10-Q: EWSB Bancorp Reports Net Loss in Q3 2024 Amidst Rising Interest Expenses

EWSB Bancorp reported a net loss of $332,000 for the third quarter of 2024, primarily due to increased funding costs and a decrease in net interest income.

Summary

• EWSB Bancorp, the holding company for East Wisconsin Savings Bank, reported a net loss of $332,000 for the three months ended September 30, 2024, compared to a net loss of $122,000 for the same period in 2023.
• The company's net loss for the nine months ended September 30, 2024, was $1.2 million, compared to a net loss of $531,000 for the same period in 2023.
• Total assets increased to $269.2 million as of September 30, 2024, from $262.6 million at the end of 2023, primarily due to a $7.2 million increase in loans.
• Total deposits decreased by $6.7 million to $223.8 million as of September 30, 2024, with a shift from non-interest bearing and money market accounts to higher-yielding certificates of deposit.
• The company's net interest income decreased by $244,000 in the third quarter of 2024 compared to the same period in 2023, due to increased funding costs.
• Interest expense on deposits increased by $358,000 in the third quarter of 2024, driven by higher rates on certificates of deposit.
• Noninterest income decreased by $60,000 in the third quarter of 2024, primarily due to the absence of a gain on the sale of fixed assets that occurred in 2023.
• Total stockholders' equity increased to $16.4 million as of September 30, 2024, from $11.5 million at the end of 2023, due to net proceeds from a stock offering and an increase in other comprehensive income.

Sentiment

Score: 4

Explanation: The document presents a mixed picture with some positive aspects like asset and equity growth, but the negative aspects of a net loss, decreased net interest income, and increased interest expenses outweigh the positives. The company is also operating under an MOU with regulators, which adds to the negative sentiment.

Positives

• Total assets increased by $6.6 million, or 2.5%, to $269.2 million.
• Loans, net, increased by $7.2 million, or 4.2%, to $181.5 million.
• Stockholders' equity increased by $4.9 million, or 42.5%, to $16.4 million.
• The weighted average yield on the loan portfolio increased by 48 basis points to 4.82% for the three months ended September 30, 2024.
• Noninterest income increased by $241,000, or 20.7%, to $1.4 million for the nine months ended September 30, 2024.
• The company had unused borrowing capacity of $44.8 million from the FHLB at September 30, 2024.

Negatives

• The company reported a net loss of $332,000 for the three months ended September 30, 2024.
• Net interest income decreased by $244,000, or 23.2%, to $807,000 for the three months ended September 30, 2024.
• Total deposits decreased by $6.7 million, or 2.9%, to $223.8 million.
• Interest expense on deposits increased by $358,000, or 36.5%, to $1.3 million for the three months ended September 30, 2024.
• Noninterest income declined by $60,000, or 10.6%, to $510,000 for the three months ended September 30, 2024.
• The net interest margin decreased to 1.30% for the three months ended September 30, 2024, from 1.69% for the same period in 2023.
• The company's net loss for the nine months ended September 30, 2024, was $1.2 million, compared to a net loss of $531,000 for the same period in 2023.

Risks

• The company is vulnerable to interest rate fluctuations, which could negatively impact net interest income and the economic value of equity.
• Changes in economic conditions, including inflation and potential recession, could affect loan delinquencies and write-offs.
• The company's ability to comply with the confidential memorandum of understanding (MOU) with the Wisconsin Department of Financial Institutions and the Federal Deposit Insurance Corporation is a risk.
• Fluctuations in real estate values and residential real estate market conditions could impact the company's loan portfolio.
• Competition among depository and other financial institutions could affect the company's ability to attract and retain deposits and loans.
• Changes in laws or government regulations could impact the company's operations and financial performance.
• Technological changes and cyberattacks pose a risk to the company's operational and security systems.
• The company's net worth ratio of 6.04% is just above the minimum requirement of 6.0%.

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. The company also expects that the net proceeds from the stock offering will enhance its financial condition and results of operations, but may adversely affect return on equity for a period of time.

Management Comments

• Management believes that the Bank meets all applicable statutory capital adequacy requirements.
• Management is committed to maintaining a strong liquidity position and monitors it daily.
• Management expects that a substantial portion of maturing time deposits will be retained.

Industry Context

The company's deposit mix changes, with a shift towards higher-yielding term deposits, are consistent with industry trends in the current interest rate environment. The company is also managing its interest rate risk exposure, which is a key concern for financial institutions in the current economic climate.

Comparison to Industry Standards

• The company's net interest margin of 1.30% for the three months ended September 30, 2024, is below the industry average for community banks, which is typically between 3% and 4%.
• The company's loan growth of 4.2% is in line with the industry average for community banks, which is typically between 3% and 5%.
• The company's deposit decrease of 2.9% is slightly worse than the industry average for community banks, which is typically between 0% and 2%.
• The company's capital ratios are above the regulatory minimums, but the company is operating under an MOU with regulators to maintain higher capital levels.
• The company's interest rate risk exposure is a concern, as indicated by the potential decrease in net interest income and economic value of equity in the event of an increase in interest rates. This is a common challenge for community banks in the current interest rate environment.

Legal Proceedings

• The Company is subject to various legal actions arising in the normal course of business, but management does not expect them to have a material adverse effect on the company's financial condition or results of operations.

Related Party Transactions

• Loans to directors, executive officers, and their affiliates totaled $27,039 at September 30, 2024.
• Deposits from directors, executive officers, and their affiliates totaled $2,357,705 at September 30, 2024.

Stakeholder Impact

• Shareholders will be impacted by the net loss and the potential adverse effect on return on equity.
• Employees may be impacted by the company's efforts to manage costs and improve efficiency.
• Customers may be impacted by changes in deposit rates and loan terms.
• Creditors may be impacted by the company's liquidity and capital position.

Next Steps

• The company is seeking to implement strategies to further improve the management of its interest rate risk.
• The company will continue to monitor its liquidity position on a daily basis.
• The company will use the net proceeds from the stock offering for general corporate purposes, including funding loans.

Key Dates

Keywords

net loss, interest rate risk, loan portfolio, deposits, net interest income, stockholders' equity, financial performance, regulatory capital, interest expense, asset quality