Company Overview
1895 Bancorp of Wisconsin, Inc. (BCOW) is a community-focused bank holding company that operates through its wholly-owned subsidiary, PyraMax Bank, FSB. Headquartered in Greenfield, Wisconsin, the company has established a strong presence in the greater Milwaukee metropolitan area, catering to the financial needs of both individuals and businesses.
The company's origins can be traced back to 1895, when it was first established as a mutual savings and loan association. Over the decades, 1895 Bancorp has evolved and adapted to the changing financial landscape, transitioning from a mutual institution to a stock-based holding company in 2021 through a successful mutual-to-stock conversion. This transition has allowed the company to enhance its capital position and expand its capabilities to better serve its customers.
Corporate History
1895 Bancorp of Wisconsin, Inc. was formed in 2019 to serve as the stock holding company for PyraMax Bank, FSB as part of the mutual-to-stock conversion of 1895 Bancorp of Wisconsin, MHC. The conversion was completed on July 14, 2021, at which point 1895 Bancorp of Wisconsin, MHC and the previous 1895 Bancorp of Wisconsin, a federal corporation, ceased to exist and New 1895 Bancorp became the successor corporation.
PyraMax Bank operates as a full-service financial institution, providing a range of services including commercial, residential, and consumer loans, as well as accepting deposits from individual customers and small businesses in the metropolitan Milwaukee, Wisconsin area. The bank faces competition from other financial and non-financial institutions offering similar products and is subject to regulation and periodic examination by various regulatory agencies.
In 2020, the company established an Employee Stock Ownership Plan (ESOP) for the benefit of its employees. The ESOP initially purchased 175,530 shares of the company's common stock, funded by a loan from the previous 1895 Bancorp. Following the 2021 mutual-to-stock conversion, the ESOP refinanced the loan with New 1895 Bancorp, enabling it to purchase an additional 283,360 shares of common stock.
Recent Challenges
The company faced challenges in 2023 related to a change in Wisconsin tax law that impacted its state tax liability. This change resulted in a $1.8 million increase in the company's deferred tax asset valuation allowance and a $98,000 reduction in previously booked tax benefits. Despite these challenges, the company continued to focus on managing its interest rate risk, growing its loan portfolio, and implementing cost-saving initiatives.
Despite the challenges posed by the COVID-19 pandemic and the recent turbulence in the banking industry, 1895 Bancorp has demonstrated resilience and a commitment to its community-centric approach. The company's financial performance, while not immune to the broader economic headwinds, has shown signs of stability and growth in key areas.
Financials
As of September 30, 2024, 1895 Bancorp reported total assets of $564.5 million, a 1.2% increase from the prior year's figure of $557.6 million. This growth was primarily driven by a 93.2% increase in cash and cash equivalents, which stood at $25.7 million, as well as a 0.8% rise in the loan portfolio to $401.6 million. The company's capital ratios remained well above the regulatory well-capitalized thresholds, with a Tier 1 leverage ratio of 11.2% and a total risk-based capital ratio of 16.0% as of September 30, 2024.
1895 Bancorp's net interest income for the nine months ended September 30, 2024, totaled $9.2 million, a slight decrease of 0.3% compared to the same period in the prior year. This decline was largely attributable to a 55.2% increase in interest expense, which reached $9.0 million, as the company navigated the rising interest rate environment. Nonetheless, the company's net interest margin remained relatively stable at 2.36% during the period.
The provision for credit losses for the nine months ended September 30, 2024, was $225,000, unchanged from the same period in the prior year. The company's nonperforming loans as a percentage of total loans stood at 0.23% as of September 30, 2024, a slight improvement from the 0.28% reported at the end of 2023.
On the noninterest income front, 1895 Bancorp reported a significant increase, reaching $2.6 million for the nine-month period ended September 30, 2024, compared to $306,000 in the same period of the prior year. This improvement was primarily driven by a decrease in net losses on the sale of securities, which were $1.9 million in the prior-year period, as well as a $439,000 increase in unrealized gains on marketable equity securities.
However, the company's noninterest expenses increased by 2.5% to $13.1 million for the nine months ended September 30, 2024, primarily due to higher unrealized gains on marketable equity securities and an increase in professional fees related to the renegotiation of the company's core data processing contract. The company has also implemented cost-saving initiatives, including a reduction-in-force, which has resulted in a decrease in the number of full-time equivalent employees from 106 at September 30, 2022, to 88 at September 30, 2024.
For the fiscal year 2023, 1895 Bancorp reported annual revenue of $10.28 million and a net loss of $6.79 million. The company's annual operating cash flow was negative $709,000, while the annual free cash flow stood at negative $1.52 million.
In the most recent quarter (Q3 2024), the company reported revenue of $3.66 million, representing a 12% increase compared to Q3 2023. This growth was primarily attributed to an increase in interest income on loans and securities. The net loss for Q3 2024 improved significantly to $159,000, compared to a loss of $3.64 million in Q3 2023. This improvement was mainly due to the absence of a $1.9 million net loss on sale of securities that occurred in Q3 2023 and a $1.7 million decrease in income tax expense.
Business Segments and Products
1895 Bancorp's primary business segments and products are as follows:
Commercial Real Estate Loans: This portfolio represents the largest segment of the company's loan book, accounting for $233.92 million or 58.3% of total loans as of September 30, 2024. The portfolio includes loans secured by office and industrial buildings, warehouses, and other commercial real estate properties. It has seen steady growth, increasing by $2.03 million or 0.9% from the prior year end.
Other Commercial Loans: This segment includes loans secured by accounts receivable, inventory, and equipment. It totaled $50.31 million or 12.5% of total loans as of September 30, 2024, up $2.41 million or 5.0% from December 31, 2023.
Residential Real Estate Loans: This portfolio includes first mortgage loans on one-to-four family properties and residential construction loans. As of September 30, 2024, first mortgage residential loans totaled $96.20 million or 24.0% of the total loan portfolio, down $1.55 million or 1.6% from the prior year end. Residential construction loans increased by $600,000 or 167.1% to $959,000 over the same period.
Consumer Loans: This segment includes home equity and lines of credit as well as other consumer loans. As of September 30, 2024, home equity and lines of credit totaled $19.59 million or 4.9% of total loans, down slightly by $90,000 or 0.5% from December 31, 2023. Other consumer loans decreased by $46,000 or 34.3% to $88,000 over the same time frame.
The growth in 1895 Bancorp's commercial loan portfolios, particularly commercial real estate, has been a key driver of the company's overall loan growth. The total loan portfolio increased by $3.36 million or 0.8% from the end of 2023 to $401.07 million as of September 30, 2024. The company's focus on growing its commercial lending activities appears to be a strategic priority, leveraging its market position and expertise in this area to generate higher yields and build customer relationships.
Liquidity
Despite the challenging operating environment, 1895 Bancorp remains committed to its community-focused approach and continues to explore strategic alternatives to enhance shareholder value. In February 2025, the company announced that it had engaged Keefe, Bruyette & Woods, Inc., a Stifel Company, as a financial advisor to assist in evaluating strategic options, which could include a potential business combination or sale of control. The company also announced its intention to delist its common stock from the Nasdaq Stock Market and deregister its common stock under the Securities Exchange Act of 1934.
As of September 30, 2024, 1895 Bancorp reported a debt-to-equity ratio of 0.97 and cash and cash equivalents of $25.69 million. The company's liquidity position is further supported by several available credit lines:
- $92.5 million available borrowing capacity at the Federal Home Loan Bank of Chicago - $12 million federal funds line of credit with BMO Harris Bank, undrawn - $11.3 million line of credit at the Federal Reserve, undrawn
The company's current ratio and quick ratio both stood at 23.65 as of September 30, 2024, indicating a strong ability to meet short-term obligations.
Future Outlook
Looking ahead, 1895 Bancorp's management team will need to navigate the ongoing market volatility and uncertainty, while maintaining a strong focus on asset quality, cost management, and identifying growth opportunities that align with the company's community-centric mission. The banking industry continues to face challenges in the current macroeconomic environment, with rising interest rates, economic uncertainty, and pressure on net interest margins. However, the company's focus on growing its loan portfolio and diversifying its revenue streams may help position it to navigate these industry headwinds.
Investors will closely monitor the company's progress as it evaluates strategic alternatives and seeks to deliver long-term value for its shareholders. The company's performance in its primary market, the metropolitan Milwaukee, Wisconsin area, will be crucial in determining its future success.
Conclusion
In conclusion, 1895 Bancorp of Wisconsin, Inc. (BCOW) is a resilient community bank that has weathered challenging times, leveraging its strong capital position and customer-centric approach to navigate the current environment. With a diverse loan portfolio, improving financial performance, and a strategic focus on commercial lending, the company is working to position itself for future growth. As the company explores strategic options, investors will be closely watching its ability to balance growth, risk management, and shareholder value creation in the years to come.