1895 Bancorp of Wisconsin, Inc.

What they do

The company operates as a community-focused bank providing a full range of financial services to commercial and retail customers in its Wisconsin market area. Its principal historical business is originating residential mortgage loans, which it has supplemented with commercial real estate and commercial lending. It also operates a Treasury Management unit focused on generating and retaining business deposits.

Revenue drivers

• Commercial real estate and land development loans — At December 31, 2023, these loans totaled $231.9 million, or 58.3% of the loan portfolio, spanning non-owner occupied non-residential ($73.9 million), multi-family residential ($79.7 million), owner-occupied non-residential ($40.9 million), non-owner occupied residential ($6.2 million) and commercial real estate construction ($31.2 million).
• Commercial and industrial loans — At December 31, 2023, commercial loans (including commercial and industrial) totaled $47.9 million, or 12.0% of the loan portfolio, and the company intends to increase originations in this category.
• Residential mortgage lending — Historically the company's principal business activity, consisting of originating one- to four-family residential real estate loans in its market area, with a stated intent to retain this mortgage lender presence.
• Core deposits and fee income — Checking, money market and statement savings accounts provide a stable funding base; the Treasury Management unit targets business deposits that assist in generating fee income.

Recent performance

Annual net income fell from $1.3 million in 2020 to $85 thousand in 2021, and the company reported a net loss of $148 thousand in 2022 and a net loss of $6.8 million in 2023. Diluted EPS moved from $0.28 in 2020 and $0.01 in 2021 to negative $0.03 in 2022 and negative $1.23 in 2023. Operating cash flow turned negative in 2023 at negative $709 thousand after three consecutive positive years ($1.3 million, $2.8 million and $2.6 million). At September 30, 2024, total assets were $564.5 million, total liabilities $491.4 million and shareholder equity $73.2 million. The company implemented the CECL accounting standard on January 1, 2023.

Strategy

Management states its goal is to provide long-term value to stockholders, customers and employees by executing a safe and sound business strategy that produces increasing earnings. The strategy includes growing the balance sheet and improving profitability, prudently growing the loan portfolio with a focus on diversifying into commercial real estate and commercial lending, and increasing core deposits with an emphasis on low-cost demand deposits. The company also aims to manage credit risk to maintain a low level of non-performing assets and to continue growing organically while considering acquisition opportunities. Management says it has no current acquisitions or new branches planned but expects to expand into nearby Wisconsin markets.

Risks

• Commercial real estate concentration — Commercial real estate and land development loans were $231.9 million, or 58.3% of the loan portfolio at December 31, 2023, exposing the company to adverse conditions in real estate markets.
• Credit risk from commercial lending growth — The company intends to increase originations of commercial real estate and commercial loans, which generally carry more risk than one- to four-family residential loans.
• Liquidity and funding — The company identifies its ability to maintain liquidity, primarily through deposits, in light of recent events in the banking industry as a risk factor.
• Interest rate and margin pressure — Inflation and changes in the interest rate environment could reduce margins and yields, mortgage banking revenues, the fair value of financial instruments including mortgage servicing rights, or loan origination levels.

Outlook

Management says it intends to grow assets and liabilities, particularly loans and deposits, on a disciplined basis while controlling expenses to improve earnings. It plans to increase higher-yielding commercial loan originations and core deposits, with an emphasis on low-cost demand deposits. The company expects to continue expanding into nearby Wisconsin markets and will consider acquisition opportunities, though no acquisitions or new branches are currently planned. Management provides no specific financial guidance in the excerpts.