenses and Decreased Noninterest Income

EWSB Bancorp, Inc. reports a net loss of $569,000 for the quarter ended March 31, 2025, compared to a net loss of $377,000 for the same period in 2024, primarily due to decreased noninterest income and increased noninterest expense.

Summary

• EWSB Bancorp, Inc. reported a net loss of $569,000 for the first quarter of 2025, compared to a net loss of $377,000 for the same period in 2024.
• Total assets increased by $4.1 million, or 1.5%, to $277.4 million.
• The increase in assets was primarily due to a $3.6 million increase in portfolio loans and a $520,000 increase in total investment securities.
• Total deposits increased slightly by $127,000 to $231.6 million.
• Borrowed funds increased by $3.6 million to $27.8 million, used to fund portfolio loans.
• Net interest income increased by $139,000 to $963,000, driven by an increase in the interest rate spread and net interest margin.
• Noninterest income decreased by $148,000 to $320,000, mainly due to a non-recurring gain on an interest rate swap in the prior year and reduced activity in investment management services and insurance agency business lines.
• Noninterest expense increased by $136,000 to $2.0 million, primarily due to higher professional services fees and salary and benefit expenses.

Sentiment

Score: 4

Explanation: The sentiment is slightly negative due to the reported net loss and increased expenses, although there are some positive aspects like asset and loan growth. The company's compliance issues with certain capital ratios also contribute to the lower sentiment score.

Positives

• Total assets increased by $4.1 million, indicating growth.
• Loans, net, increased by $3.6 million, reflecting increased lending activity.
• Net interest income increased by $139,000, showing improved profitability in core banking operations.
• The interest rate spread increased to 1.46% for the three months ended March 31, 2025 from 1.33% for the three months ended March 31, 2024.
• The net interest margin increased to 1.51% for the three months ended March 31, 2025, from 1.35% for the three months ended March 31, 2024.

Negatives

• The company reported a net loss of $569,000 for Q1 2025.
• Noninterest income decreased by $148,000, indicating a decline in revenue from other sources.
• Noninterest expense increased by $136,000, impacting overall profitability.
• Non-interest bearing deposits decreased $1.2 million, or 12.4%, to $8.3 million at March 31, 2025, from $9.5 million at December 31, 2024.
• At March 31, 2025, the Banks tier one capital as a percentage of average total assets capital ratio of 6.6% was not in compliance with the minimum ratio as designated by the Board of Directors.
• At March 31, 2025, the Banks net worth ratio of 5.64% was not in compliance with the minimum requirement.

Risks

• The company's vulnerability to interest rate fluctuations could impact future earnings.
• General economic conditions and inflation could negatively affect margins and loan performance.
• Changes in laws or government regulations could impact financial institutions.
• Failure or breach of operational or security systems, including cyberattacks, could disrupt operations.
• The company operates under an MOU with the Wisconsin Department of Financial Institutions (the Department) and the Federal Deposit Insurance Corporation (the FDIC).

Future Outlook

The company is seeking to implement strategies to further improve the management of its interest rate risk, including maintaining capital levels that exceed the thresholds for well-capitalized status under federal regulations, maintaining a prudent level of liquidity, originating shorter term or adjustable-rate loans for portfolio, attempting to increase the balances of core deposits, managing its utilization of wholesale funding with borrowings from the FHLB in a prudent manner, managing the terms of its certificates of deposit, and emphasizing asset quality to maximize the level of interest-earning assets.

Management Comments

• Management believes that the resolution of legal actions is not expected to have a material adverse effect on the Company's financial condition or results of operations.
• Management expects that a substantial portion of time deposits will be retained.
• Management anticipates that the company will have sufficient funds to meet its current funding commitments.

Industry Context

The report mentions deposit mix changes consistent with industry trends as consumers transition to higher yielding term deposits due to the interest rate environment, indicating that EWSB Bancorp is operating within the broader context of current banking industry dynamics.

Comparison to Industry Standards

• The document does not provide specific comparisons to industry standards or comparable companies.
• Without more information, it's difficult to assess EWSB Bancorp's performance against industry benchmarks.
• A thorough analysis would require comparing EWSB Bancorp's financial ratios (e.g., ROA, ROE, efficiency ratio) to those of peer banks of similar size and geographic location.

Legal Proceedings

• The Company is subject to various legal actions arising in the normal course of business.

Related Party Transactions

• Loans to directors, executive officers, and their affiliates totaled $34,097 at March 31, 2025.
• Deposits from directors, executive officers, and their affiliates totaled $2,838,922 at March 31, 2025.

Stakeholder Impact

• Shareholders may be concerned about the net loss and its impact on stock value.
• Employees may be affected by cost-cutting measures if the company seeks to improve profitability.
• Customers may experience changes in service offerings or pricing as the company adapts to market conditions.

Next Steps

• The company will continue to manage interest rate risk through various strategies.
• The company will monitor its liquidity position on a daily basis.
• Management continues to assess the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets.

Key Dates

Keywords

EWSB Bancorp, financial results, net loss, interest income, interest expense, loans, deposits, capital, market risk, Q1 2025