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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             

Commission File Number: 333-277828

EWSB BANCORP, INC.

(Exact Name of Registrant as Specified in Its Charter)

Maryland

    

Applied For

(State of Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

109 West Second Street, Kaukauna, Wisconsin 54130

(Address of Principal Executive Offices) (Zip Code)

(920) 766-4646

(Registrant’s Telephone Number, Including Area Code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of Act:

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

None

None

None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

No shares of the Registrant’s common stock, par value $0.01 per share, where issued and outstanding as of August 7, 2024.

Table of Contents

TABLE OF CONTENTS

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Balance Sheets as of June 30, 2024 (unaudited) and December 31, 2023

1

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2024 and 2023 (unaudited)

2

Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2024 and 2023 (unaudited)

4

Consolidated Statements of Changes in Equity for the Three and Six Months Ended June 30, 2024 and 2023 (unaudited)

5

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023 (unaudited)

6

Notes to Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

Item 4.

Controls and Procedures

36

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

37

Item 1A.

Risk Factors

37

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

Item 3.

Defaults Upon Senior Securities

37

Item 4.

Mine Safety Disclosures

37

Item 5.

Other Information

37

Item 6.

Exhibits

37

Signatures

38

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Table of Contents

EXPLANATORY NOTE

EWSB Bancorp, Inc. (the “Company,” “we” or “our”) is the proposed stock holding company for East Wisconsin Savings Bank (the “Bank”). The Company will become the holding company for the Bank upon the completion of the conversion of Wisconsin Mutual Bancorp, MHC (the “MHC”) from the mutual holding company to the stock holding company form of organization. As of June 30, 2024, the conversion transaction had not been completed, and the Company had no assets or liabilities and had not conducted any business activities other than organizational activities. Accordingly, the unaudited consolidated financial statements and other financial information contained in this Quarterly Report on Form 10-Q relate solely to the MHC, the Bank’s current mutual holding company, and its subsidiaries.

The unaudited consolidated financial statements and other financial information contained in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and related notes of the MHC as of and for the years ended December 31, 2023 and 2022 contained in the Company’s definitive prospectus dated June 28, 2024 (the “Prospectus”), as filed with the Securities and Exchange Commission on July 8, 2024 pursuant to Rule 424(b)(3) promulgated under the Securities Act of 1933, as amended.

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WISCONSIN MUTUAL BANCORP, MHC AND SUBSIDIARIES

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2024

Consolidated Balance Sheets

    

June 30, 2024

    

December 31, 2023

(unaudited)

Assets

  

  

Cash and cash equivalents

$

1,515,507

$

1,608,709

Time deposits with other financial institutions

4,498,220

 

4,497,669

Debt securities available for sale (amortized cost of $27,310,712 and $27,880,997 as of June 30, 2024 and December 31, 2023, respectively)

23,122,598

 

23,947,775

Debt securities held to maturity (fair value of $38,230,797 and $39,804,828 as of June 30, 2024 and December 31, 2023, respectively)

39,158,681

 

40,050,858

Loans, net of allowance of $1,168,398 and $1,056,796 as of June 30, 2024 and December 31, 2023, respectively

179,765,498

 

174,315,171

Land held for sale

435,328

 

435,328

Office properties and equipment, net

2,873,426

 

2,910,169

Federal Home Loan Bank stock

1,223,868

 

1,084,273

Cash value of life insurance

7,576,091

 

7,462,397

Net deferred tax assets

4,778,472

 

4,857,846

Accrued interest receivable and other assets

2,569,950

 

1,396,766

TOTAL ASSETS

$

267,517,639

$

262,566,961

Liabilities and Equity

  

 

  

Deposits:

  

 

  

Non-interest bearing

$

8,692,014

$

10,250,495

Interest bearing

214,204,759

 

220,217,134

Total deposits

222,896,773

 

230,467,629

Borrowed funds

31,078,000

 

19,030,000

Advance payments by borrowers for taxes and insurance

1,207,420

 

280,026

Accrued interest payable and other liabilities

1,419,167

 

1,252,482

Total liabilities

256,601,360

 

251,030,137

Equity:

  

 

  

Retained earnings

18,358,617

 

19,198,973

Accumulated other comprehensive income (loss)

(7,442,338)

 

(7,662,149)

Total equity

10,916,279

 

11,536,824

TOTAL LIABILITIES AND EQUITY

$

267,517,639

$

262,566,961

See accompanying notes to unaudited consolidated financial statements.

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WISCONSIN MUTUAL BANCORP, MHC AND SUBSIDIARIES

Consolidated Statements of Operations (unaudited)

    

Three Months Ended

    

Three Months Ended

    

Six Months Ended

    

Six Months Ended

June 30, 2024

June 30, 2023

June 30, 2024

June 30, 2023

Interest income:

  

  

  

  

Loans, including fees

$

2,085,146

$

1,900,204

$

4,067,005

$

3,704,173

Securities:

  

  

  

  

Taxable

264,503

287,344

532,494

652,473

Tax-exempt

9,397

9,401

18,800

18,810

Other

42,714

28,978

85,224

53,903

Total interest income

2,401,760

2,225,927

4,703,523

4,429,359

Interest expense:

  

  

  

  

Deposits

1,276,594

834,059

2,491,705

1,517,945

Borrowed funds

309,030

179,837

571,621

307,080

Total interest expense

1,585,624

1,013,896

3,063,326

1,825,025

Net interest income

816,136

1,212,031

1,640,197

2,604,334

Provision for credit losses

120,490

108,977

120,490

226,439

Net interest income after provision for credit losses

695,646

1,103,054

1,519,707

2,377,895

Noninterest income:

  

  

  

  

Service charges on deposit accounts

29,972

17,749

40,352

31,155

Interchange income

62,205

63,429

119,344

123,191

Mortgage banking income

114,586

102,737

229,152

162,082

Increase in cash value of life insurance

59,493

53,277

113,694

103,344

Gain on interest rate swap

87,155

173,445

Gain on sale of repossessed assets

9,368

71,012

Other

72,921

75,549

219,104

102,408

Total noninterest income

426,332

322,109

895,091

593,192

See accompanying notes to unaudited consolidated financial statements.

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WISCONSIN MUTUAL BANCORP, MHC AND SUBSIDIARIES

Consolidated Statements of Operations (unaudited) Continued

Three Months Ended

Three Months Ended

Six Months Ended

Six Months Ended

    

June 30, 2024

    

June 30, 2023

    

June 30, 2024

    

June 30, 2023

Noninterest expense:

  

  

  

  

Salaries and related benefits

1,016,941

986,504

2,048,383

2,025,783

Occupancy expense, net

160,550

194,088

333,659

393,552

Data processing

293,253

238,185

564,663

482,855

Advertising

42,664

43,043

84,353

88,888

FDIC insurance premiums

72,476

83,103

151,483

155,006

Other

197,954

184,180

434,091

393,020

Total noninterest expense

1,783,838

1,729,103

3,616,632

3,539,104

Income (loss) before provision for (benefit from) income taxes

(661,860)

(303,940)

(1,201,834)

(568,017)

Provision for (benefit from) income taxes

(198,999)

(88,821)

(361,478)

(158,928)

Net income (loss)

$

(462,861)

$

(215,119)

$

(840,356)

$

(409,089)

See accompanying notes to unaudited consolidated financial statements.

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WISCONSIN MUTUAL BANCORP, MHC AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss) (unaudited)

Three Months Ended

Three Months Ended

Six Months Ended

Six Months Ended

    

June 30, 2024

    

June 30, 2023

    

June 30, 2024

    

June 30, 2023

Net income (loss)

$

(462,861)

$

(215,119)

$

(840,356)

$

(409,089)

Other comprehensive income (loss), before tax:

  

  

  

  

Unrealized holding gain (loss) on available for sale debt securities

(68,104)

(435,769)

(254,890)

410,207

Reclassification adjustment for (accretion) amortization of unrealized holding gain (loss) included in accumulated other comprehensive income from the securities transferred from available for sale to held to maturity

275,555

273,315

554,075

592,008

Other comprehensive income (loss), before tax

207,451

(162,454)

299,185

1,002,215

Tax effect of other comprehensive income (loss) items

(55,038)

31,190

(79,374)

(278,763)

Other comprehensive income (loss), net of tax

152,413

(131,264)

219,811

723,452

Comprehensive income (loss)

$

(310,448)

$

(346,383)

$

(620,545)

$

314,363

See accompanying notes to unaudited consolidated financial statements.

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WISCONSIN MUTUAL BANCORP, MHC AND SUBSIDIARIES

Consolidated Statements of Changes in Equity (unaudited)

Accumulated

    

    

Other

    

Retained

Comprehensive

Earnings

Income (Loss)

Total Equity

Three and six months ended June 30, 2023

Balance at January 1, 2023

$

20,134,213

$

(9,214,772)

$

10,919,441

Net income (loss)

 

(193,970)

 

 

(193,970)

Other comprehensive income (loss)

 

 

854,716

 

854,716

Balance at March 31, 2023

$

19,940,243

$

(8,360,056)

$

11,580,187

Net income (loss)

 

(215,119)

 

 

(215,119)

Other comprehensive income (loss)

 

 

(131,264)

 

(131,264)

Balance at June 30, 2023

$

19,725,124

$

(8,491,320)

$

11,233,804

Three and six months ended June 30, 2024

Balance at January 1, 2024

$

19,198,973

$

(7,662,149)

$

11,536,824

Net income (loss)

 

(377,495)

 

 

(377,495)

Other comprehensive income (loss)

 

 

67,398

 

67,398

Balance at March 31, 2024

$

18,821,478

$

(7,594,751)

$

11,226,727

Net income (loss)

 

(462,861)

 

 

(462,861)

Other comprehensive income (loss)

 

 

152,413

 

152,413

Balance at June 30, 2024

$

18,358,617

$

(7,442,338)

$

10,916,279

See accompanying notes to unaudited consolidated financial statements.

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WISCONSIN MUTUAL BANCORP, MHC AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (unaudited)

Six Months Ended

Six Months Ended

    

    

June 30, 2024

    

June 30, 2023

Cash flows from operating activities:

$

(1,838,703)

$

(619,225)

Cash flows from investing activities:

  

  

Proceeds from maturities and paydowns of securities available for sale

599,665

10,386,364

Proceeds from maturities and paydowns of securities held to maturity

1,500,000

Purchase of FHLB stock

(139,595)

Net decrease/(increase) in loans

(5,570,817)

(6,479,309)

Purchase of office properties and equipment

(48,290)

(179,408)

Proceeds from sale of land held for sale

180,062

Net cash flows provided by (used in) investing activities

(3,659,037)

3,907,709

Cash flows from financing activities:

  

  

Net change in deposits

$

(7,570,856)

$

(15,738,217)

Proceeds from notes payable

400,000

Net increase/(decrease) from FHLB advances activity

(4,952,000)

10,355,000

Proceeds from Federal Reserve Bank Term Funding Program borrowing

17,000,000

Net change in advance payments by borrowers for taxes and insurance

927,394

147,219

Net cash flows provided by (used in) financing activities

5,404,538

(4,835,998)

Net change in cash and cash equivalents

(93,202)

(1,547,514)

Cash and cash equivalents at beginning of period

1,608,709

3,142,403

Cash and cash equivalents at end of period

$

1,515,507

$

1,594,889

Supplemental cash flow information:

  

  

Cash paid during the period for:

  

  

Interest

$

2,577,283

$

1,645,101

See accompanying notes to unaudited consolidated financial statements.

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WISCONSIN MUTUAL BANCORP, MHC AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

Note 1: Summary of Significant Accounting Policies

Organization

On August 3, 2017, East Wisconsin Savings Bank (the “Bank”) converted from a mutual savings bank to a stock savings bank and is now organized in the mutual holding company structure. The Bank issued all of its outstanding stock to a mid-tier holding company, EWSB Bancorp, Inc., which is owned 100% by a mutual holding company, Wisconsin Mutual Bancorp, MHC, (collectively the “Company”). The Bank provides a variety of financial services to individual and corporate customers. The Bank operates as a full-service financial institution with a primary market area including, but not limited to, east central Wisconsin. The Company is subject to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.

Principles of Consolidation

The financial statements include the accounts of Wisconsin Mutual Bancorp, MHC and its subsidiaries, EWSB Bancorp, Inc. and East Wisconsin Savings Bank. All significant intercompany balances and transactions have been eliminated.

Basis of Presentation

The accompanying unaudited Consolidated Financial Statements were prepared in accordance with GAAP and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited financial statements and related notes of Wisconsin Mutual Bancorp, MHC and its subsidiaries at and for the year ended December 31, 2023 contained in the Company’s prospectus dated June 28, 2024  (the “Prospectus”), as filed with the Securities and Exchange Commission pursuant to Securities Act Rule 424(b)(3) on July 8, 2024. The Company has not changed its significant accounting and reporting policies from those disclosed in the audited financial statements for the year ended December 31, 2023, contained in the Prospectus.

Use of Estimates in Preparation of Financial Statements

The preparation of the accompanying financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. The allowance for credit losses, valuation allowance on deferred tax assets, and fair value of securities are particularly subject to change in the near term. Actual results may differ from these estimates. The results of operations for the three and six month months ended June 30, 2024, are not necessarily indicative of results that may be expected for any other interim period or the entire fiscal year ending December 31, 2024.

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WISCONSIN MUTUAL BANCORP, MHC AND SUBSIDIARIES

Note 2: Debt Securities

Our debt securities portfolio consists of an available for sale (AFS) and a held to maturity (HTM) securities portfolio, both of which represent interest earning debt securities.

Debt Securities AFS

The following table summarizes the amortized cost and estimated fair value of securities available for sale on June 30, 2024 and December 31, 2023, and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss):

    

    

Gross 

    

Gross 

    

Amortized 

Unrealized 

Unrealized 

Estimated 

Cost

Gains

(Losses)

Fair Value

June 30, 2024

 

  

 

  

 

  

 

  

Securities available for sale:

 

  

 

  

 

  

 

  

Mortgage-backed securities

$

9,655,834

 

$

$

(1,256,100)

$

8,399,734

State and political subdivisions

 

14,191,015

 

 

 

(2,260,416)

 

11,930,599

Corporate securities

 

3,463,863

 

 

 

(671,598)

 

2,792,265

Total securities available for sale

$

27,310,712

 

$

$

(4,188,114)

$

23,122,598

    

    

Gross 

    

Gross 

    

Amortized 

Unrealized 

Unrealized 

Estimated 

Cost

Gains

(Losses)

Fair Value

December 31, 2023

Securities available for sale:

 

  

 

  

 

  

 

  

Mortgage-backed securities

$

10,164,358

 

$

$

(1,123,653)

$

9,040,705

State and political subdivisions

 

14,255,188

 

 

 

(2,172,143)

 

12,083,045

Corporate securities

 

3,461,451

 

 

 

(637,426)

 

2,824,025

Total securities available for sale

$

27,880,997

 

$

$

(3,933,222)

$

23,947,775

There were no sales of securities available for sale during the six months ended June 30, 2024 and 2023.

The following tables show the fair value and gross unrealized losses of available for sale debt securities in an unrealized loss position at June 30, 2024 and December 31, 2023, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:

Less Than 12 Months

12 Months or More

Total

Estimated 

Unrealized 

Estimated 

Unrealized 

Estimated 

Unrealized 

Fair Value

Loss

Fair Value

Loss

Fair Value

Loss

June 30, 2024

    

  

    

  

    

  

    

  

    

  

    

  

Securities available for sale:

 

  

 

  

 

  

 

  

 

  

 

  

Mortgage-backed securities

 

$

 

$

$

8,399,734

$

(1,256,100)

$

8,399,734

$

(1,256,100)

State and political subdivisions

 

 

 

 

 

11,930,599

 

(2,260,416)

 

11,930,599

 

(2,260,416)

Corporate securities

 

 

 

 

 

2,792,265

 

(671,598)

 

2,792,265

 

(671,598)

Totals

 

$

 

$

$

23,122,598

$

(4,188,114)

$

23,122,598

$

(4,188,114)

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WISCONSIN MUTUAL BANCORP, MHC AND SUBSIDIARIES

Less Than 12 Months

12 Months or More

Total

Estimated 

Unrealized 

Estimated 

Unrealized 

Estimated 

Unrealized 

Fair Value

Loss

Fair Value

Loss

Fair Value

Loss

December 31, 2023

    

  

    

  

    

  

    

  

    

  

    

  

Securities available for sale:

 

  

 

  

 

  

 

  

 

  

 

  

Mortgage-backed securities

 

$

 

$

$

9,040,705

$

(1,123,653)

$

9,040,705

$

(1,123,653)

State and political subdivisions

 

 

 

 

 

12,083,045

 

(2,172,143)

 

12,083,045

 

(2,172,143)

Corporate securities

 

 

 

 

 

2,824,025

 

(637,426)

 

2,824,025

 

(637,426)

Totals

 

$

 

$

$

23,947,775

$

(3,933,222)

$

23,947,775

$

(3,933,222)

At June 30, 2024, 51 debt securities designated as AFS are in an unrealized loss position. Based on our analysis of these securities, the decline in value is unrelated to credit loss and is related to changes in market interest rates since purchase, and therefore, changes in value for securities are included in other comprehensive income. In analyzing whether unrealized losses on debt securities are not related to credit losses, management takes into consideration, as applicable, whether the securities are issued by a governmental body or agency, whether the rating agency has downgraded the securities, industry analysts’ reports, the financial condition and performance of the issuer, and the quality of any underlying assets or credit enhancements. Market valuations and credit loss analysis on assets in the AFS securities portfolio are reviewed and monitored on a quarterly basis. None of the investments in our AFS securities portfolio were past due as of June 30, 2024. Management has the ability and intent to hold the securities for the foreseeable future and no declines are deemed to be related to credit losses; therefore, no provision for expected credit losses or allowance is carried for the AFS portfolio.

The following is a summary of amortized cost and estimated fair value of debt securities by contractual maturity as of June 30, 2024. Contractual maturities will differ from expected maturities for mortgage-backed securities because borrowers may have the right to call or prepay obligations without penalties.

June 30, 2024

Estimated 

Available-for-sale

Amortized Cost

Fair Value

Due in one year or less

    

$

563,526

    

$

553,097

Due after one year through five years

 

3,696,026

 

3,228,234

Due after five years through ten years

 

12,748,061

 

10,465,912

Due after ten years

 

647,265

 

475,621

Subtotal

 

17,654,878

 

14,722,864

Mortgage-backed securities

 

9,655,834

 

8,399,734

Total

$

27,310,712

$

23,122,598

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WISCONSIN MUTUAL BANCORP, MHC AND SUBSIDIARIES

Debt Securities HTM

The following table summarizes the amortized cost and estimated fair value of securities held to maturity at June 30, 2024 and December 31, 2023, and the corresponding amounts of gross unrealized gains and losses.

    

    

Gross 

    

Gross 

    

Amortized 

Unrealized 

Unrealized 

Estimated 

June 30, 2024

Cost

Gains

Losses

Fair Value

Securities held to maturity:

 

  

 

  

 

  

 

  

U.S. government sponsored agencies

$

28,635,962

 

$

$

(794,749)

$

27,841,213

U.S. Treasury securities

 

10,522,719

 

 

 

(133,135)

 

10,389,584

Total securities held to maturity

$

39,158,681

 

$

$

(927,884)

$

38,230,797

    

    

Gross 

    

Gross 

    

Amortized 

Unrealized 

Unrealized 

Estimated 

December 31, 2023

Cost

Gains

Losses

Fair Value

Securities held to maturity:

U.S. government sponsored agencies

$

28,223,324

$

12,819

$

(245,870)

$

27,990,273

U.S. Treasury securities

 

11,827,534

 

3,234

 

(16,213)

 

11,814,555

Total securities held to maturity

$

40,050,858

$

16,053

$

(262,083)

$

39,804,828

Investment securities classified as HTM are recorded at amortized cost subject to measurement of credit losses on financial instruments, also known as Current Expected Credit Losses (CECL). This methodology consists of measuring the value of investments on a collective basis when similar risk characteristics exist. Our investment policy requires securities designated as HTM to carry an explicit or implicit guarantee of the United States Government (i.e., issued by the U.S. Treasury and federal agencies of the United States). Market valuations and credit loss analysis on assets in the HTM securities portfolio are reviewed and monitored on a quarterly basis. None of the investments in our HTM securities portfolio were past due as of June 30, 2024. An allowance for credit losses (ACL) is not calculated or recorded based on the implied guarantee of these securities.

The following table summarizes the remaining contractual principal maturities of investment securities classified as HTM as of June 30, 2024. For United States agency debentures, the expected maturity is the actual contractual maturity of the notes. Expected remaining maturities for certain United States agency debentures may occur earlier than their contractual maturities because the note issuers have the right to call outstanding amounts ahead of their contractual maturity.

June 30, 2024

Amortized 

Estimated 

Held-to-maturity

Cost

Fair Value

Due in one year or less

    

$

1,465,606

    

$

1,453,185

Due after one year through five years

 

16,339,115

 

16,106,062

Due after five years through ten years

 

17,430,406

 

16,905,171

Due after ten years

 

3,923,554

 

3,766,379

Total

$

39,158,681

$

38,230,797

At June 30, 2024, the Company has pledged held-to-maturity securities with a par value of $17.0 million to support borrowings at the Federal Reserve Bank and $1.5 million related to a fair value hedge.

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WISCONSIN MUTUAL BANCORP, MHC AND SUBSIDIARIES

Note 3: Loans and Allowance for Credit Losses

A summary of loans by major category as of June 30, 2024 and December 31, 2023 is a follows:

    

June 30, 2024

    

December 31, 2023

Real estate

One to four family residential

$

123,123,893

$

122,239,967

Home equity

 

2,200,573

 

2,063,651

Equity line of credit

 

4,531,210

 

4,146,620

Construction

 

7,378,147

 

3,978,450

Multi-family

 

1,447,216

 

1,485,002

Commercial

 

2,014,189

 

2,333,631

Commercial installment

 

3,987,341

 

4,373,435

Consumer

 

 

  

Marine and recreational

 

32,314,537

 

30,800,279

Other consumer

 

4,061,105

 

4,038,013

 

Subtotal

 

181,058,211

 

175,459,048

Allowance for credit losses

 

(1,168,398)

 

(1,056,796)

Unearned loan fees

 

(124,315)

 

(87,081)

Loans, net

$

179,765,498

$

174,315,171

Changes in the allowance for the three months ended June 30, 2024 and 2023, are as follows:

For the three months ended June 30, 2024

Beginning 

Provision for 

Ending 

Balance

Credit Loss

Charge-offs

Recoveries

Balance

Real estate:

    

  

    

  

    

  

    

  

    

  

One to four family residential

$

598,620

$

55,499

 

$

 

$

$

654,119

Home equity

 

9,945

 

1,746

 

 

 

 

11,691

Equity line of credit

 

21,449

 

2,624

 

 

 

 

24,073

Construction

 

48,635

 

38,329

 

 

 

 

86,964

Multi-family

 

7,157

 

532

 

 

 

 

7,689

Commercial

 

22,154

 

694

 

 

 

 

22,848

Commercial Installment

 

51,549

 

(409)

 

 

 

 

51,140

Consumer:

Marine and recreational

 

255,235

 

20,643

 

(599)

 

 

 

275,279

Other consumer

 

32,763

 

832

 

 

 

1,000

 

34,595

Total

$

1,047,507

$

120,490

$

(599)

 

$

1,000

$

1,168,398

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WISCONSIN MUTUAL BANCORP, MHC AND SUBSIDIARIES

For the three months ended June 30, 2023

Beginning 

Provision for 

Ending 

Balance

Credit Loss

Charge-offs

Recoveries

Balance

Real estate:

    

  

    

  

    

  

    

  

    

  

One to four family residential

$

645,035

 

$

47,171

 

$

 

$

$

692,206

Home equity

 

10,854

 

757

 

 

 

11,611

Equity line of credit

 

21,878

 

1,597

 

 

 

23,475

Construction

 

39,565

 

12,589

 

 

 

52,154

Multi-family

 

7,837

 

1,247

 

 

 

9,084

Commercial

 

24,765

 

1,776

 

 

 

26,541

Commercial Installment

 

32,749

 

12,881

 

 

 

45,630

Consumer:

Marine and recreational

 

215,991

 

31,278

 

(23,407)

 

 

223,862

Other consumer

 

28,345

 

(319)

 

 

1,374

 

29,400

Total

$

1,027,019

 

$

108,977

 

$

(23,407)

$

1,374

$

1,113,963

Changes in the allowance for the six months ended June 30, 2024 and 2023, are as follows:

For the six months ended June 30, 2024

Beginning 

Provision for 

Ending 

Balance

Credit Loss

Charge-offs

Recoveries

Balance

Real estate:

    

  

    

  

    

  

    

  

    

  

One to four family residential

$

654,754

$

(635)

 

$

 

$

$

654,119

Home equity

 

11,045

 

646

 

 

 

 

11,691

Equity line of credit

 

22,193

 

1,880

 

 

 

 

24,073

Construction

 

21,293

 

65,671

 

 

 

 

86,964

Multi-family

 

7,948

 

(259)

 

 

 

 

7,689

Commercial

 

26,323

 

(3,475)

 

 

 

 

22,848

Commercial Installment

 

44,972

 

6,168

 

 

 

 

51,140

Consumer:

Marine and recreational

 

241,624

 

43,543

 

(9,888)

 

 

 

275,279

Other consumer

 

26,644

 

6,951

 

 

 

1,000

 

34,595

Total

$

1,056,796

$

120,490

$

(9,888)

 

$

1,000

$

1,168,398

For the six months ended June 30, 2023

Beginning 

Provision for 

Ending 

Balance

Credit Loss

Charge-offs

Recoveries

Balance

Real estate:

    

  

    

  

    

  

    

  

    

  

One to four family residential

$

571,728

 

$

120,478

 

$

 

$

$

692,206

Home equity

 

5,884

 

5,727

 

 

 

11,611

Equity line of credit

 

19,696

 

3,779

 

 

 

23,475

Construction

 

6,170

 

45,984

 

 

 

52,154

Multi-family

 

11,260

 

(2,176)

 

 

 

9,084

Commercial

 

42,319

 

(15,778)

 

 

 

26,541

Commercial Installment

 

44,752

 

878

 

 

 

45,630

Consumer:

Marine and recreational

 

183,492

 

63,777

 

(23,407)

 

 

223,862

Other consumer

 

24,056

 

3,770

 

 

1,574

 

29,400

Total

$

909,357

 

$

226,439

 

$

(23,407)

$

1,574

$

1,113,963

There were no collateral dependent loans as of June 30, 2024.

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WISCONSIN MUTUAL BANCORP, MHC AND SUBSIDIARIES

As of December 31, 2023, there was one collateral dependent loan totaling $9,888 in the marine and recreational loan segment. This loan was collateralized by a licensed recreational vehicle and had $4,889 in the ACL as of December 31, 2023. There were no other collateral dependent loans as of December 31, 2023.

The Company regularly evaluates various attributes of loans to determine the appropriateness of the allowance for credit losses. The credit quality indicators monitored differ depending on the class of loan.

Multi-family, commercial real estate, and commercial installment loans are generally evaluated using the following internally prepared ratings:

Pass ratings are assigned to loans with adequate collateral and debt service ability such that collectability of the contractual loan payments is highly probable.
Special mention ratings are assigned to loans where management has some concern that the collateral or debt service ability may not be adequate, though the collectability of the contractual loan payments is still probable.
Substandard ratings are assigned to loans that do not have adequate collateral and/or debt service ability such that collectability of the contractual loan payments is no longer probable.
Doubtful ratings are assigned to loans that do not have adequate collateral and/or debt service ability, and collectability of the contractual loan payments is unlikely.

One to four family residential, home equity, equity line of credit, construction, marine and recreational, and other consumer loans are generally evaluated based on whether the loan is performing according to the contractual terms of the loan.

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WISCONSIN MUTUAL BANCORP, MHC AND SUBSIDIARIES

The following tables present the credit risk profile of the Company’s loan portfolio based on risk rating category and year of originations at June 30, 2024 and December 31, 2023.

Total Loans by Origination Year

2024

2023

2022

Prior

Revolving

Total

At June 30, 2024

    

  

    

  

    

  

    

  

    

  

    

  

Real estate

 

  

 

  

 

  

 

  

 

  

 

  

One to four family residential

 

  

 

  

 

  

 

  

 

  

 

  

Performing

$

5,677,817

$

9,491,290

$

34,812,364

$

73,044,787

$

$

123,026,258

Non performing

 

 

 

97,635

 

 

 

97,635

Total one to four family residential

$

5,677,817

$

9,491,290

$

34,909,999

$

73,044,787

$

$

123,123,893

Home equity

 

  

 

  

 

  

 

  

 

  

 

  

Performing

$

363,974

$

935,266

$

601,092

$

300,241

$

$

2,200,573

Non performing

 

 

 

 

 

 

Total home equity

$

363,974

$

935,266

$

601,092

$

300,241

$

$

2,200,573

Equity line of credit

 

  

 

  

 

  

 

  

 

  

 

  

Performing

$

$

$

$

$

4,531,210

$

4,531,210

Non performing

 

 

 

 

 

 

Total equity line of credit

$

$

$

$

$

4,531,210

$

4,531,210

Construction

 

  

 

  

 

  

 

  

 

  

 

  

Performing

$

3,086,265

$

3,455,371

$

480,885

$

355,626

$

$

7,378,147

Non performing

 

 

 

 

 

 

Total construction

$

3,086,265

$

3,455,371

$

480,885

$

355,626

$

$

7,378,147

Multi-family

 

  

 

  

 

  

 

  

 

  

 

  

Pass

$

$

$

$

1,447,216

$

$

1,447,216

Special mention

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

Doubtful

 

 

 

 

 

 

Total multi-family

$

$

 

$

1,447,216

$

$

1,447,216

Commercial

 

  

 

  

 

  

 

  

 

  

 

  

Pass

$

107,401

$

180,445

$

1,411,019

$

315,324

$

$

2,014,189

Special mention

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

Doubtful

 

 

 

 

 

 

Total commercial

$

107,401

$

180,445

$

1,411,019

$

315,324

$

$

2,014,189

Commercial installment

 

  

 

  

 

  

 

  

 

  

 

  

Pass

$

$

136,701

$

296,329

$

3,554,311

$

$

3,987,341

Special mention

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

Doubtful

 

 

 

 

 

 

Total commercial installment

$

$

136,701

$

296,329

$

3,554,311

$

$

3,987,341

Consumer

 

  

 

  

 

  

 

  

 

  

 

  

Marine and recreational

 

  

 

  

 

  

 

  

 

  

 

  

Performing

$

5,214,775

$

8,650,386

$

3,423,813

$

15,010,154

$

$

32,299,128

Non performing

 

 

15,409

 

 

 

 

15,409

Total marine and recreational

$

5,214,775

$

8,665,795

$

3,423,813

$

15,010,154

$

$

32,314,537

Other consumer

 

  

 

  

 

  

 

  

 

  

 

  

Performing

$

413,269

$

643,786

$

777,536

$

2,226,514

$

$

4,061,105

Non performing

 

 

 

 

 

 

Total other consumer

$

413,269

$

643,786

$

777,536

$

2,226,514

$

$

4,061,105

Total loans

$

14,863,501

$

23,508,654

$

41,900,673

$

96,254,173

$

4,531,210

$

181,058,211

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WISCONSIN MUTUAL BANCORP, MHC AND SUBSIDIARIES

Total Loans by Origination Year

2023

2022

2021

Prior

Revolving

Total

At December 31, 2023

    

  

    

  

    

  

    

  

    

  

    

  

Real estate

 

  

 

  

 

  

 

  

 

  

 

  

One to four family residential

 

  

 

  

 

  

 

  

 

  

 

  

Performing

$

9,639,759

$

34,992,254

 

$

13,184,881

$

64,423,073

$

$

122,239,967

Non performing

 

 

 

 

 

 

Total one to four family residential

$

9,639,759

$

34,992,254

$

13,184,881

$

64,423,073

$

$

122,239,967

Home equity

 

  

 

  

 

  

 

  

 

  

 

  

Performing

$

991,616

$

714,749

$

119,200

$

238,086

$

$

2,063,651

Non performing

 

 

 

 

 

 

Total home equity

$

991,616

$

714,749

$

119,200

$

238,086

$

$

2,063,651

Equity line of credit

 

  

 

  

 

  

 

  

 

  

 

  

Performing

$

$

$

$

$

4,146,620

$

4,146,620

Non performing

 

 

 

 

 

 

Total equity line of credit

$

$

$

$

$

4,146,620

$

4,146,620

Construction

 

  

 

  

 

  

 

  

 

  

 

  

Performing

$

2,258,809

$

1,194,457

$

295,614

$

229,570

$

$

3,978,450

Non performing

 

 

 

 

 

 

Total construction

$

2,258,809

$

1,194,457

$

295,614

$

229,570

$

$

3,978,450

Multi-family

 

  

 

  

 

  

 

  

 

  

 

  

Pass

$

$

$

218,321

$

1,266,681

$

$

1,485,002

Special mention

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

Doubtful

 

 

 

 

 

 

Total multi-family

$

$

$

218,321

$

1,266,681

$

$

1,485,002

Commercial

 

  

 

  

 

  

 

  

 

  

 

  

Pass

$

439,270

$

1,348,841

$

353,171

$

192,349

$

$

2,333,631

Special mention

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

Doubtful

 

 

 

 

 

 

Total commercial

$

439,270

$

1,348,841

$

353,171

$

192,349

$

$

2,333,631

Commercial installment

 

  

 

  

 

  

 

  

 

  

 

  

Pass

$

360,575

$

410,038

$

1,379,228

$

2,223,594

$

$

4,373,435

Special mention

 

 

 

 

 

 

Substandard

 

 

 

 

 

 

Doubtful

 

 

 

 

 

 

Total commercial installment

$

360,575

$

410,038

$

1,379,228

$

2,223,594

$

$

4,373,435

Consumer

 

  

 

  

 

  

 

  

 

  

 

  

Marine and recreational

 

  

 

  

 

  

 

  

 

  

 

  

Performing

$

9,291,668

$

3,297,641

$

719,234

$

17,491,736

$

$

30,800,279

Non performing

 

 

 

 

 

 

Total marine and recreational

$

9,291,668

$

3,297,641

$

719,234

$

17,491,736

$

$

30,800,279

Other consumer

 

  

 

  

 

  

 

  

 

  

 

  

Performing

$

1,433,967

$

1,645,920

$

562,650

$

377,505

$

$

4,020,042

Non performing

 

 

17,971

 

 

 

 

17,971

Total other consumer

$

1,433,967

$

1,663,891

$

562,650

$

377,505

$

$

4,038,013

Total loans

$

24,415,664

$

43,621,871

$

16,832,299

$

86,442,594

$

4,146,620

$

175,459,048

Current year-to-date gross charge-offs are not included in the above tables as the amounts are considered insignificant.

15

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WISCONSIN MUTUAL BANCORP, MHC AND SUBSIDIARIES

Loan aging information as of June 30, 2024 and December 31, 2023, follows:

Accruing

Loans Past

Loans 

Nonaccrual 

Current 

Due 31-89 

Past Due 

with an 

Loans

Days

90+ Days

Nonaccrual

ACL

Total Loans

June 30, 2024

    

  

    

  

    

  

    

  

    

  

    

  

Real estate:

 

  

 

  

 

  

 

  

 

  

 

  

One to four family residential

$

122,830,771

$

195,487

 

$

 

$

97,635

 

$

$

123,123,893

Home equity

 

2,200,573

 

 

 

 

 

 

2,200,573

Equity line of credit

 

4,531,210

 

 

 

 

 

 

4,531,210

Construction

 

7,378,147

 

 

 

 

 

 

7,378,147

Multi-family

 

1,447,216

 

 

 

 

 

 

1,447,216

Commercial

 

2,014,189

 

 

 

 

 

 

2,014,189

Commercial installment

 

3,987,341

 

 

 

 

 

 

3,987,341

Consumer

 

Marine and recreational

 

32,128,570

 

170,557

 

 

 

15,410

 

 

32,314,537

Other consumer

 

4,061,105

 

 

 

 

 

 

4,061,105

Totals

$

180,579,122

$

366,044

 

$

$

113,045

 

$

$

181,058,211

Accruing

Loans Past 

Loans 

Nonaccrual 

Current 

Due 31-89 

Past Due 

with an 

Loans

Days

90+ Days

Nonaccrual

ACL

Total Loans

December 31, 2023

    

  

    

  

    

  

    

  

    

  

    

  

Real estate:

 

  

 

  

 

  

 

  

 

  

 

  

One to four family residential

$

120,678,966

$

1,561,001

$

$

$

$

122,239,967

Home equity

 

2,063,651

 

 

 

 

 

2,063,651

Equity line of credit

 

4,086,622

 

59,998

 

 

 

 

4,146,620

Construction

 

3,978,450

 

 

 

 

 

3,978,450

Multi-family

 

1,485,002

 

 

 

 

 

1,485,002

Commercial

 

2,333,631

 

 

 

 

 

2,333,631

Commercial installment

 

4,373,435

 

 

 

 

 

4,373,435

Consumer

 

Marine and recreational

 

30,550,492

 

249,787

 

 

 

 

30,800,279

Other consumer

 

4,020,042

 

 

 

17,971

 

 

4,038,013

Totals

$

173,570,291

$

1,870,786

$

$

17,971

$

$

175,459,048

The Bank may modify loans to borrowers experiencing financial difficulty by providing modifications to repayment terms. There were no loans subject to such modifications as of June 30, 2024 and December 31, 2023.

A summary of loans to directors, executive officers, and their affiliates as of June 30, 2024 and December 31, 2023 is as follows:

    

June 30, 2024

    

December 31, 2023

Balance at beginning of period

$

27,004

$

42,708

New loans

 

 

Repayments

 

(5,242)

 

(15,704)

 

Balance at end of period

$

21,762

$

27,004

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WISCONSIN MUTUAL BANCORP, MHC AND SUBSIDIARIES

Note 4: Deposits

The composition of deposits at June 30, 2024 December 31, 2023 is as follows:

    

June 30, 2024

    

December 31, 2023

Non-interest-bearing demand

$

8,692,014

$

10,250,495

Interest-bearing demand

 

30,163,001

 

32,900,701

Savings

 

31,442,092

 

32,888,853

Money market

 

42,790,541

 

49,911,872

Certificates of deposit

 

109,809,125

 

104,515,708

Total deposits

$

222,896,773

$

230,467,629

The aggregate amount of certificates of deposit in denominations of $250,000 or more at June 30, 2024 and December 31, 2023 was approximately $20,061,000 and $18,488,000, respectively.

The scheduled maturities of certificates of deposit as of June 30, 2024 are summarized as follows:

    

Twelve months ended June 30,

Amount

2025

    

$

89,862,666

2026

 

11,035,112

2027

 

1,681,147

2028

 

4,851,203

2029

 

2,378,997

Total

$

109,809,125

Deposits from directors, executive officers, and their affiliates totaled $1,165,725 and $1,300,864 at June 30, 2024 and December 31, 2023, respectively.

Note 5: Borrowed Funds

Borrowed funds consisted of the following at June 30, 2024 and December 31, 2023:

June 30, 2024

December 31, 2023

Rates

Amount

Rates

Amount

Federal Home Loan Bank:

    

  

    

  

    

  

    

  

Fixed rate, short term advances

 

5.42

%  

$

7,678,000

 

5.43

%  

$

12,630,000

Fixed rate, fixed term advances

 

3.40

%  

 

6,000,000

 

3.40

%  

 

6,000,000

Federal Reserve Bank Term Funding Program ("BTFP")

 

4.76

%  

 

17,000,000

 

%  

 

Related party subordinated promissory notes

 

7.00

%  

 

400,000

 

7.00

%  

 

400,000

Total borrowings

 

$

31,078,000

 

  

$

19,030,000

The Company utilizes fixed rate short term advances from the Federal Home Loan Bank as a flexible source of liquidity. Terms of these advances range from 1 – 27 days.

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WISCONSIN MUTUAL BANCORP, MHC AND SUBSIDIARIES

The following is a summary of scheduled maturities of non-short term borrowed funds as of June 30, 2024:

    

Rate

    

Amount

2025

 

4.76

%  

$

17,000,000

2028

 

3.40

%  

 

6,000,000

Total

$

23,000,000

Actual maturities may differ from the scheduled principal maturities due to call options on the various advances.

The Company has a master contract agreement with the FHLB that provides for borrowing up to a FHLB determined percent of the book value of the Company’s qualifying one- to four-family residential real estate loans. The loans pledged as security for FHLB borrowings totaled approximately $66,398,000 and $65,826,000 at June 30, 2024 and December 31, 2023, respectively. FHLB advances are also secured by $1,223,868 and $1,084,273 of FHLB stock owned by the Company at June 30, 2024 and December 31, 2023, respectively. At June 30, 2024, the Company’s current borrowing capacity is $7,059,985 utilizing its remaining FHLB activity stock ownership and $52,211,899 based on total collateral pledged as of this date.

In 2023, the Company entered into subordinated promissory note agreements with various directors and officers of the Company to support future capital contributions. The notes were issued on February 6, 2023, in an aggregate par value of $400,000 carrying an annual fixed interest rate of 7.0% paid semi-annually. The notes were issued with a 3-year term and are continuously callable by the Company.

In January 2024, the Company obtained a collateralized borrowing of $17.0 million through the Federal Reserve Bank’s Bank Term Funding Program (“BTFP”). The borrowing under BTFP has a maturity date of January 26, 2025, and an interest rate of 4.76%. The Company pledged investment securities as collateral to support this borrowing.

At June 30, 2024 and December 31, 2023, the Company has short-term borrowing availability through the Federal Reserve Bank’s discount window of up to $25 million. The Company is required to pledge securities and/or loans in order to borrow at the discount window. The Company had no short-term borrowings through the Federal Reserve discount window and did not pledge securities or loans as of June 30, 2024 and December 31, 2023.

At June 30, 2024 and December 31, 2023, the Company had an unsecured $6.0 million federal funds line of credit with a correspondent bank.

Note 6: Equity and Regulatory Matters

The payment of dividends by the Bank would be restricted if the Bank does not meet the minimum Capital Conservation Buffer as defined by Basel III regulatory capital guidelines and/or if, after payment of the dividend, the Bank would be unable to maintain satisfactory regulatory capital ratios.

The Bank is subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum regulatory capital amounts and ratios (set forth in the table on the next page). It is management’s opinion, as of June 30, 2024, that the Bank meets all applicable capital adequacy requirements.

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WISCONSIN MUTUAL BANCORP, MHC AND SUBSIDIARIES

As of June 30, 2024, the Bank is categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum regulatory capital ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank’s category.

The Bank’s actual capital amounts and ratios as of June 30, 2024 and December 31, 2023, are presented in the following tables:

To Be Well Capitalized

For Capital Adequacy

Under Prompt Corrective

Actual

Purposes

Action Provisions

(Dollars in Thousands)

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

    

June 30, 2024

  

  

  

  

  

  

Bank

  

  

  

  

  

  

Common Equity Tier 1 capital (to risk-weighted assets)

$

15,637

10.1

%  

6,987

4.5

%  

10,093

6.5

%  

Tier 1 capital (to risk-weighted assets)

15,637

10.1

%  

9,317

6.0

%  

12,422

8.0

%  

Total capital (to risk-weighted assets)

16,805

10.8

%  

12,422

8.0

%  

15,528

10.0

%  

Tier 1 capital (to average assets)

15,637

5.9

%  

10,594

4.0

%  

13,243

5.0

%  

December 31, 2023

  

  

  

  

  

  

Bank

  

  

  

  

  

  

Common Equity Tier 1 capital (to risk-weighted assets)

$

16,464

11.2

%  

≥ $6,634

4.5

%  

≥ $9,582

6.5

%  

Tier 1 capital (to risk-weighted assets)

 

16,464

11.2

%  

8,845

6.0

%  

11,794

8.0

%  

Total capital (to risk-weighted assets)

 

17,521

11.9

%  

11,794

8.0

%  

14,742

10.0

%  

Tier 1 capital (to average assets)

 

16,464

6.3

%  

10,386

4.0

%  

12,982

5.0

%  

In addition to the above minimum regulatory capital measures, the Board of Directors has designated that the Bank will have and maintain its tier one capital as a percentage of average total assets at a minimum of 8.00% and its level of total capital to risk-weighted assets at a minimum of 11.00%. At June 30, 2024, the Bank is not in compliance with minimum capital ratios as designated by the Board of Directors.

In addition to the above minimum regulatory capital measures, the State of Wisconsin requires a savings bank to maintain a net worth ratio in an amount not less than 6%. At June 30, 2024, the Bank’s net worth ratio of 4.31% was not in compliance with the minimum requirement.

Note 7: Fair Value Measurements

Accounting standards describe three levels of inputs that may be used to measure fair value (the fair value hierarchy). The level of an asset or liability within the fair value hierarchy is based on the lowest level of input significant to the fair value measurement of that asset or liability.

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WISCONSIN MUTUAL BANCORP, MHC AND SUBSIDIARIES

Following is a brief description of each level of the fair value hierarchy:

Level 1 - Fair value measurement is based on quoted prices for identical assets or liabilities in active observable markets.

Level 2 - Fair value measurement is based on: (1) quoted prices for similar assets or liabilities in active markets; (2) quoted prices for identical or similar assets or liabilities in markets that are not active; or (3) valuation models and methodologies for which all significant assumptions are or can be corroborated by observable market data.

Level 3 - Fair value measurement is based on valuation models and methodologies that incorporate at least one significant assumption that cannot be corroborated by observable market data. Level 3 measurements reflect the Company’s estimates about assumptions market participants would use if measured at fair value on a recurring basis under GAAP.

Some assets and liabilities, such as securities available for sale, are measured at fair value on a recurring basis under GAAP. Other assets and liabilities, such as individually evaluated loans, may be measured at fair value on a nonrecurring basis. As of June 30, 2024 and December 31, 2023, the Company did not have any significant assets or liabilities that were measured at fair value on a nonrecurring basis.

Following is a description of the valuation methodology and significant inputs used for each asset measured at fair value on a recurring basis, as well as the classification of the asset within the fair value hierarchy.

Securities available for sale- Securities available for sale are classified as Level 2 measurements within the fair value hierarchy. Level 2 securities include U.S. government sponsored agencies, obligations of states and political subdivisions, corporate securities, and mortgaged-backed securities. The fair value measurement of a Level 2 security is based on recent sales of similar securities and other observable market data.

Fair value hedge – Fair value hedges are classified as Level 2 measurements within the fair value hierarchy. The fair value measurement is based on current observable market interest rates.

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WISCONSIN MUTUAL BANCORP, MHC AND SUBSIDIARIES

Information regarding the fair value of assets and liabilities measured at fair value on a recurring basis as of June 30, 2024 and December 31, 2023, follows:

Recurring Fair Value Measurements Using

Quoted Prices

in Active

Significant

Markets for

Other

Significant

Assets

Identical

Observable

Unobservable

Measured at

Instruments

Inputs

Inputs

    

Fair Value

(Level 1)

    

(Level 2)

    

(Level 3)

June 30, 2024

  

  

  

  

Financial assets:

  

  

  

  

Securities available for sale:

  

  

  

  

Mortgage-backed securities

$

8,399,734

$

$

8,399,734

$

State and political subdivisions

11,930,599

11,930,599

Corporate securities

2,792,265

2,792,265

Total securities available for sale

$

23,122,598

$

$

23,122,598

$

Fair value hedge on fixed rate loans

$

273,859

$

$

273,859

$

December 31, 2023

  

  

  

  

Financial assets:

  

  

  

  

Securities available for sale:

  

  

  

  

Mortgage-backed securities

$

9,040,705

$

$

9,040,705

$

State and political subdivisions

 

12,083,045

 

 

12,083,045

 

Corporate securities

 

2,824,025

 

 

2,824,025

 

Total securities available for sale

$

23,947,775

$

$

23,947,775

$

Financial liabilities:

 

  

 

  

 

  

 

  

Fair value hedge on fixed rate loans

$

140,321

$

$

140,321

$

Note 8: Fair Value of Financial Instruments

Financial instruments are classified within the fair value hierarchy using the methodologies described in Note 7 – Fair Value Measurements. The following disclosures include financial instruments that are not carried at fair value on the Consolidated Balance Sheets. The calculation of estimated fair values is based on market conditions at a specific point in time and may not reflect current or future fair values.

Certain financial instruments generally expose the Company to limited credit risk and have no stated maturities or have short-term maturities and carry interest rates that approximate market. The carrying value of these financial instruments assumes to approximate the fair value of these instruments. These instruments include cash and cash equivalents, non-interest-bearing deposit accounts, time deposits with other financial institutions, FHLB stock, escrow deposits, FHLB advances and accrued interest receivable and payable. The fair market values of loans and interest-bearing deposits are calculated using the discounted cash flow (present value) method.

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WISCONSIN MUTUAL BANCORP, MHC AND SUBSIDIARIES

The carrying amounts and estimated fair values by fair value hierarchy of certain financial instruments as of June 30, 2024 and December 31, 2023, follows:

    

Carrying

Estimated

    

Amount

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Fair Value

June 30, 2024

  

  

  

  

  

Financial assets:

  

  

  

  

  

HTM debt securities:

  

  

  

  

  

U.S. government sponsored agencies

$

28,635,962

$

$

27,841,213

$

$

27,841,213

U.S. Treasury securities

$

10,522,719

$

10,389,584

$

$

$

10,389,584

Loans, net

$

179,765,498

$

$

$

173,031,000

$

173,031,000

Financial liabilities:

 

  

 

  

 

  

 

  

 

  

Interest-bearing deposits

$

214,204,759

$

$

200,623,000

$

$

200,623,000

December 31, 2023

  

  

  

  

  

Financial assets:

  

  

  

  

  

HTM debt securities:

  

  

  

  

  

U.S. government sponsored agencies

$

28,223,324

$

$

27,990,273

$

$

27,990,273

U.S. Treasury securities

$

11,827,534

$

11,814,555

$

$

$

11,814,555

Loans, net

$

174,315,171

$

$

$

165,086,000

$

165,086,000

Financial liabilities:

 

  

 

  

 

  

 

  

 

  

Interest-bearing deposits

$

220,217,134

$

$

207,001,000

$

$

207,001,000

Note 9: Derivatives

The Company’s objectives in using interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. The aggregate fair value of the swaps are recorded in other assets or other liabilities with changes in fair value recorded as gains or losses in noninterest income or noninterest expense on the consolidated statements of income (loss).

The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swap does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements.

Fair Value Hedge: An interest rate swap with a notional amount totaling $25.0 million as of June 30, 2024 was designated as a fair value last of layer hedge for certain fixed rate prepayable loans.

Note 10: Plan of Conversion

On March 4, 2024, the Board of Directors of Wisconsin Mutual Bancorp, MHC adopted a plan for its conversion to a fully stock holding company structure. According to the plan, EWSB Bancorp, Inc., which is currently the mid-tier stock holding company subsidiary of Wisconsin Mutual Bancorp, MHC and owns all of East Wisconsin Savings Bank’s common stock, will be succeeded by the Company which will own all of East Wisconsin Savings Bank’s common stock after the conversion. The conversion is subject to the final approval of the Federal Reserve Board; and the Wisconsin Department of Financial Institutions and the approval of at least a majority of the votes eligible to be cast by members eligible to vote at a special meeting of members of Wisconsin Mutual Bancorp, MHC to be held on August 19, 2024.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

Management’s discussion and analysis is intended to enhance your understanding of our financial condition and results of operations. The financial information in this section is derived from the accompanying financial statements. You should read the financial information in this section in conjunction with the business and financial information contained in this Quarterly Report on Form 10-Q and in the Company’s Prospectus.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “could,” “indicate,” “would,” “believe,” “contemplate,” “continue,” “intend,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to:

statements of our goals, intentions and expectations;
statements regarding our business plans, prospects, growth and operating strategies;
statements regarding the quality of our loan portfolio; and
estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not undertake any obligation to update any forward-looking statements after the date of this prospectus.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

our ability to manage our vulnerability to interest rates;
general economic conditions, either nationally or in our market areas, that are worse than expected including as a result of employment levels and labor shortages, and the effects of inflation, a potential recession or slowed economic growth caused by supply chain disruptions or otherwise;
inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments, including our mortgage servicing rights asset, or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make;
changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses;
our ability to comply with the confidential memorandum of understanding with the Wisconsin Department of Financial Institutions and the Federal Deposit Insurance Corporation;
changes in liquidity, including the size and composition of our deposit portfolio, including the percentage of uninsured deposits in the portfolio;

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Table of Contents

our ability to access cost-effective funding;
fluctuations in real estate values and residential real estate market conditions;
demand for loans and deposits in our market area;
our ability to execute on our business strategies, including increasing our loan originations;
competition among depository and other financial institutions;
adverse changes in the securities or secondary mortgage markets;
changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees, capital requirements and insurance premiums;
changes in the quality or composition of our loan or investment portfolios;
technological changes that may be more difficult or expensive than expected;
the inability of third-party providers to perform as expected;
a failure or breach of our operational or security systems or infrastructure, including cyberattacks;
our ability to manage market risk, credit risk and operational risk;
changes in consumer spending, borrowing and savings habits;
changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;
our ability to attract and retain key employees; and
changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. Except as required by law or regulation, we do not undertake, and we specifically disclaim any obligation, to release publicly the results of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Critical Accounting Policies and Use of Critical Accounting Estimates

Our accounting policies are integral to understanding the results reported. We consider accounting policies that require management to exercise significant judgment or discretion or to make significant assumptions that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. As of June 30, 2024, there have been no material changes to our critical accounting policies as compared to the critical accounting policies disclosed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Prospectus.

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Table of Contents

Comparison of Financial Condition at June 30, 2024 and December 31, 2023

Total Assets. Total assets increased $5.0 million, or 1.9%, to $267.5 million at June 30, 2024 from $262.6 million at December 31, 2023. The change was primarily the result of a $5.4 million increase in portfolio loans offset by a total decline of $1.7 million in investment securities balances. Other assets increased $1.2 million primarily due to the accumulated balance of costs incurred related to the stock conversion.

Cash and Due from Banks and Time Deposits with Other Financial Institutions. Total cash and due from banks and time deposits with other financial institutions declined $93,000, or 1.6% to $6.0 million at June 30, 2024 from $6.1 million at December 31, 2023. The change relates to general business activity.

Securities Available-for-Sale. Securities available-for-sale decreased $825,000, or 3.5%, to $23.1 million at June 30, 2024 from $23.9 million at December 31, 2023. The decrease was due to principal paydowns of $600,000 on mortgage-backed securities and a $255,000 decrease in the market value of the portfolio due to an increase in interest rates during the first six months of 2024. The proceeds from principal paydowns are utilized to manage liquidity and support loan growth.

Securities Held-to-Maturity. Securities held-to-maturity decreased $892,000, or 2.2%, to $39.2 million at June 30, 2024 from $40.1 million at December 31, 2023. The decline in securities held-to-maturity was due to maturities totaling $1.5 million offset by $554,000 in amortization of unrealized losses.

Loans, net. Loans, net increased $5.5 million, or 3.1%, to $179.8 million at June 30, 2024 from $174.3 million at December 31, 2023. Construction, marine and recreational vehicles, one- to four-family, home equity loans and lines of credit, and other consumer loans increased $3.4 million, $1.5 million, $884,000, $522,000 and $23,000, respectively, to $7.4 million, $32.3 million, $123.1 million, $6.7 million, and $4.1 million at June 30, 2024, respectively, as a result of loan production exceeding payoffs and amortization. These increases were partially offset by decreases to commercial, other commercial real estate, and multifamily of $386,000, $319,000 and $38,000 respectively, to $4.0 million, $2.0 million and $1.4 million at June 30, 2024, respectively.

Deposits. Total deposits decreased $7.6 million or 3.3% to $222.9 million at June 30, 2024 from $230.5 million at December 31, 2023. Non-interest bearing deposits decreased $1.6 million, or 15.2%, to $8.7 million at June 30, 2024 from $10.3 million at December 31, 2023. Total interest-bearing deposits other than time deposits decreased approximately $11.3 million, or 9.8%, to $104.4 million at June 30, 2024, from $115.7 million at December 31, 2023. Certificates of deposit balances increased $5.3 million, or 5.1%, to $109.8 million at June 30, 2024, from $104.5 million at December 31, 2023. The deposit mix changes are consistent with industry trends as consumers are transitioning to higher yielding term deposits in the current interest rate environment.

Borrowings. We had $31.1 million of borrowings at June 30, 2024 as compared to $19.0 million at December 31, 2023. We borrowed $17.0 million from the Federal Reserve Bank under its Bank Term Funding Program in January 2024. These funds were utilized to pay down borrowings at the FHLB.

During the second quarter of 2024, the Company obtained additional advances from the FHLB totaling approximately $7.7 million. At June 30, 2024, the Company has total outstanding advances from the FHLB of approximately $13.7 million. The additional advances were used to fund portfolio loan growth and offset the decline in deposit balances.

Equity. Total equity decreased $621,000, or 5.4%, to $10.9 million at June 30, 2024 from $11.5 million at December 31, 2023, due to a decrease in retained earnings of $840,000, which resulted from the net loss incurred for the six months ended June 30, 2024, partially offset by a decrease in accumulated other comprehensive loss of $220,000.

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Table of Contents

Comparison of Operating Results for the Three Months Ended June 30, 2024 and 2023

Net Income/(Loss). We recorded a net loss of $463,000 for the three months ended June 30, 2024, compared to a net loss of $215,000 for the three months ended June 30, 2023, a change of $248,000 year-over-year. The increase in our net loss year-over-year resulted primarily from a $396,000 decline in net interest income due to increased funding costs and an increase of $55,000 in total noninterest expense, partially offset by an increase of $104,000 in noninterest income.

Interest Income. Interest income increased $176,000, or 7.9%, to $2.4 million for the three months ended June 30, 2024, from $2.2 million for the three months ended June 30, 2023, due to a $185,000 increase in interest and fees on loans. The increase in interest and fees on loans was primarily due to an increase of 44 basis points in the weighted average yield on the loan portfolio to 4.69% for the three months ended June 30, 2024 from 4.25% for the same period in 2023. Interest income on securities and other investments declined $9,000 to $317,000 for the three months ended June 30, 2024 primarily due to a $2.6 million decline in average balance of available for sale investment securities year-over-year. The average balance decline was related to security maturities in the second quarter of 2024.

Interest Expense. Total interest expense increased $572,000, or 56.4%, to $1.6 million for the three months ended June 30, 2024, from $1,014,000 for the three months ended June 30, 2023. Interest expense on deposits increased $443,000, or 53.1%, to $1.3 million for the three months ended June 30, 2024 from $834,000 for the three months ended June 30, 2023, due primarily to an increase in the weighted average rate paid on certificates of deposit of 152 basis points to 4.36% for the three months ended June 30, 2024 from 2.84% for the three months ended June 30, 2023, combined with an increase in the average balance of such deposits of $7.0 million year-over-year and a $12.3 million decrease in the average balance of lower cost money market accounts year-over-year.

Interest expense on borrowed funds increased $129,000, or 71.8%, to $309,000 for the three months ended June 30, 2024, from $180,000 for the three months ended June 30, 2023. The rate paid on borrowed funds increased 163 basis points to 4.62% for the three months ended June 30, 2024, from 2.99% for the three months ended June 30, 2023 while the average balance of borrowed funds increased $2.7 million, or 11.2%, to $26.9 million for the three months ended June 30, 2024 from $24.2 million for the three months ended June 30, 2023. The increase in the average balance was generally related to the measured use of borrowings to offset deposit outflows and to support the increase in the loan portfolio.

Net Interest Income. Net interest income decreased $396,000, or 32.7%, to $816,000 for the three months ended June 30, 2024 from $1.2 million for the three months ended June 30, 2023, primarily due to a decrease in the interest rate spread to 1.28% for the three months ended June 30, 2024 from 1.86% for the three months ended June 30, 2023 and a decrease in the net interest margin to 1.31% for the three months ended June 30, 2024, from 1.89% for the three months ended June 30, 2023. The decreases in the interest rate spread and the net interest margin were primarily due to an increase in the rates paid on interest-bearing liabilities in conjunction with an increase in other borrowings, partially offset by a 39 basis point increase in the weighted average yield on our interest earning assets.

Provision for Credit Losses. Based on management’s analysis of the adequacy of the ACL, a provision of $120,000 was made to the ACL for the three months ended June 30, 2024, compared to $109,000 for the same period in 2023.

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Table of Contents

Noninterest Income. Noninterest income increased $104,000, or 32.4%, to $426,000 for the three months ended June 30, 2024 from $322,000 for the three months ended June 30, 2023. The increase resulted primarily from a $12,000 increase in mortgage banking revenue due to increased activity and an $87,000 gain on an interest rate swap entered into late in 2023. These increases were partially offset on a comparative basis as a $10,000 gain on other real estate owned was recognized in the three months ended June 30, 2023 while there was no such gain in the 2024 period. The table below sets forth our noninterest income for the quarters ended June 30, 2024 and 2023:

Three Months Ended

 

June 30, 

Change

 

    

2024

    

2023

    

Amount

    

Percent

 

 

Service charges on deposit accounts

$

29,972

$

17,749

$

12,223

 

68.9

%

Interchange income

 

62,205

 

63,429

 

(1,224)

 

(1.9)

%

Mortgage banking income

 

114,586

 

102,737

 

11,849

 

11.5

%

Increase in cash value of life insurance

 

59,493

 

53,277

 

6,216

 

11.7

%

Gain on sale of repossessed assets

 

 

9,368

 

(9,368)

 

(100.0)

%

Gain on interest rate swap

87,155

 

 

87,155

 

%

Other

 

72,921

 

75,549

 

(2,628)

 

(3.5)

%

Total noninterest income

$

426,332

$

322,109

$

104,223

 

32.4

%

Noninterest Expense. Noninterest expense increased $55,000, or 3.2%, to $1.8 million for the three months ended June 30, 2024 from $1.7 million for the three months ended June 30, 2023. Data processing and information technology expense increased $55,000 due to the implementation of additional network services and an increase in other noninterest expense was due in large part to additional accounting and consulting services. Salary and related benefits expense increased $30,000. Our other noninterest expense for the three months ended June 30, 2023 was impacted by a one-time expense that we incurred related to the proposed acquisition of another mutual institution that was later terminated. The increase in noninterest expense when comparing the two periods was partially offset by a decrease in net occupancy expense for the three months ended June 30, 2024, which resulted primarily from the closing of one of our branch offices in the third quarter of 2023 combined with additional operational efficiencies that we implemented in 2023. FDIC insurance premiums decreased $10,000 due a decline in deposits during the quarter. The table below sets forth our noninterest expense for the three months ended June 30, 2024 and 2023:

Three Months Ended

    

 

June 30, 

Change

 

    

2024

    

2023

    

Amount

    

Percent

 

 

Salaries and related benefits

$

1,016,941

$

986,504

$

30,437

 

3.1

%

Occupancy expense, net

 

160,550

 

194,088

 

(33,538)

 

(17.3)

%

Data processing

 

293,253

 

238,185

 

55,068

 

23.1

%

Advertising

 

42,664

 

43,043

 

(379)

 

(0.9)

%

FDIC insurance premiums

 

72,476

 

83,103

 

(10,627)

 

(12.8)

%

Other

 

197,954

 

184,180

 

13,774

 

7.5

%

Total noninterest expense

$

1,783,838

$

1,729,103

$

54,735

 

3.2

%

Income Tax Expense. Our benefit for income taxes increased $110,000 to a benefit of $199,000 for the three months ended June 30, 2024, from a benefit of $89,000 for the three months ended June 30, 2023 due to an increase in loss before provision (benefit from) income taxes.

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Table of Contents

Average Balances and Yields. The following tables set forth average balance sheets, average yields and costs, and certain other information at the dates and for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. Average yields include the effect of net deferred fee income, discounts and premiums that are amortized or accreted to interest income or interest expense. Average balances are calculated using daily average balances. Non-accrual loans are included in the computation of average balances only. Average loan balances exclude any loans held for sale.

    

For the Three Months Ended June,

 

2024

2023

 

    

Average

    

    

Average

    

    

 

Outstanding

Average

Outstanding

Average

 

    

Balance

    

Interest

    

Yield/Rate

    

Balance

    

Interest

    

Yield/Rate

 

(Dollars in thousands)

 

Interest-earning assets:

Loans (1)

$

178,955

$

2,085

 

4.69

%  

$

180,094

$

1,901

 

4.25

%

Securities available for sale

 

23,077

 

137

 

2.39

%  

 

25,641

 

159

 

2.49

%

Securities held to maturity

 

39,977

 

137

 

1.38

%  

 

39,152

 

137

 

1.41

%

Cash, cash equivalents and other interest-earning assets

 

7,958

 

43

 

2.17

%  

 

12,998

 

29

 

0.90

%

Total interest-earning assets

$

249,967

$

2,402

 

3.86

%  

$

257,885

$

2,226

 

3.47

%

Noninterest-earning assets

$

16,284

 

  

$

15,935

 

  

 

  

Total assets

$

266,251

 

  

$

273,820

 

  

 

  

Interest-bearing liabilities:

 

  

 

  

 

  

 

  

 

  

 

  

Interest-bearing demand deposits

$

31,147

$

8

 

0.10

%  

$

31,229

$

7

 

0.09

%

Savings deposits

 

33,076

 

4

 

0.05

%  

 

36,244

 

5

 

0.06

%

Money market

 

46,124

 

80

 

0.70

%  

 

58,473

 

100

 

0.69

%

Certificates of deposit

 

109,275

 

1,185

 

4.36

%  

 

102,260

 

722

 

2.84

%

Total interest-bearing deposits

$

219,622

$

1,277

 

2.34

%  

$

228,206

$

834

 

1.47

%

Borrowed funds

 

26,904

 

309

 

4.62

%  

 

24,185

 

180

 

2.99

%

Total interest-bearing liabilities

$

246,526

$

1,586

 

2.59

%  

$

252,391

$

1,014

 

1.62

%

Noninterest-bearing demand deposits

 

9,252

 

  

 

10,322

 

  

Other noninterest-bearing liabilities

 

358

 

  

 

237

 

  

Total liabilities

 

256,136

 

  

 

262,950

 

  

Total equity

 

10,115

 

  

 

10,870

 

  

Total liabilities and equity

$

266,251

 

  

$

273,820

 

  

Net interest income

$

816

 

  

$

1,212

 

  

Net interest rate spread (2)

 

 

1.27

%  

 

  

 

  

 

1.85

%  

Net interest-earning assets (3)

$

3,441

$

5,494

 

  

 

Net interest margin (4)

 

 

1.31

%  

 

  

 

  

 

1.89

%  

Average interest-earning assets to interest-bearing liabilities

 

101.4

%

 

 

102.2

%  

 

  

 

  

(1)Net deferred fee income included in interest earned on loans totaled $58,000 for the three months ended June 30, 2024 and $102,000 for the three months ended June 30, 2023.
(2)Net interest rate spread represents the difference between the weighted average earned yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities.
(3)Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(4)Net interest margin represents net interest income divided by average total interest-earning assets.

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Table of Contents

    

For the Six Months Ended June,

 

2024

2023

 

    

Average

    

    

Average

    

    

 

Outstanding

Average

Outstanding

Average

 

    

Balance

    

Interest

    

Yield/Rate

    

Balance

    

Interest

    

Yield/Rate

 

(Dollars in thousands)

 

Interest-earning assets:

Loans (1)

 

$

177,052

$

4,067

 

4.62

%  

$

177,746

$

3,703

 

4.20

%

Securities available for sale

 

23,416

 

277

 

2.38

%  

 

29,136

 

397

 

2.75

%

Securities held to maturity

 

40,067

 

274

 

1.38

%  

 

38,978

 

275

 

1.42

%

Cash, cash equivalents and other interest-earning assets

 

7,874

 

85

 

2.17

%  

 

11,827

 

54

 

0.92

%

Total interest-earning assets

 

$

248,409

$

4,703

 

3.81

%  

$

257,687

$

4,429

 

3.46

%

Noninterest-earning assets

 

$

16,068

 

  

$

16,027

 

  

 

  

Total assets

 

$

264,477

 

  

$

273,714

 

  

 

  

Interest-bearing liabilities:

 

  

 

  

 

  

 

  

 

  

 

  

Interest-bearing demand deposits

 

$

30,496

$

16

 

0.11

%  

$

31,551

$

13

 

0.08

%

Savings deposits

 

32,715

 

9

 

0.06

%  

 

36,425

 

9

 

0.05

%

Money market

 

48,153

 

167

 

0.70

%  

 

62,097

 

213

 

0.69

%

Certificates of deposit

 

108,259

 

2,300

 

4.27

%  

 

100,993

 

1,283

 

2.56

%

Total interest-bearing deposits

 

$

219,623

$

2,492

 

2.28

%  

$

231,066

$

1,518

 

1.32

%

Borrowed funds

 

25,128

 

572

 

4.58

%  

 

20,799

 

307

 

2.98

%

Total interest-bearing liabilities

 

$

244,751

$

3,064

 

2.52

%  

$

251,865

$

1,825

 

1.46

%

Noninterest-bearing demand deposits

 

8,938

 

  

 

10,619

 

  

Other noninterest-bearing liabilities

 

854

 

  

 

1,921

 

  

Total liabilities

 

254,543

 

  

 

264,405

 

  

Total equity

 

 

  

 

9,309

 

  

Total liabilities and equity

 

$

254,543

 

  

$

273,714

 

  

Net interest income

$

1,639

 

  

$

2,604

 

  

Net interest rate spread (2)

 

 

1.29

%  

 

  

 

  

 

2.00

%  

Net interest-earning assets (3)

 

$

3,658

$

5,822

 

  

 

Net interest margin (4)

 

 

1.33

%  

 

  

 

  

 

2.03

%  

Average interest-earning assets to interest-bearing liabilities

 

101.5

%

 

 

102.3

%  

 

  

 

  

(1)Net deferred fee income included in interest earned on loans totaled $102,000 for the six months ended June 30, 2024 and $173,000 for the six months ended June 30, 2023.
(2)Net interest rate spread represents the difference between the weighted average earned yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities.
(3)Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(4)Net interest margin represents net interest income divided by average total interest-earning assets.

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Table of Contents

Rate/Volume Analysis. The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments required to be excluded from the table below.

Three Months Ended June 30, 

    

Six Months Ended June 30, 

2024 vs. 2023

2024 vs. 2023

Total

Total

Increase (Decrease) Due to

Increase

Increase (Decrease) Due to

Increase

    

Volume

    

Rate

    

(Decrease)

    

Volume

    

Rate

    

(Decrease)

(In thousands)

Interest-earning assets:

 

  

 

  

 

  

 

  

 

  

 

  

Loans

$

(12)

$

196

$

184

$

(14)

$

378

$

364

Securities available-for-sale

 

(16)

 

(6)

 

(22)

 

(78)

 

(42)

 

(120)

Securities held-to-maturity

 

3

 

(3)

 

0

 

8

 

(9)

 

(1)

Cash, cash equivalents and other interest-earning assets

 

(11)

 

25

 

14

 

(18)

 

49

 

31

Total interest-earning assets

 

(36)

 

212

 

176

 

(102)

 

376

 

274

 

Interest-bearing liabilities:

 

Interest-bearing demand deposits

 

(0)

 

1

 

1

 

 

3

 

3

Savings deposits

 

(0)

 

(1)

 

(1)

 

(1)

 

1

 

Money market

 

(21)

 

1

 

(20)

 

(48)

 

2

 

(46)

Certificates of deposit

 

50

 

413

 

463

 

93

 

924

 

1,017

Total interest-bearing deposits

 

28

 

415

 

443

 

44

 

930

 

974

Borrowed funds

 

20

 

109

 

129

 

64

 

201

 

265

Total interest-bearing liabilities

 

48

 

524

 

572

 

108

 

1,131

 

1,239

Change in net interest income

$

(84)

$

(312)

$

(396)

$

(210)

$

(755)

$

(965)

Comparison of Operating Results for the Six Months Ended June 30, 2024 and 2023

Net Income/(Loss). We recorded a net loss of $840,000 for the six months ended June 30, 2024, compared to a net loss of $409,000 for the six months ended June 30, 2023, a change of $431,000 year-over-year. The increase in our net loss year-over-year resulted primarily from a $964,000 decline in net interest income due to increased funding costs and an increase of $78,000 in total noninterest expense, partially offset by a decrease of $106,000 in the provision for credit losses, an increase of $302,000 in noninterest income and an increase in of $202,000 in the benefit for income taxes.

Interest Income. Interest income increased $274,000 or 6.2%, to $4.7 million for the six months ended June 30, 2024, from $4.4 million for the six months ended June 30, 2023, due to a $362,000 increase in interest and fees on loans. The increase in interest and fees on loans was primarily due to an increase of 42 basis points in the weighted average yield on the loan portfolio to 4.64% for the six months ended June 30, 2024 from 4.20% for the same period in 2023. Interest income on securities and other investments declined $89,000 to $636,000 for the six months ended June 30, 2024 primarily due to a $5.7 million decline in average balance of available for sale investment securities year-over-year. The average balance decline was related to security maturities during the six months ended June 30, 2024.

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Table of Contents

Interest Expense. Total interest expense increased $1.2 million, or 67.9%, to $3.1 million for the six months ended June 30, 2024, from $1.8 million for the six months ended June 30, 2023. Interest expense on deposits increased $974,000, or 64.2%, to $2.5 million for the six months ended June 30, 2024 from $1.5 million for the six months ended June 30, 2023, due primarily to an increase in the weighted average rate paid on certificates of deposit of 171 basis points to 4.27% for the six months ended June 30, 2024 from 2.56% for the six months ended June 30, 2023, combined with an increase in the average balance of such deposits of $7.3 million year-over-year and a $13.9 million decrease in the average balance of lower cost money market accounts year-over-year.

Interest expense on borrowed funds increased $265,000, or 86.2%, to $572,000 for the six months ended June 30, 2024, from $307,000 for the six months ended June 30, 2023. The rate paid on borrowed funds increased 160 basis points to 4.58% for the six months ended June 30, 2024, from 2.98% for the six months ended June 30, 2023 while the average balance of borrowed funds increased $4.3 million, or 20.8%, to $25.1 million for the six months ended June 30, 2024 from $20.8 million for the six months ended June 30, 2023. The increase in the average balance was generally related to the measured use of borrowings to offset deposit outflows and to support the increase in the loan portfolio.

Net Interest Income. Net interest income decreased $964,000, or 37.0%, to $1.6 million for the six months ended June 30, 2024 from $2.6 million for the six months ended June 30, 2023, primarily due to a decrease in the interest rate spread to 1.29% for the six months ended June 30, 2024 from 2.00% for the six months ended June 30, 2023 and a decrease in the net interest margin to 1.33% for the six months ended June 30, 2024, from 2.03% for the six months ended June 30, 2023. The decreases in the interest rate spread and the net interest margin were primarily due to an increase in the rates paid on interest-bearing liabilities in conjunction with an increase in other borrowings, partially offset by a 35 basis point increase in the weighted average yield on our interest earning assets.

Provision for Credit Losses. Based on management’s analysis of the adequacy of the ACL, a provision of $120,000 was made to the ACL for the six months ended June 30, 2024, compared to $226,000 for the same period in 2023.

Noninterest Income. Noninterest income increased $302,000, or 50.9%, to $895,000 for the six months ended June 30, 2024 from $593,000 for the six months ended June 30, 2023. The increase resulted primarily from a $67,000 increase in mortgage banking revenue due to increased activity, a $173,000 gain on an interest rate swap entered into late in 2023, and an increase of $117,000 in other noninterest income. These increases were partially offset on a comparative basis as a $71,000 gain on other real estate owned was recognized in the six months ended June 30, 2023 while there was no such gain in the 2024 period. The table below sets forth our noninterest income for the quarters ended June 30, 2024 and 2023:

Six Months Ended

    

 

June 30, 

Change

 

    

2024

    

2023

    

Amount

    

Percent

 

 

Service charges on deposit accounts

$

40,352

$

31,155

$

9,197

 

29.5

%

Interchange income

 

119,344

 

123,191

 

(3,847)

 

(3.1)

%

Mortgage banking income

 

229,152

 

162,082

 

67,070

 

41.4

%

Increase in cash value of life insurance

 

113,694

 

103,344

 

10,350

 

10.0

%

Gain on sale of other real estate owned

 

 

71,012

 

(71,012)

 

(100.0)

%

Gain on interest rate swap

173,445

 

 

173,445

 

%

Other

 

219,104

 

102,408

 

116,696

 

114.0

%

Total noninterest income

$

895,091

$

593,192

$

301,899

 

50.9

%

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Table of Contents

Noninterest Expense. Noninterest expense increased $78,000, or 2.2%, to $3.6 million for the six months ended June 30, 2024 from $3.5 million for the six months ended June 30, 2023. Data processing and information technology expense increased $82,000 due to the implementation of additional network services and an increase in other noninterest expense was due in large part to additional accounting and audit-related services. Salary and related benefits increased $23,000. The increase in noninterest expense when comparing the two periods was partially offset by a decrease in net occupancy expense for the six months ended June 30, 2024, which resulted primarily from the closing of one of our branch offices in the third quarter of 2023 combined with additional operational efficiencies that we implemented in 2023. The table below sets forth our noninterest expense for the quarters ended June 30, 2024 and 2023:

Six Months Ended

    

 

June 30, 

Change

 

    

2024

    

2023

    

Amount

    

Percent

 

 

Salaries and related benefits

 

$

2,048,383

 

$

2,025,783

 

$

22,600

 

1.1

%

Occupancy expense, net

333,659

393,552

(59,893)

 

(15.2)

%

Data processing

 

564,663

 

482,855

 

81,808

 

16.9

%

Advertising

 

84,353

 

88,888

 

(4,535)

 

(5.1)

%

FDIC insurance premiums

 

151,483

 

155,006

 

(3,523)

 

(2.3)

%

Other

 

434,091

 

393,020

 

41,071

 

10.5

%

Total noninterest expense

 

$

3,616,632

$

3,539,104

$

77,528

 

2.2

%

Income Tax Expense. Our benefit for income taxes increased $202,000 to a benefit of $361,000 for the six months ended June 30, 2024, from a benefit of $159,000 for the six months ended June 30, 2023 due to an increase in loss before provision (benefit from) income taxes.

Management of Market Risk

General. Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our financial condition and results of operations to changes in market interest rates. Our Asset Liability Committee is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the policy and guidelines approved by our board of directors. The Asset Liability Committee, which is a management-level committee, meets at least quarterly, or more frequently when necessary, is comprised of our President/Chief Executive Officer, Senior Vice President of Finance, Vice President of Lending and Vice President of Member Relations, and reports to the full board of directors on at least a quarterly basis. The Asset Liability Committee is responsible for recommending to the board of directors policies and procedures regarding asset/liability management, while it is the responsibility of the board of directors to determine whether to adopt such policies and procedures. We currently utilize a third-party modeling program, prepared on a quarterly basis, to evaluate our sensitivity to changing interest rates, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors.

Management of interest rate risk is one of the Bank’s highest priorities. In 2023, the Bank adopted a new asset/liability management policy and revamped its interest rate risk management processes and procedures to reduce interest rate risk exposure. Over the last year, the Bank has refined the input assumptions and various other input and output metrics, such as deposit decay rates, to enhance modeling accuracy. The Bank has also instituted education and training processes to provide management with information regarding emerging market forces and asset/liability-related management issues, practices and governance. Through these and other enhancements, we have significantly improved our ability to manage our interest rate risk and minimize the exposure of our earnings and capital to changes in interest rates. Pursuant to our new asset/liability management policy, we are seeking to implement the following strategies to further improve the management of our interest rate risk:

maintaining capital levels that exceed the thresholds for well-capitalized status under federal regulations;

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Table of Contents

maintaining a prudent level of liquidity, including through maintaining a portfolio of cash, short-term investments or investments with amortizing features;
originating shorter term or adjustable-rate loans for portfolio, which have become somewhat more attractive to many borrowers in the current rate environment, and selling the majority of our longer term, fixed-rate residential loans;
attempting to increase the balances of core deposits, which are less sensitive to interest rate fluctuations;
managing our utilization of wholesale funding with borrowings from the FHLB in a prudent manner;
managing the terms of our certificates of deposit; and
emphasizing asset quality to maximize the level of interest-earning assets.

Shortening the average term of our interest-earning assets by increasing our investments in shorter term assets, as well as originating loans with variable interest rates, helps to match the maturities and interest rates of our assets and liabilities better, thereby reducing the exposure of our net interest income to changes in market interest rates.

We recently entered into an interest rate swap for the purpose of mitigating interest rate risk, but it is not our policy to enter into such transactions on a regular basis. The interest rate swap was designated as a fair value last of layer hedge for certain fixed-rate prepayable loans and had a notional value of $25.0 million at June 30, 2024.

Net Interest Income. We analyze our sensitivity to changes in interest rates through a net interest income model. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings. We estimate what our net interest income would be for a 12-month period. We then calculate what the net interest income would be for the same period under the assumptions that the U.S. Treasury yield curve increases or decreases instantaneously by various basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100-basis point increase in the “Change in Interest Rates” column below.

The following table sets forth, as of June 30, 2024, the calculation of the estimated changes in our net interest income that would result from the designated immediate changes in the U.S. Treasury yield curve.

At June 30, 2024

 

Change in Interest Rates

    

Net Interest Income Year 1

    

Year 1 Change from

 

(basis points) (1)

    

Forecast

    

Level

 

(Dollars in thousands)

 

300

$

(396)

 

(12.08)

%

200

 

(243)

 

(7.40)

%

100

 

(107)

 

(3.27)

%

Level

 

 

%  

(100)

 

70

 

2.14

%

(200)

 

127

 

3.87

%

(300)

 

173

 

5.26

%

(1)Assumes an immediate uniform change in interest rates at all maturities.

The table above indicates that at June 30, 2024, we would have experienced a 7.40% decrease in net interest income in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 3.87% increase in net interest income in the event of an instantaneous parallel 200 basis point decrease in market interest rates.

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Table of Contents

Economic Value of Equity. We also compute amounts by which the net present value of our assets and liabilities (economic value of equity or “EVE”) would change in the event of a range of assumed changes in market interest rates. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. The model estimates the economic value of each type of asset, liability and off-balance sheet contract under the assumptions that the U.S. Treasury yield curve increases instantaneously by 100, 200 and 300 basis point increments or decreases instantaneously by 100, 200 and 300 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.

The following table sets forth, as of June 30, 2024, the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the U.S. Treasury yield curve.

At June 30, 2024

 

Estimated Increase

 

Change in Interest Rates

Estimated

(Decrease) in EVE

 

(basis points) (1)

    

EVE (2)

    

Amount

    

Percent

 

(Dollars in thousands)

 

300

$

9,837

$

(10,166)

 

(50.82)

%

200

 

13,167

 

(6,836)

 

(34.18)

%

100

 

16,596

 

(3,407)

 

(17.03)

%

Level

 

20,003

 

n/a

 

%  

(100)

 

22,468

 

2,465

 

12.32

%

(200)

 

25,554

 

5,551

 

27.75

%

(300)

 

28,702

 

8,699

 

43.49

%

(1)Assumes an immediate uniform change in interest rates at all maturities.
(2)EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.
(3)Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.
(4)EVE ratio represents EVE divided by the present value of assets.

The table above indicates that at June 30, 2024, we would have experienced a 34.18% decrease in EVE in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 27.75% increase in EVE in the event of an instantaneous parallel 200 basis point decrease in market interest rates. The decrease in EVE that we would experience in the event of an instantaneous parallel 200 basis point increase in market interest rates is outside of the limits set forth in the Bank’s new asset/liability management policy. While the Bank has developed policies and procedures that it believes will help reduce its interest rate exposure, any targeted improvement is expected to be realized gradually given the constraints imposed by the Bank’s current balance sheet composition and capital structure as well as regulatory requirements. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Management of Market Risk” and “Supervision and Regulation—Informal Agreements with Regulators” included in the Prospectus dated June 28, 2024.

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The net interest income and net economic value tables presented assume that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the tables provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates, and actual results may differ.

Interest rate risk calculations also may not reflect the fair values of financial instruments. For example, decreases in market interest rates can increase the fair values of our loans, mortgage servicing rights, deposits and borrowings.

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Liquidity and Capital Resources

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. In 2023, the Bank developed and implemented an improved process to project the sources and uses of funds over short- and long-term horizons, and, in concert with our asset/liability management policy, implemented guidelines to better identify potential funding gaps. Further, we have established an early warning system for measuring and monitoring liquidity, including through the establishment of early warning indicators.

Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities of securities. We are also able to borrow from the FHLB. At June 30, 2024, we had outstanding advances of $13.7 million from the FHLB. At June 30, 2024, we had unused borrowing capacity of $52.2 million from the FHLB. At June 30, 2024, we also had a $25.0 million available line of credit with the Discount Window at the Federal Reserve Bank of Chicago. In addition, at June 30, 2024 we had a $6.0 million line of credit with a correspondent bank. We have not drawn against the Discount Window or the line of credit. Additionally, we participated in the Federal Reserve Board’s BTFP in January 2024 and had a $17.0 million outstanding borrowing at June 30, 2024.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. For additional information, see the condensed consolidated statements of cash flows for the six months ended June 30, 2024 and 2023 included as part of the consolidated financial statements appearing elsewhere in this filing.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy and regulatory restrictions, we anticipate that a significant portion of maturing time deposits will be retained, and that we can supplement our funding with borrowings in the event that we allow these deposits to run off at maturity.

As a Wisconsin-chartered savings bank, we must maintain a net worth ratio of 6% (with “net worth ratio” defined under Wisconsin law as the Bank’s total liabilities subtracted from its total assets, plus unallocated general loan loss reserves, all divided by the Bank’s total assets). At June 30, 2024 and December 31, 2023, we had a net worth ratio of 4.31% and 4.50%, respectively.

At June 30, 2024 and December 31, 2023, our capital levels at the Bank level exceeded the levels required to be technically considered “well capitalized” under federal regulatory capital regulations. However, we operate under an MOU with the Department and the FDIC pursuant to which, among other things, we have agreed to achieve and maintain Tier 1 capital and total risk-based capital ratio levels above that which are required under federal regulatory capital regulations and a net worth ratio (as defined under Wisconsin law) of 6%. At June 30, 2024, we had Tier 1 capital equal to 5.9% of total average assets, total risk-based capital equal to 10.8% of risk-weighted assets and a net worth ratio of 4.31%. At December 31, 2023, we had Tier 1 capital equal to 6.3% of total average assets, total risk-based capital equal to 11.9% of risk-weighted assets and a net worth ratio of 4.50%. Our net worth ratio for purposes of compliance with Wisconsin law is calculated differently from the federal regulatory capital regulations in that it reflects the impact of the Bank’s unallocated general loan loss reserves. The Bank’s unallocated general loan loss reserves do not impact the calculation of the federal regulatory capital ratios. Our pro forma regulatory capital ratios, including the pro forma net worth ratio, after giving effect to the sale of shares of common stock in the offering, are set forth under “Historical and Pro Forma Regulatory Capital Compliance” included in the Prospectus dated June 28, 2024.

The net proceeds from the planned offering contributed to the Bank will significantly increase our liquidity and capital resources. Over time, the initial level of liquidity will be reduced as net proceeds from the stock offering are used

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for general corporate purposes, including funding loans. Our financial condition and results of operations will be enhanced by the net proceeds from the offering, which will increase our net interest-earning assets and net interest income. However, due to the increase in equity resulting from the net proceeds raised in the offering, as well as other factors associated with the offering, our return on equity will be adversely affected following the offering. See “Historical and Pro Forma Regulatory Capital Compliance” and “Risk Factors—Risks Related to the Offering” included in the Prospectus dated June 28, 2024. This could negatively affect the trading price of our shares of common stock.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. At June 30, 2024, we had outstanding commitments to originate loans of $18.1 million. We anticipate that we will have sufficient funds available to meet our current lending commitments. Certificates of deposit that are scheduled to mature in one year or less from June 30, 2024 totaled $89.9 million. Management expects that a substantial portion of these time deposits will be retained. However, if a substantial portion of these time deposits is not retained, we may utilize advances from the FHLB or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

Our off-balance sheet credit exposures are limited to unfunded loan commitments primarily related to residential real estate loans. The unfunded commitments are evaluated on a quarterly basis. Our losses related to the unfunded commitments as of June 30, 2024 were estimated to be zero; as a result, the ACL at such date did not include an amount for off-balance sheet credit exposures.

Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include data processing services, operating contracts for premises and equipment, agreements with respect to borrowed funds and deposit liabilities.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable, as the Company is a smaller reporting company.

Item 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of June 30, 2024. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Registrant’s disclosure controls and procedures were effective.

During the quarter ended June 30, 2024, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II – Other Information

Item 1. Legal Proceedings

The Company is subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s financial condition or results of operations.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed under the heading “Risk Factors” contained in the Prospectus. The Company’s evaluation of the risk factors applicable to it has not changed materially from those disclosed in the Prospectus.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

3.1

    

Articles of Incorporation of EWSB Bancorp, Inc. (1)

3.2

Bylaws of EWSB Bancorp, Inc. (2)

31

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101

The following materials for the six months ended June 30, 2024, formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements

104

Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101)

(1)Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-277828), initially filed on March 11, 2024.
(2)Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-277828), initially filed on March 11, 2024.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

EWSB BANCORP, INC.

Date: August 8, 2024

/s/ Charles D. Schmalz

Charles D. Schmalz

President, Chief Executive Officer and Chief Financial Officer

38