1895 Bancorp of Wisconsin, Inc. (NASDAQ:BCOW), a small-cap bank headquartered in Greenfield, Wisconsin, has faced significant challenges in recent quarters. The company reported an annual net loss of $6.792 million on annual revenue of $18.821 million in its most recent fiscal year. Additionally, the company generated negative annual operating cash flow of $320,000 and negative annual free cash flow of $1.132 million.
In the latest quarter ended March 31, 2024, 1895 Bancorp reported a net loss of $306,000, compared to a net loss of $361,000 in the prior-year quarter. The company's revenue in the first quarter of 2024 increased to $6.033 million, up from $4.712 million in the same period of 2023. However, this top-line growth was more than offset by a significant increase in interest expense, which rose from $1.477 million in Q1 2023 to $2.970 million in Q1 2024.
Business Overview
1895 Bancorp operates as the holding company for PyraMax Bank, a full-service financial institution providing commercial, residential, and consumer loans, as well as deposit products, to customers in the metropolitan Milwaukee, Wisconsin area. The bank's loan portfolio is primarily composed of commercial real estate loans (58.9% of total loans), residential real estate loans (25.0%), and consumer loans (4.8%).The company's strategy has been to grow its commercial and residential real estate lending businesses, while also maintaining a focus on core deposit gathering. However, the current interest rate environment has presented significant challenges, as the bank has struggled to offset the rising cost of deposits with higher-yielding assets.
Financials
1895 Bancorp's financial performance has been disappointing in recent periods. The company's net interest margin declined from 2.64% in Q1 2023 to 2.37% in Q1 2024, as the yield on interest-earning assets increased by 83 basis points, while the cost of interest-bearing liabilities rose by 133 basis points. This compression in the net interest margin, combined with the company's inability to control noninterest expenses, has resulted in continued net losses.The company's balance sheet remains relatively well-capitalized, with a Tier 1 leverage ratio of 11.2% and a total risk-based capital ratio of 15.9% as of March 31, 2024. However, the company's liquidity position is a concern, as evidenced by its current ratio of 0.08 and quick ratio of 0.14. The bank's reliance on higher-cost funding sources, such as Federal Home Loan Bank advances and brokered deposits, has also put pressure on its profitability.
Risks and Challenges
1895 Bancorp faces several key risks and challenges that have contributed to its recent underperformance. The company's heavy concentration in commercial real estate lending (58.9% of total loans) exposes it to potential downturns in the local real estate market. Additionally, the bank's reliance on higher-cost funding sources, such as FHLB advances and brokered deposits, has eroded its net interest margin and profitability.The company's ability to grow its core deposit base and reduce its funding costs will be critical to its future success. Furthermore, the bank's small size and limited geographic footprint make it challenging to achieve the economies of scale necessary to compete effectively in the current interest rate environment.