1895 Bancorp of Wisconsin 10Q 2024 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2024

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

For the transition period from _______________ to _______________

Commission File No. 001-40609

1895 Bancorp of Wisconsin, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Maryland		61-1993378
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

7001 West Edgerton Avenue Greenfield, Wisconsin		53220
(Address of Principal Executive Offices)		(Zip Code)

(414) 421-8200

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

BCOW

The NASDAQ Stock Market, LLC

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 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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)


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 

6,002,335 shares of the Registrant’s common stock, par value $0.01 per share, were outstanding as of April 30, 2024.

1895 Bancorp of Wisconsin, Inc.

Form 10-Q

Table of Contents


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	1

	Consolidated Balance Sheets at March 31, 2024 (unaudited) and December 31, 2023	1

	Consolidated Statements of Operations for the Three Months Ended March 31, 2024 and 2023 (unaudited)	2

	Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2024 and 2023 (unaudited)	3

	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2024 and 2023 (unaudited)	4

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023 (unaudited)	5

	Notes to Consolidated Financial Statements (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42

Item 4.	Controls and Procedures	42

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	42

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	42

Item 3.	Defaults Upon Senior Securities	42

Item 4.	Mine Safety Disclosures	42

Item 5.	Other Information	42

Item 6.	Exhibits	43

	SIGNATURES	44

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

1895 Bancorp of Wisconsin, Inc.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)


	March 31, 2024			December 31, 2023
	(unaudited)
Assets
Cash and due from banks	$	14,032		$	11,220
Fed funds sold		8,970			2,030
Cash and cash equivalents		23,002			13,250

Marketable equity securities, stated at fair value		3,976			3,625
Available-for-sale securities, stated at fair value (amortized cost $116,634 and $119,055)		106,388			109,559
Loans held for sale		826			704
Loans, net of deferred costs		397,120			398,568
Allowance for credit losses for loans		(3,679	)		(3,734	)
Total loans, net of deferred loan costs and allowance for credit losses		393,441			394,834
Premises and equipment, net		5,086			5,182
Mortgage servicing rights, net		1,690			1,720
Federal Home Loan Bank (FHLB) stock, at cost		4,564			4,164
Accrued interest receivable		1,521			1,554
Cash value of life insurance		14,138			14,027
Other assets		9,617			8,988
TOTAL ASSETS	$	564,249		$	557,607
Liabilities and Stockholders’ Equity
Deposits	$	399,285		$	403,683
Advance payments by borrowers for taxes and insurance		3,918			1,233
FHLB advances		80,014			71,007
Accrued interest payable		1,239			1,106
Other liabilities		8,283			7,817
TOTAL LIABILITIES		492,739			484,846
Preferred stock, $0.01 par value, 10,000,000 shares authorized at March 31, 2024 and December 31, 2023		—			—
Common stock (par value $0.01 per share) Authorized - 90,000,000 shares at March 31, 2024 and December 31, 2023; Issued – 6,041,510 at March 31, 2024 and 6,114,183 at December 31, 2023 (includes 134,263 and 144,297 unvested shares, respectively); Outstanding – 6,011,992 at March 31, 2024 and 6,084,665 at December 31, 2023 (includes 134,263 and 144,297 unvested shares, respectively)		60			61
Additional paid-in capital		49,379			49,778
Unallocated common stock of Employee Stock Ownership Plan (ESOP), 429,157 and 434,062 shares at March 31, 2024 and December 31, 2023, respectively		(4,073	)		(4,120	)
Less treasury stock at cost, 29,518 shares at March 31, 2024 and December 31, 2023		(295	)		(295	)
Retained earnings		33,586			33,892
Accumulated other comprehensive loss, net of income taxes		(7,147	)		(6,555	)
Total stockholders’ equity		71,510			72,761
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	564,249		$	557,607

See accompanying notes to the unaudited consolidated financial statements.

1895 BANCORP OF WISCONSIN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts) – Unaudited


	Three months ended March 31,
	2024			2023
Interest and dividend income:
Loans, including fees	$	4,799		$	3,826
Securities, taxable		1,040			602
Other		194			284
Total interest and dividend income		6,033			4,712
Interest expense:
Interest-bearing deposits		2,391			982
Borrowed funds		578			493
Other interest-bearing funds		1			2
Total interest expense		2,970			1,477
Net interest income		3,063			3,235
Provision for credit losses		75			75
Net interest income after provision for credit losses		2,988			3,160
Noninterest income:
Service charges and other fees		219			224
Loan servicing, net		163			174
Net gain on sale of loans		67			38
Increase in cash surrender value of insurance		111			108
Unrealized gain on marketable equity securities		337			220
Other		7			6
Total noninterest income		904			770
Noninterest expense:
Salaries and employee benefits		2,365			2,693
Unrealized gain on marketable equity securities		337			220
Advertising and promotions		8			49
Data processing		227			225
Occupancy and equipment		299			338
FDIC assessment		81			37
Other		981			880
Total noninterest expense		4,298			4,442
Loss before income taxes		(406	)		(512	)
Income tax benefit		(100	)		(151	)
Net loss	$	(306	)	$	(361	)
Loss per share:
Basic	$	(0.06	)	$	(0.07	)
Diluted(1)	$	(0.06	)	$	(0.07	)
Average common shares outstanding:
Basic		5,467,653			5,535,489
Diluted(1)		5,467,653			5,535,489

See accompanying notes to the unaudited consolidated financial statements.

(1) Diluted loss per share and average shares outstanding excludes all common shares if their effect is anti-dilutive.

1895 Bancorp of Wisconsin, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands) - Unaudited


	Three months ended March 31,
	2024			2023
Net loss	$	(306	)	$	(361	)
Other comprehensive (loss) income:
Unrealized holding (losses) gains arising during the period on available-for-sale securities		(750	)		2,230
Other comprehensive (loss) income before tax effect		(750	)		2,230
Tax effect of other comprehensive (loss) income items		158			(602	)
Other comprehensive (loss) income, net of tax		(592	)		1,628
Comprehensive (loss) income	$	(898	)	$	1,267

See accompanying notes to the unaudited consolidated financial statements.

1895 Bancorp of Wisconsin, Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands) - Unaudited


	Common Stock			Additional Paid-In Capital			Unallocated Common Stock of ESOP			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity

Balance as of January 1, 2023	$	62		$	49,931		$	(4,307	)	$	(301	)	$	41,468		$	(11,491	)	$	75,362
Net loss		—			—			—			—			(361	)		—			(361	)
Other comprehensive income		—			—			—			—			—			1,628			1,628
Cumulative effect of change in accounting principle due to adoption of ASU 2016-13		—			—			—			—			(783	)		—			(783	)
ESOP shares committed to be released (4,864 shares)		—			—			47			—			—			—			47
Repurchase and cancellation of shares-stock repurchase program (12,903 shares)		—			(129	)		—			—			—			—			(129	)
Retirement of common stock		—			(13	)		—			—			—			—			(13	)
Stock compensation expense		—			188			—			—			—			—			188
Balance as of March 31, 2023	$	62		$	49,977		$	(4,260	)	$	(301	)	$	40,324		$	(9,863	)	$	75,939

Balance as of January 1, 2024	$	61		$	49,778		$	(4,120	)	$	(295	)	$	33,892		$	(6,555	)	$	72,761
Net loss		—			—			—			—			(306	)		—			(306	)
Other comprehensive loss		—			—			—			—			—			(592	)		(592	)
ESOP shares committed to be released (4,905 shares)		—			(10	)		47			—			—			—			37
Repurchase and cancellation of shares-stock repurchase program (69,648 shares)		(1	)		(547	)														(548	)
Retirement of common stock		—			(8	)		—			—			—			—			(8	)
Stock compensation expense		—			166			—			—			—			—			166
Balance as of March 31, 2024	$	60		$	49,379		$	(4,073	)	$	(295	)	$	33,586		$	(7,147	)	$	71,510

See accompanying notes to the unaudited consolidated financial statements.

1895 BANCORP OF WISCONSIN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) - Unaudited


	Three months ended March 31,
	2024			2023
Cash flows from operating activities
Net loss	$	(306	)	$	(361	)
Adjustments to reconcile net loss to net cash from operating activities
Net amortization of investment securities		34			20
Depreciation		118			128
Provision for credit losses		75			75
Net change in fair value of marketable equity securities		(337	)		(220	)
Stock compensation expense		166			188
Benefit from deferred income tax		(100	)		(151	)
Originations of mortgage loans held for sale		(2,151	)		(2,300	)
Proceeds from sales of mortgage loans held for sale		2,096			2,464
Net gain on sale of mortgage loans held for sale		(67	)		(38	)
ESOP compensation		37			47
Net change in cash value of life insurance		(111	)		(108	)
Changes in operating assets and liabilities
Net change in mortgage servicing rights		30			37
Accrued interest receivable and other assets		(338	)		(481	)
Accrued interest payable and other liabilities		456			(387	)
Net cash used in operating activities		(398	)		(1,087	)
Cash flows from investing activities
Maturities, prepayments, and calls of available-for-sale securities		2,387			3,287
Purchase of marketable equity securities		(14	)		(26	)
Net decrease (increase) in loans		1,461			(7,615	)
Net increase in FHLB stock, net		(400	)		(1,382	)
Net capital expenditures for premises and equipment		(22	)		(80	)
Net cash provided by (used in) investing activities		3,412			(5,816	)
Cash flows from financing activities
Net decrease in deposits		(4,398	)		(15,755	)
Net increase in advance payments by borrowers for taxes and insurance		2,685			2,957
Proceeds from the issuance of Federal Home Loan Bank advances		53,000			64,500
Principal payments on Federal Home Loan Bank advances		(43,993	)		(43,986	)
Repurchase and cancellation of common stock		(548	)		(129	)
Retirement of common stock		(8	)		(13	)
Net cash provided by financing activities		6,738			7,574
Net increase in cash and cash equivalents		9,752			671
Cash and cash equivalents at beginning of period		13,250			28,344
Cash and cash equivalents at end of period	$	23,002		$	29,015
Supplemental cash flow information
Cash paid during the year for interest	$	2,837		$	1,278

See accompanying notes to the unaudited consolidated financial statements.

1895 BANCORP OF WISCONSIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION

1895 Bancorp of Wisconsin, Inc., a Maryland corporation (the “Company” or “New 1895 Bancorp”) was formed to serve as the stock holding company for PyraMax Bank, FSB (the “Bank”) as part of the mutual-to-stock conversion of 1895 Bancorp of Wisconsin, MHC. Upon completion of the conversion, which occurred on July 14, 2021, 1895 Bancorp of Wisconsin, MHC and 1895 Bancorp of Wisconsin, a federal corporation (“Old 1895 Bancorp”), ceased to exist and New 1895 Bancorp became the successor corporation to Old 1895 Bancorp. The conversion was accomplished by the merger of 1895 Bancorp of Wisconsin, MHC with and into Old 1895 Bancorp followed by the merger of Old 1895 Bancorp with and into New 1895 Bancorp. The shares of New 1895 Bancorp common stock that were offered for sale in connection with the conversion represented the majority ownership interest in Old 1895 Bancorp owned by 1895 Bancorp of Wisconsin, MHC. On July 14, 2021, public stockholders of Old 1895 Bancorp received 1.3163 shares of common stock of New 1895 Bancorp in exchange for each of their shares of Old 1895 Bancorp common stock. The shares of Old 1895 Bancorp common stock owned by 1895 Bancorp of Wisconsin, MHC were canceled at that time. The conversion and offering were completed on July 14, 2021, and New 1895 Bancorp was organized as a fully public stock holding company, with 100% of the common stock being held by the public. The consolidated financial statements and other financial information contained in these consolidated financial statements are for New 1895 Bancorp.

The cost of the reorganization and the issuing of the common stock totaling $2.0 million were deferred and deducted from the sales proceeds of the offering.

PyraMax Bank is a stock savings bank headquartered in Greenfield, Wisconsin. PyraMax Bank operates as a full-service financial institution, providing a full range of financial services, including the granting of commercial, residential, and consumer loans and acceptance of deposits from individual customers and small businesses in the metropolitan Milwaukee, Wisconsin area. PyraMax Bank is subject to competition from other financial and nonfinancial institutions providing financial products. In addition, PyraMax Bank is subject to the regulations of certain regulatory agencies and undergoes periodic examination by those regulatory agencies.

The accompanying unaudited interim consolidated financial statements and the notes thereto have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all normal recurring adjustments necessary to present fairly the financial position, results of operations, changes in stockholders' equity and cash flows as of and for the periods presented. Certain amounts from prior periods have been reclassified to conform with current period presentation.

The accompanying unaudited consolidated financial statements and related notes should be read in conjunction with the audited annual consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the Securities and Exchange Commission on March 29, 2024.

In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet, and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses, mortgage servicing rights, the fair value of financial instruments and the valuation of deferred income tax assets.

On April 5, 2012, the Jumpstart Our Business Startups Act (the “JOBS Act”) was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies and define an “emerging growth company.” As an emerging growth company, the Company may delay adoption of new or revised financial accounting standards until such date that the standards are required to be adopted by non-issuer companies. If such standards would not apply to non-issuer companies, no deferral would be applicable. The Company intends to take advantage of the benefits of the extended transition periods allowed under the JOBS Act.

Accordingly, the Company’s financial statements may not be comparable to those of public companies that adopt new or revised financial accounting standards as of an earlier date. The effective dates of the recent accounting standards in Note 2 reflect those that relate to non-issuer companies.

NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION (continued)

Subsequent Events

Management has reviewed the Company's operations for potential disclosure or financial statement impacts related to events occurring after March 31, 2024, but prior to the release of the unaudited consolidated financial statements contained in this quarterly report on Form 10-Q were issued.

There were no additional subsequent event disclosures or financial statement impacts related to events occurring after March 31, 2024 that warranted adjustment to or disclosure in these unaudited consolidated financial statements.

NOTE 2 – RECENT ACCOUNTING STANDARDS

The following Accounting Standards Updates (“ASUs”) have been issued by the Financial Accounting Standards Board (the “FASB”) and may impact the Company’s consolidated financial statements in future reporting periods:

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, that requires presentation of specific categories of reconciling items, as well reconciling items that meet a quantitative threshold, in the reconciliation between the income tax provision and the income tax provision using statutory tax rates. The standard also requires disclosure of income taxes paid disaggregated by jurisdiction with separate disclosure of income taxes paid to individual jurisdictions that meet a quantitative threshold. The amendments in this accounting standard are effective for fiscal years beginning after December 15, 2024, on a prospective basis. Early adoption and retrospective application are permitted. We do not expect the adoption of this accounting standard to have an impact on our Consolidated Financial Statements but will require certain additional disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, that requires disclosure of significant segment expenses that are regularly reviewed by the chief operating decision maker and included within each reported measure of segment profit or loss. The standard also requires disclosure of the composition of other segment items included in the measure of segment profit or loss that are not separately disclosed. The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We do not expect the adoption of this accounting standard to have an impact on our Consolidated Financial Statements.

NOTE 3 – AVAILABLE-FOR-SALE SECURITIES

The amortized costs and fair values of available-for-sale securities were as follows:


	March 31, 2024
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
Obligations of states and political subdivisions	$	17,029	$	1	$	(2,916	)	$	14,114
Government-sponsored mortgage-backed securities		95,504		71		(7,398	)		88,177
Asset-backed securities		3,356		5		(6	)		3,355
Certificates of deposit		745		—		(3	)		742
Total	$	116,634	$	77	$	(10,323	)	$	106,388


	December 31, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
Obligations of states and political subdivisions	$	17,043	$	3	$	(2,815	)	$	14,231
Government-sponsored mortgage-backed securities		97,674		305		(6,960	)		91,019
Asset-backed securities		3,593		—		(21	)		3,572
Certificates of deposit		745		—		(8	)		737
Total	$	119,055	$	308	$	(9,804	)	$	109,559

The fair value of available-for-sale securities that were pledged as collateral at March 31, 2024 and December 31, 2023, were $9.3 million and $426,000, respectively.

The amortized costs and fair values of available-for-sale securities, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. In addition, expected maturities will differ from contractual maturities for mortgage-backed securities and asset-backed securities, as the expected repayment terms may be less than the underlying mortgage pool contractual maturities. Therefore, these securities are not included in the maturity categories in the maturity summary below.


	March 31, 2024
	Amortized Cost		Fair Value
	(in thousands)
Debt and other securities:
Due in one year or less	$	1,560	$	1,541
Due after one through 5 years		340		341
Due after 5 through 10 years		12,959		10,718
Due after 10 years		2,915		2,256
Total debt and other securities		17,774		14,856
Mortgage-related securities		95,504		88,177
Asset-backed securities		3,356		3,355
Total	$	116,634	$	106,388

NOTE 3 – AVAILABLE-FOR-SALE SECURITIES (continued)

Gross unrealized losses on securities available-for-sale and the fair values of the related securities, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position were as follows:


	March 31, 2024
	Less than 12 months					12 months or longer					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(in thousands)
Obligations of states and political subdivisions	$	—	$	—		$	13,773	$	(2,916	)	$	13,773	$	(2,916	)
Government-sponsored mortgage-backed securities		31,194		(218	)		39,581		(7,180	)		70,775		(7,398	)
Asset-backed securities		—		—			1,726		(6	)		1,726		(6	)
Certificates of deposit		—		—			742		(3	)		742		(3	)
Total	$	31,194	$	(218	)	$	55,822	$	(10,105	)	$	87,016	$	(10,323	)


	December 31, 2023
	Less than 12 months					12 months or longer					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(in thousands)
Obligations of states and political subdivisions	$	—	$	—		$	13,889	$	(2,815	)	$	13,889	$	(2,815	)
Government-sponsored mortgage-backed securities		—		—			40,983		(6,960	)		40,983		(6,960	)
Asset-backed securities		1,740		(5	)		1,832		(16	)		3,572		(21	)
Certificates of deposit		—		—			737		(8	)		737		(8	)
Total	$	1,740	$	(5	)	$	57,441	$	(9,799	)	$	59,181	$	(9,804	)

The following table presents the number of debt securities in an unrealized loss position and the aggregate depreciation from their unamortized cost basis, by security type, as of March 31, 2024 and December 31, 2023.


	March 31, 2024					December 31, 2023
	Number of Securities		Aggregate Depreciation			Number of Securities		Aggregate Depreciation
Obligations of states and political subdivisions		16		17.5	%		16		16.9	%
Government-sponsored mortgage-backed securities		32		9.5	%		25		14.5	%
Asset-backed securities		3		0.3	%		4		0.6	%
Certificates of deposit		3		0.4	%		3		1.1	%
Total		54		10.6	%		48		14.2	%

The Company does not consider these unrealized losses to be attributable to credit-related factors, as the unrealized losses in each category have occurred as a result of changes in noncredit-related factors such as changes in interest rates, market spreads and market conditions subsequent to purchase, not credit deterioration. As a result, no allowance for credit losses on available-for-sale securities was recognized as of March 31, 2024 or December 31, 2023.

NOTE 4 – LOANS

Major classifications of loans, reported at amortized cost, are summarized as follows:


	March 31, 2024			December 31, 2023
	(in thousands)
Commercial:
Real estate	$	233,861		$	231,893
Other		43,355			47,898
Residential real estate:
First mortgage		99,092			97,747
Construction		701			359
Consumer:
Home equity and lines of credit		19,216			19,683
Other		83			134
Subtotal (1)		396,308			397,714
Net deferred loan costs		812			854
Allowance for credit losses for loans		(3,679	)		(3,734	)
Loans, net	$	393,441		$	394,834

(1) Totals do not include accrued interest receivable, which was $1.1 million at both March 31, 2024 and December 31, 2023, and which is recorded separately on the Company’s Consolidated Balance Sheets.

Deposit accounts in an overdrawn position and reclassified as loans totaled $30,000 and $78,000 at March 31, 2024 and December 31, 2023, respectively.

The Company provides several types of loans to its customers, including commercial, residential, construction and consumer loans. Significant loan concentrations are considered to exist when there are amounts loaned to one borrower, or to multiple borrowers engaged in similar activities, that would cause them to be similarly impacted by economic or other conditions. While credit risks tend to be geographically concentrated in the Company's metropolitan Milwaukee market area, and while a significant portion of the Company’s loan portfolio is secured by commercial and residential real estate, there are no significant concentrations whose primary sources of repayment are reliant upon an individual or group of related borrowers.

The Company also purchases loan participations from other financial institutions. The outstanding balance of loans purchased are included in the totals above and totaled $56.0 million as of March 31, 2024 and $50.8 million as of December 31, 2023. In addition, the amount available for future draws totaled $56.0 million at March 31, 2024. Loans purchased are primarily comprised of commercial real estate and other commercial loans.

During the normal course of business, the Company may transfer a portion of a loan as a participation loan to another financial institution in order to manage portfolio risk. In order to be eligible for sales treatment, all cash flows from the loan must be divided proportionately, and rights of each loan holder must have the same priority, the loan holders must have no recourse to the transferor other than standard representations and warranties, and no loan holder can have the right to pledge or exchange the entire loan. As of March 31, 2024 and December 31, 2023, respectively, the Company had transferred $28.8 million and $29.0 million in participation loans which were eligible for sales treatment to other financial institutions, all of which continue to be serviced by the Company.

NOTE 4 – LOANS (continued)

A summary of activity in the allowance for credit losses for loans and the allowance for credit losses for unfunded loan commitments for the three months ended March 31, 2024 and March 31, 2023, is presented below:


	Commercial			Residential			Consumer			Total
	(in thousands)
Three months ended March 31, 2024
Allowance for credit losses for loans
Beginning balance	$	2,693		$	849		$	192		$	3,734
Provision for credit losses		(49	)		(16	)		(3	)		(68	)
Loans charged-off		—			—			(1	)		(1	)
Recoveries		5			6			3			14
Ending balance	$	2,649		$	839		$	191		$	3,679

Allowance for credit losses for unfunded loan commitments(1)
Beginning balance	$	847		$	28		$	—		$	875
Provision for credit losses		140			3			—			143
Ending balance	$	987		$	31		$	—		$	1,018

Total Allowance for credit losses for loans and unfunded loan commitments	$	3,636		$	870		$	191		$	4,697

Three months ended March 31, 2023
Allowance for credit losses for loans
Beginning balance	$	1,944		$	752		$	507		$	3,203
Provision for credit losses		54			21			—			75
CECL Adoption Adjustment(2)		666			75			(329	)		412
Loans charged-off		—			—			(6	)		(6	)
Recoveries		5			—			4			9
Ending balance	$	2,669		$	848		$	176		$	3,693

Allowance for credit losses for unfunded loan commitments(1)
Beginning balance	$	—		$	—		$	—		$	—
Provision for credit losses		—			—			—			—
CECL Adoption Adjustment(2)		640			25			—			665
Ending balance	$	640		$	25		$	—		$	665

Total Allowance for credit losses for loans and unfunded loan commitments	$	3,309		$	873		$	176		$	4,358

(1) The allowance for credit losses for unfunded loan commitments is included in other liabilities on the Company's Consolidated Balance Sheets.

(2) On January 1, 2023, the Company adopted ASU 2016-13 ("CECL"). See Note 2 for additional information regarding the adoption of ASU 2016-13.

NOTE 4 – LOANS (continued)

The provision for credit losses is determined by the Company as the amount that is to be added to the ACL accounts to bring the ACL to a level that, in management's judgment, is necessary to absorb expected credit losses over the lives of the respective financial instruments. The following table presents the components of the provision for credit losses:


	Three months ended March 31,
	2024			2023
	(in thousands)
Provision for credit losses for:
Loans	$	(68	)	$	75
Unfunded loan commitments		143			—
Total	$	75		$	75

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. The credit quality indicators for commercial real estate and other commercial loans are based on the following 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.

•

"Watch and 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 such that collectability of the contractual loan payments is unlikely.

Residential real estate and consumer loans are generally evaluated based on whether or not the loan is performing or in nonaccrual status. Refer to Note 1 to the Consolidated Financial Statements in our 2023 Annual Report on Form 10-K, filed with the SEC on March 29, 2024, for additional information on our nonaccrual policy.

NOTE 4 – LOANS (continued)

The following tables presents the amortized cost basis of our loans by credit quality indicator and origination year, at March 31, 2024 and December 31, 2023:


	March 31, 2024
	2024		2023		2022		2021		2020		2019 and Prior		Revolving Lines of Credit		Revolving Lines of Credit Converted to Term Loans		Total Loans
	(in thousands)
Commercial real estate:
Pass	$	1,078	$	24,273	$	80,764	$	40,253	$	40,515	$	40,627	$	54	$	-	$	227,564
Watch and special mention		-		-		230		-		-		2,461		-		-		2,691
Substandard		-		-		1,875		-		-		1,310		-		-		3,185
Nonperforming		-		-		78		-		-		343		-		-		421
Total commercial real estate		1,078		24,273		82,947		40,253		40,515		44,741		54		-		233,861
Other commercial loans:
Pass		2,556		15,711		10,262		4,101		713		1,180		6,898		-		41,421
Watch and special mention		-		-		-		179		16		50		741		-		986
Substandard		-		-		220		135		-		103		490		-		948
Total other commercial loans		2,556		15,711		10,482		4,415		729		1,333		8,129		-		43,355
Total commercial loans		3,634		39,984		93,429		44,668		41,244		46,074		8,183		-		277,216
Residential real estate - first mortgage:
Performing		2,745		13,410		14,306		33,309		15,546		19,133		-		-		98,449
Nonaccrual		-		-		-		-		-		643		-		-		643
Total residential real estate - first mortgage		2,745		13,410		14,306		33,309		15,546		19,776		-		-		99,092
Residential real estate - construction:
Performing		-		701		-		-		-		-		-		-		701
Nonaccrual		-		-		-		-		-		-		-		-		-
Total residential real estate - construction		-		701		-		-		-		-		-		-		701
Total residential real estate		2,745		14,111		14,306		33,309		15,546		19,776		-		-		99,793
Consumer - home equity and lines of credit:
Performing		-		73		46		138		65		1,375		16,250		1,239		19,186
Nonaccrual		-		-		-		-		-		30		-		-		30
Total consumer - home equity and lines of credit		-		73		46		138		65		1,405		16,250		1,239		19,216
Consumer - other
Performing		7		28		42		-		6		-		-		-		83
Nonaccrual		-		-		-		-		-		-		-		-		-
Total consumer - other		7		28		42		-		6		-		-		-		83
Total consumer		7		101		88		138		71		1,405		16,250		1,239		19,299
Total loans	$	6,386	$	54,196	$	107,823	$	78,115	$	56,861	$	67,255	$	24,433	$	1,239	$	396,308


	December 31, 2023
	2023		2022		2021		2020		2019		2018 and Prior		Revolving Lines of Credit		Revolving Lines of Credit Converted to Term Loans		Total Loans
	(in thousands)
Commercial real estate:
Pass	$	22,486	$	78,098	$	40,597	$	40,914	$	8,881	$	34,342	$	42	$	-	$	225,360
Watch and special mention		-		232		-		-		1,706		328		-		-		2,266
Substandard		-		1,885		598		-		287		1,075		-		-		3,845
Nonaccrual		-		79		-		-		-		343		-		-		422
Total commercial real estate		22,486		80,294		41,195		40,914		10,874		36,088		42		-		231,893
Other commercial loans:
Pass		16,949		11,347		4,729		974		64		1,488		9,905		-		45,456
Watch and special mention		-		-		197		31		15		48		828		-		1,119
Substandard		-		236		411		-		-		116		560		-		1,323
Total other commercial loans		16,949		11,583		5,337		1,005		79		1,652		11,293		-		47,898
Total commercial loans		39,435		91,877		46,532		41,919		10,953		37,740		11,335		-		279,791
Residential real estate - first mortgage:
Performing		13,485		14,419		33,619		15,854		3,033		16,680		-		-		97,090
Nonaccrual		-		-		-		-		-		657		-		-		657
Total residential real estate - first mortgage		13,485		14,419		33,619		15,854		3,033		17,337		-		-		97,747
Residential real estate - construction:
Performing		359		-		-		-		-		-		-		-		359
Nonaccrual		-		-		-		-		-		-		-		-		-
Total residential real estate - construction		359		-		-		-		-		-		-		-		359
Total residential real estate		13,844		14,419		33,619		15,854		3,033		17,337		-		-		98,106
Consumer - home equity and lines of credit:
Performing		74		53		142		66		167		1,504		16,939		707		19,652
Nonaccrual		-		-		-		-		-		31		-		-		31
Total consumer - home equity and lines of credit		74		53		142		66		167		1,535		16,939		707		19,683
Consumer - other
Performing		73		46		-		7		-		8		-		-		134
Nonaccrual		-		-		-		-		-		-		-		-		-
Total consumer - other		73		46		-		7		-		8		-		-		134
Total consumer		147		99		142		73		167		1,543		16,939		707		19,817
Total loans	$	53,426	$	106,395	$	80,293	$	57,846	$	14,153	$	56,620	$	28,274	$	707	$	397,714

There were no commercial loans rated Doubtful or Loss as of March 31, 2024 or December 31, 2023.

NOTE 4 – LOANS (continued)

The following tables present gross charge-offs of our loans for each portfolio class, by origination year, that occurred during the three months ended March 31, 2024 and three months ended March 31, 2023. Refer to Note 1 to the Consolidated Financial Statements in our 2023 Annual Report on Form 10-K for additional information on our charge-off policy.


	For the three months ended March 31, 2024
	2024		2023		2022		2021		2020		2019 and Prior		Revolving Lines of Credit		Revolving Lines of Credit Converted to Term Loans		Total Loans
	(in thousands)
Commercial:
Real estate	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Other		-		-		-		-		-		-		-		-		-
Total commercial loans		-		-		-		-		-		-		-		-		-
Residential real estate:
First mortgage		-		-		-		-		-		-		-		-		-
Construction		-		-		-		-		-		-		-		-		-
Total residential real estate		-		-		-		-		-		-		-		-		-
Consumer:
Home equity and lines of credit		-		-		-		-		-		-		-		-		-
Other		-		1		-		-		-		-		-		-		1
Total consumer		-		1		-		-		-		-		-		-		1
Total current period charge-offs	$	-	$	1	$	-	$	-	$	-	$	-	$	-	$	-	$	1


	For the three months ended March 31, 2023
	2023		2022		2021		2020		2019		2018 and Prior		Revolving Lines of Credit		Revolving Lines of Credit Converted to Term Loans		Total Loans
	(in thousands)
Commercial:
Real estate	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Other		-		-		-		-		-		-		-		-		-
Total commercial loans		-		-		-		-		-		-		-		-		-
Residential real estate:
First mortgage		-		-		-		-		-		-		-		-		-
Construction		-		-		-		-		-		-		-		-		-
Total residential real estate		-		-		-		-		-		-		-		-		-
Consumer:
Home equity and lines of credit		-		-		-		-		-		-		-		-		-
Other		-		4		-		-		-		2		-		-		6
Total consumer		-		4		-		-		-		2		-		-		6
Total current period charge-offs	$	-	$	4	$	-	$	-	$	-	$	2	$	-	$	-	$	6

NOTE 4 – LOANS (continued)

An analysis of past due loans, net of amortized costs, is presented below:


	March 31, 2024
	Loans Past Due 30-89 Days		Loans Past Due 90+ Days		Total Past Due		Current Loans		Total Loans
	(in thousands)
Commercial:
Real estate	$	2,145	$	421	$	2,566	$	231,295	$	233,861
Other		—		—		—		43,355		43,355
Residential real estate:
First mortgage		772		49		821		98,271		99,092
Construction		—		—		—		701		701
Consumer:
Home equity and lines of credit		—		—		—		19,216		19,216
Other		—		—		—		83		83
Total	$	2,917	$	470	$	3,387	$	392,921	$	396,308


	December 31, 2023
	Loans Past Due 30-89 Days		Loans Past Due 90+ Days		Total Past Due		Current Loans		Total Loans
	(in thousands)
Commercial:
Real estate	$	79	$	343	$	422	$	231,471	$	231,893
Other		—		—		—		47,898		47,898
Residential real estate:
First mortgage		299		52		351		97,396		97,747
Construction		—		—		—		359		359
Consumer:
Home equity and lines of credit		—		—		—		19,683		19,683
Other		—		—		—		134		134
Total	$	378	$	395	$	773	$	396,941	$	397,714

There were no loans 90 days or more past due and accruing interest as of March 31, 2024 or December 31, 2023, respectively.

NOTE 4 – LOANS (continued)

The following table presents the amortized cost of our loans on nonaccrual status as of March 31, 2024 and December 31, 2023. All loans that were 90 days or more past due were on nonaccrual status as of March 31, 2024 and December 31, 2023.


	March 31, 2024			December 31, 2023
	(in thousands)
Commercial:
Real estate	$	421		$	422
Other		—			—
Residential real estate:
First mortgage		643			657
Construction		—			—
Consumer:
Home equity and lines of credit		30			31
Other		—			—
Total nonaccrual loans	$	1,094		$	1,110
Total nonaccrual loans to total loans		0.28	%		0.28	%
Total nonaccrual loans to total assets		0.19	%		0.20	%

The Company had $1.1 million of loans that were in nonaccrual status as of March 31, 2024, with no related allowance for credit losses. During the three months ended March 31, 2024, there was no interest earned on nonaccrual loans and no accrued interest was reversed on nonaccrual loans.

At March 31, 2024 and December 31, 2023 , the Company held loans that were individually evaluated for impairment due to financial difficulties experienced by the borrower and for which the repayment, on the basis of our assessment, is expected to be provided substantially through the sale or operation of the collateral. The ACL for these collateral dependent loans is primarily based on the fair value of the underlying collateral at the reporting date. The following describes the type of collateral that secure collateral dependent loans:

•

Commercial real estate loans are primarily secured by office and industrial buildings and warehouses.

•

Commercial and industrial loans are primarily secured by accounts receivable, inventory and equipment.

•

One-to-four-family mortgages are primarily secured by first liens on residential real estate.

•

Home equity loans are primarily secured by first and junior loans on residential real estate.

The table below summarizes collateral dependent loans and the related ACL at March 31, 2024 and December 31, 2023 and for which the borrower is experiencing financial difficulty:


	March 31, 2024				December 31, 2023
	Loans		ACL		Loans		ACL
	(in thousands)
Commercial:
Real estate	$	3,792	$	—	$	4,457	$	—
Land development		—		—		—		—
Other		948		—		1,323		—
Residential real estate:
First mortgage		838		—		855		—
Construction		—		—		—		—
Consumer:
Home equity and lines of credit		30		—		31		—
Other		—		—		—		—
Total	$	5,608	$	—	$	6,666	$	—

NOTE 5 – MORTGAGE SERVICING RIGHTS

Loans serviced for others are not included in the Company’s consolidated balance sheets. The unpaid principal balance of mortgage loans serviced for others was $277.4 million and $282.2 million as of March 31, 2024 and December 31, 2023, respectively.

A summary of activity in the Company’s mortgage servicing rights is presented below:


	Three Months Ended March 31, 2024			Three Months Ended March 31, 2023
	(in thousands)
Mortgage servicing rights beginning balance	$	1,720		$	1,860
Additions		8			9
Amortization		(38	)		(46	)
Mortgage servicing rights ending balance	$	1,690		$	1,823

Fair value at beginning of period	$	3,269		$	3,376
Fair value at end of period	$	3,240		$	3,488

There was no valuation allowance as of March 31, 2024 or December 31, 2023. The Company did not sell any mortgage servicing rights during the three months ended March 31, 2024 or March 31, 2023.

The estimated fair value of mortgage servicing rights was determined using a valuation model that calculates the present value of expected future servicing and ancillary income, net of expected servicing costs. The model incorporates various assumptions such as discount rates, prepayment speeds and ancillary income and servicing costs. As of March 31, 2024, the model used discount rates ranging from 10.1% to 13.0%, and prepayment speeds ranging from 6.9% to 39.5%, both of which were based on market data from independent organizations. As of March 31, 2023 the model used discount rates ranging from 10.1% to 13.0%, and prepayment speeds ranging from 7.0% to 38.8%.

The following table summarizes the estimated future amortization expense for mortgage servicing rights for the annual periods indicated. The projections of amortization expense are based on existing asset balances as of March 31, 2024. The actual amortization expense the Company recognizes in any given period may vary significantly depending on changes in interest rates, market conditions and regulatory requirements.


Estimated future amortization as of March 31, 2024:	(in thousands)
2024	$	150
2025		194
2026		174
2027		152
2028		130
Thereafter		890
Total	$	1,690

NOTE 6 – DEPOSITS

The composition of deposits is summarized below:


	March 31, 2024		December 31, 2023
	(in thousands)
Non-interest bearing checking	$	73,093	$	78,476
Interest bearing checking		29,177		28,899
Money market		85,657		88,687
Statement savings		43,894		46,473
Certificates of deposit		167,464		161,148
Total	$	399,285	$	403,683

Certificates of deposit that met or exceeded the FDIC insurance limit of $250,000 totaled $35.2 million and $31.3 million as of March 31, 2024 and December 31, 2023, respectively. The Company did not hold any brokered deposits as of March 31, 2024 or December 31, 2023.

As of March 31, 2024, the scheduled maturities of certificates of deposit for the annual periods are presented below:


	(in thousands)
2024	$	125,778
2025		29,078
2026		12,276
2027		239
2028		77
Thereafter		16
Total	$	167,464

NOTE 7 – FEDERAL HOME LOAN BANK ADVANCES

A summary of Federal Home Loan Bank advances follows:


	March 31, 2024					December 31, 2023
	Rate			Amount		Rate			Amount
	(dollars in thousands)

Open line of credit		—			—		5.72	%		8,000
Fixed rate, fixed term advance, maturing July 2027		2.90	%		5,000		2.90	%		5,000
Putable advance, maturing January 2028, first option date January 2024		—			—		3.44	%		5,000
Putable advance, maturing February 2028, first option date February 2024		—			—		3.63	%		5,000
Putable advance, maturing March 2028, first option date March 2024		—			—		3.47	%		5,000
Putable advance, maturing May 2026, first option date May 2024		3.92	%		2,500		3.92	%		2,500
Putable advance, maturing May 2028, first option date May 2024		3.51	%		2,500		3.51	%		2,500
Putable advance, maturing January 2029, first option date July 2024		3.32	%		5,000		—			—
Putable advance, maturing January 2029, first option date July 2024		3.67	%		5,000		—			—
Putable advance, maturing March 2029, first option date September 2024		3.79	%		2,500		—			—
Putable advance, maturing March 2029, first option date September 2024		3.52	%		5,000		—			—
Putable advance, maturing January 2029, first option date January 2025		3.70	%		5,000		—			—
Putable advance, maturing February 2029, first option date February 2025		3.78	%		5,000		—			—
Putable advance, maturing February 2029, first option date February 2026		3.85	%		5,000		—			—
Putable advance, maturing March 2030, first put option date March 2025		0.89	%		10,000		0.89	%		10,000
Putable advance, maturing March 2032, first put option date March 2027		1.74	%		10,000		1.74	%		10,000
Advance structured note, payments due monthly, maturing April 2030		1.05	%		6,208		1.05	%		6,454
Advance structured note, payments due monthly, maturing May 2030		1.19	%		6,306		1.19	%		6,553
SOFR Floater advance, maturing October 2024		5.62	%		5,000		5.68	%		5,000
Total				$	80,014				$	71,007

The scheduled maturities and required principal payments of Federal Home Loan Bank advances are presented below:


	March 31, 2024
	Weighted Average Rate			Amount
	(dollars in thousands)
2024		4.59	%	$	6,486
2025		1.12	%	$	2,002
2026		2.67	%	$	4,524
2027		2.38	%	$	7,047
2028		2.43	%	$	4,570
Thereafter		2.38	%	$	55,385
Total		2.54	%	$	80,014

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

The Company maintains a master contract agreement with the FHLB, which provides for borrowing up to the lesser of 22.22 times the value of the FHLB stock owned, a determined percentage of the book value of the Company’s qualifying real estate loans, or a determined percentage of the Company’s assets. The FHLB provides both fixed and floating rate advances. Floating rates are tied to short-term market rates of interest such as the Secured Overnight Financing Rate ("SOFR"), federal funds or Treasury bill rates. FHLB advances are subject to a prepayment penalty if they are repaid prior to maturity. The Company has pledged qualifying real estate and commercial and industrial loans with collateral values of approximately $174.3 million at March 31, 2024 and $173.0 million at December 31, 2023. FHLB advances were also secured by approximately $4.6 million and $4.2 million of FHLB stock held by the Company as of March 31, 2024 and December 31, 2023, respectively. The Company’s available and unused portion of this borrowing agreement totaled $93.2 million and $100.9 million as of March 31, 2024 and December 31, 2023, respectively. Additional borrowing would require additional stock purchase.

Additionally, at March 31, 2024 we had a $12.0 million federal funds rate line of credit with the BMO Harris Bank, none of which was drawn at March 31, 2024. The Company also had an $11.5 million line of credit at the Federal Reserve based on pledged commercial real estate loans of approximately $14.1 million at March 31, 2024. The Company had not drawn on the Federal Reserve line as of March 31, 2024.

NOTE 8 – INCOME TAXES

Income tax benefit was $100,000 and $151,000 for the three months ended March 31, 2024 and 2023, respectively.

Deferred tax assets are deferred tax consequences attributable to deductible temporary differences and carryforwards. After the deferred tax asset has been measured using the applicable enacted tax rate and provisions of the enacted tax law, it is then necessary to assess the need for a valuation allowance. A valuation allowance is needed when, based on the weight of the available evidence, it is more likely than not that some portion of the deferred asset will not be realized. As required by generally accepted accounting principles, available evidence is weighted heavily on cumulative losses, with less weight placed on future projected profitability. The realization of deferred tax assets is dependent on the existence of taxable income of the appropriate character (e.g., ordinary or capital) within the carry-back and carry-forward periods available under tax law, which would consider future reversals of existing taxable temporary differences and available tax planning strategies. As of March 31, 2024, and December 31, 2023, the deferred tax valuation allowance was $3.3 million and $3.1 million, respectively, reducing our net deferred tax assets to $7.1 million and $6.9 million at each respective date.

The board and management continue to assess the deferred tax assets in light of recent changes in market conditions, forecasted future projected income and available tax planning strategies. As such, there may be additional deferred tax asset impairment in subsequent periods.

NOTE 9 – COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Company may be involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material adverse effect on the Company’s financial statements. No legal proceedings existed at March 31, 2024, that would have a material adverse effect on the Company’s consolidated financial statements.

The Company is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These instruments include commitments to extend credit and commitments to sell loans. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized on the balance sheets.

The Company’s exposure to credit losses is represented by the contractual, or notional, amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance-sheet instruments. As some of the commitments are expected to expire without being drawn upon, and some of the commitments may not be drawn upon to the total extent of the commitment, the notional amount of these commitments does not necessarily represent future cash requirements of the Company.

ASU 2016-13 requires that we establish an allowance for credit losses for off-balance sheet credit exposures, including unfunded loan commitments, that meet certain requirements. The allowance for credit losses for off-balance sheet credit exposures is estimated by portfolio segment at each balance sheet date under the CECL model using the same methodologies as portfolio loans, also taking into consideration management’s assumption of the likelihood that funding will occur. The allowance for credit losses for off-balance sheet credit exposures is included in other liabilities on the Company’s Consolidated Balance Sheets. Additional provisions for expected losses occur through a charge to the provision for credit losses. At March 31, 2024, the allowance for credit losses for unfunded commitments was $1.0 million and there was $58.5 million in outstanding commitments to extend credit that were expected to fund.

The contractual amounts of credit-related financial instruments are summarized below:


	March 31, 2024
	Fixed Rate		Variable Rate		Total
	(in thousands)
Commitments to extend credit	$	10,027	$	100,793	$	110,820
Standby letters of credit		—		150		150
Credit enhancement under the FHLB of Chicago Mortgage Partnership Finance Program		1,099		—		1,099
Commitments to sell loans		3,194		—		3,194
Overdraft protection program commitments		3,734		—		3,734


	December 31, 2023
	Fixed Rate		Variable Rate		Total
	(in thousands)
Commitments to extend credit	$	1,136	$	86,201	$	87,337
Standby letters of credit		—		150		150
Credit enhancement under the FHLB of Chicago Mortgage Partnership Finance Program		1,095		—		1,095
Commitments to sell loans		635		—		635
Overdraft protection program commitments		3,758		—		3,758

NOTE 9 – COMMITMENTS AND CONTINGENCIES (continued)

Commitments to extend credit are agreements to lend to a customer at fixed or variable rates, as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The amount of collateral obtained upon extension of credit is based on management’s credit evaluation of the customer. Collateral held varies but may include accounts receivable; inventory; property, plant and equipment; real estate; and stocks and bonds. Commitments to sell loans represent commitments obtained by the Company from a secondary market agency to purchase mortgages from the Company at specified interest rates and within specified periods of time.

Standby letters of credit are conditional lending commitments issued by the Company to guarantee the performance of a customer to a third party. Generally, all standby letters of credit have expiration dates within one year. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company generally holds collateral supporting these commitments. Standby letters of credit are not reflected in the financial statements, since recording the fair value of these guarantees would not have a significant impact on the consolidated financial statements.

The Company participates in the Federal Home Loan Bank of Chicago Mortgage Partnership Finance Program (the “Program”). In addition to entering into forward commitments to sell mortgage loans to a secondary market agency, the Company enters into firm commitments to deliver loans to the Federal Home Loan Bank of Chicago through the Program. Under the Program, loans are funded by the Federal Home Loan Bank of Chicago, and the Company receives an agency fee reported as a component of gain on sale of loans. The Company had $1.4 million in outstanding commitments to deliver loans through the Program as of March 31, 2024. Once delivered to the Program, the Company provides a contractually agreed-upon credit enhancement and performs servicing of the loans. Under the credit enhancement, the Company is liable for losses on loans delivered through the Program after application of any mortgage insurance and a contractually agreed-upon credit enhancement provided by the Program, subject to an agreed-upon maximum. The Company receives a fee for this credit enhancement. The Company records a liability for expected losses in excess of anticipated credit enhancement fees. As of March 31, 2024, and December 31, 2023, the Company had no liability outstanding related to the Program.

Unfunded commitments under overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines of credit may or may not require collateral and may or may not contain a specific maturity date.

NOTE 10 – EMPLOYEE STOCK OWNERSHIP PLAN

The Company established a tax qualified Employee Stock Ownership Plan (“ESOP”) for the benefit of its employees, in conjunction with our 2019 reorganization. Eligible employees become 20% vested in their accounts after 1 year of service, 40% vested after 2 years of service, 60% vested after 3 years of service, 80% vested after 4 years of service, and 100% vested after 5 or more years of service, or earlier, upon death, disability or attainment of normal retirement age.

On January 8, 2019, the ESOP purchased 175,528 shares (231,047 shares adjusted for the 2021 conversion) of the Company’s common stock, which was funded by a loan from Old 1895 Bancorp. Unreleased ESOP shares collateralize the loan payable, and the cost of the shares is recorded as contra-equity account in the stockholders’ equity of the Company. Shares are to be released as debt payments are made by the ESOP to the loan. The ESOP’s sources of repayment of the loan can include dividends, if any, on the unallocated stock held by the ESOP, and discretionary contributions from the Company to the ESOP and earnings thereon.

As part of the mutual-to-stock conversion and stock offering completed on July 14, 2021, the ESOP refinanced the aforementioned loan with New 1895 Bancorp, enabling the ESOP to purchase an aggregate of 283,360 additional shares of common stock. The ESOP completed the purchase of all the additional 283,360 shares at an average price of $10.90 in the second quarter of 2022.

Compensation expense for the ESOP is recorded at an amount equal to the shares allocated by the ESOP multiplied by the average fair market value of the shares during the period. The Company recognizes compensation expense ratably over the year based upon the Company’s estimate of the number of shares expected to be allocated by the ESOP. Unearned compensation applicable to the ESOP is reflected as a reduction of stockholders’ equity in the consolidated balance sheet. The difference between the average fair market value and the cost of the shares allocated by the ESOP is recorded as an adjustment to stockholders’ equity. The Company recognized $37,000 and $47,000 in compensation expense for the three months ended March 31, 2024 and March 31, 2023, respectively.

The following table provides the allocated and unallocated shares of common stock associated with the ESOP.


	March 31, 2024		December 31, 2023
	(dollars in thousands)
Shares committed to be released		4,905		19,730
Total allocated shares		71,449		51,719
Total unallocated shares		429,157		434,062
Total ESOP shares		505,511		505,511
Fair value of unallocated shares (based on $6.82 and $6.99 share price as of March 31, 2024 and December 31, 2023, respectively)	$	2,927	$	3,034

NOTE 11 – RELATED PARTY TRANSACTIONS

A summary of loans to directors, executive officers, and their affiliates follows:


	March 31, 2024			December 31, 2023
	(in thousands)
Beginning balance	$	995		$	1,015
Adjustments due to changes in directors, executive officers, and/or principal stockholders		—			(167	)
New loans		—			218
Repayments		(17	)		(71	)
Ending balance	$	978		$	995

Deposits from directors, executive officers, and their affiliates totaled $698,000 and $729,000 at March 31, 2024 and December 31, 2023, respectively.

The Company utilizes the services of law firms in which certain of the Company’s directors are partners. No fees were paid to these firms for services during the first quarter of 2024 and the amounts paid during the three months ended March 31, 2023, were immaterial.

NOTE 12 – FAIR VALUE

ASC Topic 820, Fair Value Measurements and Disclosures defines fair values, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This accounting standard applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements. The standard also emphasizes that fair value (i.e., the price that would be received in an orderly transaction that is not a forced liquidation or distressed sale at the measurement date), among other things, is based on exit price versus entry price, should include assumptions about risk such as nonperformance risk in liability fair values, and is a market-based measurement, not an entity-specific measurement. When considering the assumptions that market participants would use in pricing an asset or liability, this accounting standard establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

The fair value hierarchy prioritizes inputs used to measure fair value into three broad levels.

Level 1 inputs – In general, fair values determined by Level 1 inputs use quoted market prices in active markets for identical assets or liabilities that we have the ability to access.

Level 2 inputs – Fair values determined by Level 2 inputs use inputs other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets where there are few transactions and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs – Level 3 inputs are unobservable inputs for the asset or liability and include situations where there is little, if any, market activity for the asset or liability.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Some assets and liabilities, such as securities available for sale, are measured at fair value on a recurring basis under accounting principles generally accepted in the United States. Other assets and liabilities, such as collateral dependent loans, may be measured at fair value on a nonrecurring basis.

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

Securities – Marketable equity securities and securities available-for-sale may be classified as Level 1 or Level 2 measurements within the fair value hierarchy. Level 1 securities include equity securities traded on a national exchange. The fair value measurements of Level 1 securities are based on the quoted market price of those securities. Level 2 securities include U.S. Treasury notes, U.S. government and agency securities, obligations of states and political subdivisions, corporate debt securities and mortgage-related securities. The fair value

NOTE 12 – FAIR VALUE (continued)

measurements of Level 2 securities are obtained from independent pricing services and are based on recent sales of similar securities and other observable market data.

Collateral dependent loans – Loans are not measured at fair value on a recurring basis. However, loans determined to be collateral dependent may be measured at fair value on a nonrecurring basis. The fair value measurements of collateral-dependent loans are based on the fair values of the underlying collateral. Independent appraisals are obtained to determine the fair values of underlying collateral, and generally utilize one or more valuation methodologies, typically includes comparable sales and income approaches. Management routinely evaluates the fair value measurements of independent appraisers and adjusts those valuations based on differences noted between actual selling prices of collateral and the most recently appraised value. Such adjustments are usually significant, which results in a Level 3 classification. All other collateral dependent loan measurements are based on the present value of expected future cash flows discounted at the applicable effective interest rate and are not considered fair value measurements.

Rate lock commitments—Rate lock commitments on mortgage loans that are intended to be sold are considered to be derivatives. Accordingly, such commitments, along with any related fees received from potential borrowers, are recorded at fair value in other assets or liabilities, with changes in fair value recorded in the net gain or loss on sale of mortgage loans. Fair value is based on fees currently charged to enter into similar agreements for fixed-rate commitments and also considers the difference between current levels of interest rates and the committed rates. While there are Level 2 and 3 inputs used in the valuation models, the Company has determined that one or more of the inputs significant in the valuation of both of the mortgage banking derivatives fall within Level 3 of the fair value hierarchy. The change in fair value is recorded through an adjustment to the statement of operations, within mortgage banking income.

Mortgage servicing rights – The Company utilizes an independent valuation from a third party which uses a discounted cash flow model to estimate the fair value of mortgage servicing rights. The model utilizes prepayment assumptions to project cash flows related to the mortgage servicing rights based upon the current interest rate environment, which is then discounted to estimate an expected fair value of the mortgage servicing rights. The model considers characteristics specific to the underlying mortgage portfolio, such as: contractually specified servicing fees, prepayment assumptions, delinquency rates, late charges and costs to service. Given the significance of the unobservable inputs utilized in the estimation process, mortgage servicing rights are classified as Level 3 within the fair value hierarchy. The Company records the mortgage servicing rights at the lower of amortized cost or fair value.

Assets measured at fair value on a recurring basis are summarized below, along with the level of the fair value hierarchy of the inputs utilized to determine such fair value.


			Recurring Fair Value Measurements Using
	March 31, 2024		Level 1		Level 2		Level 3
	(in thousands)
Marketable equity securities	$	3,976	$	3,976	$	—	$	—
Securities available-for-sale:
Obligations of states and political subdivisions		14,114		—		14,114		—
Government-sponsored mortgage-backed securities		88,177		—		88,177		—
Asset-backed securities		3,355		—		3,355		—
Certificates of deposit		742		—		742		—
Total	$	110,364	$	3,976	$	106,388	$	—


			Recurring Fair Value Measurements Using
	December 31, 2023		Level 1		Level 2		Level 3
	(in thousands)
Marketable equity securities	$	3,625	$	3,625	$	—	$	—
Securities available-for-sale:
Obligations of states and political subdivisions		14,231		—		14,231		—
Government-sponsored mortgage-backed securities		91,019		—		91,019		—
Asset-backed securities		3,572		—		3,572		—
Certificates of deposit		737		—		737		—
Total	$	113,184	$	3,625	$	109,559	$	—

NOTE 12 – FAIR VALUE (continued)

There were no collateral dependent loans for which a specific valuation allowance was established as of March 31, 2024 or December 31, 2023.

There was no impairment on mortgage servicing rights as of March 31, 2024 or December 31, 2023.

The Company estimates fair value of all financial instruments regardless of whether such instruments are measured at fair value. The following methods and assumptions were used by the Company to estimate fair value of financial instruments not previously discussed.

Cash and cash equivalents — Fair value approximates the carrying value.

Loans held for sale — Fair value is based on commitments on hand from investors or prevailing market prices.

Loans — Fair value of variable rate loans that reprice frequently is based on carrying values. Fair value of other loans is estimated by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings. Fair value of collateral dependent and other non-performing loans is estimated using discounted expected future cash flows or the fair value of the underlying collateral, if applicable.

FHLB stock — Fair value is the redeemable (carrying) value based on the redemption provisions of the Federal Home Loan Bank.

Accrued interest receivable and payable — Fair value approximates the carrying value.

Cash value of life insurance — Fair value is based on reported values of the assets.

Deposits and advance payments by borrowers for taxes and insurance — Fair value of deposits with no stated maturity, such as demand deposits, savings, and money market accounts, including advance payments by borrowers for taxes and insurance, by definition, is the amount payable on demand on the reporting date. Fair value of fixed rate time deposits is estimated using discounted cash flows applying interest rates currently being offered on similar time deposits.

FHLB Advances — Fair value of fixed rate, fixed term borrowings is estimated by discounting future cash flows using the current rates at which similar borrowings would be made. Fair value of borrowings with variable rates or maturing within 90 days approximates the carrying value of those borrowings.

The carrying value and estimated fair value of financial instruments are presented below:


	March 31, 2024
	Carrying Value		Level 1		Level 2		Level 3
	(in thousands)
Financial assets:
Cash and cash equivalents	$	23,002	$	23,002	$	—	$	—
Available-for-sale securities		106,388		—		106,388		—
Marketable equity securities		3,976		3,976		—		—
Loans held for sale		826		—		826		—
Loans, net		393,441		—		—		369,403
Rate lock commitments		19		—		—		19
Accrued interest receivable		1,521		1,521		—		—
Federal Home Loan Bank Stock		4,564		—		—		4,564
Cash value of life insurance		14,138		—		—		14,138
Financial liabilities:
Deposits		399,285		231,822		—		166,738
Advance payments by borrowers for taxes and insurance		3,918		3,918		—		—
Federal Home Loan Bank advances		80,014		—		—		74,004
Accrued interest payable		1,239		1,239		—		—

NOTE 12 – FAIR VALUE (continued)


	December 31, 2023
	Carrying Value		Level 1		Level 2		Level 3
	(in thousands)
Financial assets:
Cash and cash equivalents	$	13,250	$	13,250	$	—	$	—
Available-for-sale securities		109,559		—		109,559		—
Marketable equity securities		3,625		3,625		—		—
Loans held for sale		704		—		704		—
Loans, net		394,834		—		—		368,133
Rate lock commitments		4		—		—		4
Accrued interest receivable		1,554		1,554		—		—
Federal Home Loan Bank Stock		4,164		—		—		4,164
Cash value of life insurance		14,027		—		—		14,027
Financial liabilities:
Deposits		403,683		242,535		—		160,303
Advance payments by borrowers for taxes and insurance		1,233		1,233		—		—
Federal Home Loan Bank advances		71,007		—		—		68,462
Accrued interest payable		1,106		1,106		—		—

Limitations — The fair value of a financial instrument is the current amount that would be exchanged between market participants, other than in a forced liquidation. Fair value is best determined based on quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Consequently, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters that could affect the estimates. Fair value estimates are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business. Deposits with no stated maturities are defined as having a fair value equivalent to the amount payable on demand. This prohibits adjusting fair value derived from retaining those deposits for an expected future period of time. This component, commonly referred to as a deposit base intangible, is neither considered in the above amounts, nor is it recorded as an intangible asset on the balance sheets. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

NOTE 13 – EQUITY AND REGULATORY MATTERS

PyraMax Bank is subject to various regulatory capital requirements administered by federal and state 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 consolidated 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 the Bank's 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 their components, risk weightings and other factors. The Company is exempt from consolidated capital requirements as those requirements do not apply to certain small bank holding companies with consolidated assets under $3 billion.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of Common Equity Tier 1, Tier 1 and Total capital to risk-weighted assets, and of Tier 1 capital to average assets. It is management's opinion that the Bank met all applicable capital adequacy requirements as of March 31, 2024 and December 31, 2023.

As of March 31, 2024, the Bank was 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 below. There are no conditions or events since March 31, 2024 that management believes have changed the capital category of the Bank.

The Bank’s actual and required capital amounts and ratios are presented below:


	March 31, 2024
	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)
PyraMax Bank
Leverage (Tier 1)	$	63,146		11.2	%	$	22,520		4.0	%	$	28,150		5.0	%

Risk-based:
Common Equity Tier 1		63,146		14.8	%		19,173		4.5	%		27,694		6.5	%
Tier 1		63,146		14.8	%		25,564		6.0	%		34,085		8.0	%
Total		67,843		15.9	%		34,085		8.0	%		42,606		10.0	%


	December 31, 2023
	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)
PyraMax Bank
Leverage (Tier 1)	$	63,101		11.2	%	$	22,574		4.0	%	$	28,217		5.0	%

Risk-based:
Common Equity Tier 1		63,101		15.1	%		18,751		4.5	%		27,085		6.5	%
Tier 1		63,101		15.1	%		25,002		6.0	%		33,336		8.0	%
Total		67,710		16.2	%		33,336		8.0	%		41,670		10.0	%

On July 29, 2022, the Company adopted a stock repurchase program. On August 26, 2022, the Company received a non-objection letter from the Federal Reserve Bank of Chicago ("FRB") permitting the Company to repurchase 319,766 shares of its common stock, which represented 5% of the shares outstanding at the time. The Company began purchasing shares on September 1, 2022 and as of June 7, 2023, the Company had repurchased all 319,766 shares for a total purchase price of $3.4 million.

On April 28, 2023, the Company adopted a second stock repurchase program. On June 9, 2023, the Company received a non-objection letter from the FRB permitting the Company to repurchase 621,522 shares of its common stock, which represented 10% of the shares outstanding at the time. The Company began purchasing shares on June 15, 2023 and as of March 31, 2024, the Company had repurchased 140,677 shares for a total purchase price of $1.0 million.

NOTE 14 – EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is computed by dividing net (loss) income by the weighted average number of common shares outstanding, adjusted for weighted average unallocated ESOP shares, during the applicable period. Diluted earnings per share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of stock compensation using the treasury stock method. Antidilutive options are disregarded in earnings per share calculations. For the three months ended March 31, 2024, 56,971 shares were excluded, based on average share price, from the computation of diluted earnings per share because the effect would be antidilutive. For the three months ended March 31, 2023, 131,093 shares were excluded, based on average share price, from the computation of diluted earnings per share because the effect would be antidilutive.

Earnings (loss) per common share for the three months ended March 31, 2024 and 2023 are presented in the following tables.


	Three months ended March 31,
	2024			2023
	(In thousands, except per share amounts)

Net loss	$	(306	)	$	(361	)

Weighted shares outstanding for basic EPS
Weighted average shares outstanding		5,899,235			5,986,822
Less: Weighted average unallocated ESOP shares		431,582			451,333

Weighted average shares outstanding for basic EPS		5,467,653			5,535,489
Additional dilutive shares(1)		—			—

Weighted average shares outstanding for dilutive EPS		5,467,653			5,535,489

Basic loss per share	$	(0.06	)	$	(0.07	)
Diluted loss per share(1)	$	(0.06	)	$	(0.07	)

(1) For the three months ended March 31, 2024 and March 31, 2023, the effect of stock options was anti-dilutive due to the net loss and therefore no dilutive shares are included in the weighted average shares outstanding or diluted loss calculations.

NOTE 15 – STOCK BASED COMPENSATION

Stock-Based Compensation Plans

On March 27, 2020, the Company’s stockholders approved the 1895 Bancorp of Wisconsin, Inc. 2020 Equity Incentive Plan (the “2020 Equity Incentive Plan”). A total of 238,467 (313,894 stock options adjusted for the conversion) stock options and 95,387 (125,557 shares adjusted for the conversion) restricted shares were approved for award. As of March 31, 2024, no shares of common stock remained available for grant as stock options, restricted stock or restricted stock units under the 2020 Equity Incentive Plan. The stock options granted to employees and non-employee directors under this plan vest in five installments with the first installment vesting on the first anniversary of the date of grant. The exercise price for all stock options granted is equal to the quoted NASDAQ market close price on the date that the awards were granted and expire ten years after the grant date, if not exercised. The restricted stock awards granted to employees and non-employee directors under this plan vest in five installments with the first installment vesting on the first anniversary of the date of grant.

On August 26, 2022, the Company’s shareholders approved the 1895 Bancorp of Wisconsin, Inc. 2022 Equity Incentive Plan (the “2022 Equity Incentive Plan”). A total of 354,200 stock options and 141,680 restricted shares were approved for award. As of March 31, 2024, 50,455 shares of common stock remain available for grant as stock options and 23,382 shares remain available for grant as restricted stock or stock units under the 2022 Equity Incentive Plan. The stock options granted to employees and non-employee directors under this plan vest in five installments with the first installment vesting on the first anniversary of the date of grant. The exercise price for all stock options granted is equal to the quoted NASDAQ market close price on the date that the awards were granted and expire ten years after the grant date, if not exercised. The restricted stock awards granted to employees and non-employee directors under this plan vest in five installments with the first installment vesting on the first anniversary of the date of grant.

Accounting for Stock-Based Compensation Plan

The fair value of stock options granted is estimated on the grant date using a Black-Scholes pricing model. The fair value of restricted shares is equal to the quoted NASDAQ market closing price on the date of grant. The fair value of stock grants is recognized as compensation expense on a straight-line basis over the vesting period of the grants. Compensation expense is included in salaries and employee benefits in the consolidated statements of operations.

Assumptions are used in estimating the fair value of stock options granted. The weighted average expected life of the stock options represents the period of time that the options are expected to be outstanding and is based on the historical results from the previous awards. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility is based on the actual volatility of 1895 Bancorp of Wisconsin, Inc. stock for the weighted average lifetime period prior to issuance date. The following assumptions were used in estimating the fair value of options granted during the three months ended March 31, 2024 and March 31, 2023, respectively:


	For the Three Months Ended
	March 31, 2024	March 31, 2023

Dividend yield	N/A(1)		0.00	%
Risk-free interest rate	N/A(1)		3.59	%
Expected volatility	N/A(1)		24.64	%
Weighted average expected life (years)	N/A(1)		6.5
Weighted average per share value of options	N/A(1)	$	3.37

(1) There were no stock options granted during the three months ended March 31, 2024.

NOTE 15 – STOCK BASED COMPENSATION (continued)

A summary of the Company’s stock option activity for the three months ended March 31, 2024 is presented below.


Stock Options	Shares		Weighted Average Exercise Price		Weighted Average Remaining in Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding December 31, 2023	600,110		$	8.30		7.49	$	238,951
Granted		—		—	N/A		N/A
Exercised		—		—	N/A		N/A
Forfeited	6,000			10.05	N/A		N/A
Vested shares expired		—		—	N/A		N/A
Outstanding March 31, 2024		594,110	$	8.28	7.21		$	199,155
Options exercisable at March 31, 2024	250,437		$	7.19	6.20		$	137,795

The following table summarizes information about the Company’s nonvested stock option activity for the three months ended March 31, 2024:


Stock Options	Shares			Weighted Average Grant Date Fair Value
Nonvested at December 31, 2023		370,292		$	2.94
Granted		—			—
Vested(1)		(20,619	)		1.70
Forfeited		(6,000	)		3.56
Nonvested at March 31, 2024		343,673		$	3.00

(1)

Includes 2,105 shares vested under a nonqualified stock option inducement award to the Company’s President and Chief Executive Officer.

The Company amortizes the expense related to stock options as compensation expense over the vesting period. The Company recognized $74,000 and $84,000 in stock option expense during the three months ended March 31, 2024 and 2023, respectively.

At March 31, 2024, the Company had $881,000 in estimated unrecognized compensation costs related to outstanding stock options that is expected to be recognized over a weighted average period of 3.29 years.

The following table summarizes information about the Company’s restricted stock activity for the three months ended March 31, 2024:


Restricted Stock	Shares			Weighted Average Grant Date Fair Value
Nonvested at December 31, 2023		144,297		$	8.95
Granted		—			—
Vested(1)(2)		(8,034	)		6.65
Forfeited		(2,000	)		10.05
Nonvested at March 31, 2024		134,263		$	9.07

(1)

Includes 262 shares vested under a restricted stock inducement award to the Company’s President and Chief Executive Officer.

(2)

Includes 1,025 shares surrendered by employees to cover payroll tax costs related to the vested shares.

The Company amortizes the expense related to restricted stock awards as compensation expense over the vesting period. The Company recognized $92,000 and $104,000 in restricted stock expense during the three months ended March 31, 2024 and 2023, respectively. At March 31, 2024, the Company had $1.1 million of unrecognized compensation expense related to restricted stock shares that is expected to be recognized over a weighted average period of 3.4 years.

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

General

Management’s discussion and analysis of financial condition and results of operations at March 31, 2024 and for the three months ended March 31, 2024 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited consolidated financial statements and the notes thereto appearing in Part I, Item 1, of this Quarterly Report on Form 10-Q.

Cautionary Note Regarding Forward-Looking Statements

This report 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,” “indicate,” “would,” “believe,” “contemplate,” “continue,” “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 and investment portfolios; and

•

estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our management 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.

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 maintain liquidity, primarily through deposits, in light of recent events in the banking industry;

•

general economic conditions, either nationally or in our market areas, that are worse than expected;

•

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;

•

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;

•

our ability to manage market risk, credit risk and operational risk;

•

our ability to access cost-effective funding;

•

fluctuations in real estate values and both residential and commercial real estate market conditions;

•

demand for loans and deposits in our market area;

•

our ability to implement and change our business strategies;

•

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 enter new markets successfully and capitalize on growth opportunities;

•

our ability to successfully integrate into our operations any assets, liabilities, customers, systems and management personnel we have acquired or may acquire and our ability to realize related revenue synergies and cost savings within expected time frames, and any goodwill charges related thereto;

•

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, including the effects of our adoption of the Current Expected Credit Loss (“CECL”) accounting standard, which we implemented on January 1, 2023;

•

our ability to retain key employees;

•

our compensation expense associated with equity allocated or awarded to our 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. Additional factors that may affect our results are discussed under the heading "Risk Factors" in our most recent Annual Report on Form 10-K (fiscal year ended December 31, 2023) filed with the Securities and Exchange Commission (“SEC”) on March 29, 2024, as updated by our subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Except as required by applicable 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 the statements or to reflect the occurrence of anticipated or unanticipated events. Accordingly, you should not place undue reliance on forward-looking statements.

Critical Accounting Policies

As a result of the complex and dynamic nature of the Company’s business, management must exercise judgment in selecting and applying the most appropriate accounting policies for its various areas of operations. The policy decision process not only ensures compliance with the current accounting principles generally accepted in the United States of America (“GAAP”), but also reflects management’s discretion with regard to choosing the most suitable methodology for reporting the Company’s financial performance. It is management’s opinion that the accounting estimates covering certain aspects of the business have more significance than others due to the relative importance of those areas to overall performance, or the level of subjectivity in the selection process. These estimates affect the reported amounts of assets and liabilities as well as disclosures of revenues and expenses during the reporting period. Actual results could meaningfully differ from these estimates. Management believes that the critical accounting estimates include the allowance for credit losses, determination of fair value for financial instruments, and valuation of deferred income taxes.

A summary of the accounting policies used by management is disclosed in Note 1, “Summary of Significant Accounting Policies” in the Company's most recent Form 10-K (fiscal year ended December 31, 2023) filed with the Securities and Exchange Commission (“SEC”) on March 29, 2024.

During 2024, we did not substantively change any material aspect of our overall methodologies and processes used in developing the remaining critical accounting estimates from those described in the Consolidated Financial Statements in our 2023 Annual Report on Form 10-K.

Comparison of Financial Condition at March 31, 2024 and December 31, 2023

Total Assets. Total assets increased $6.6 million, or 1.2%, to $564.2 million at March 31, 2024 from $557.6 million at December 31, 2023. This increase was primarily due to a $9.7 million net increase in cash and cash equivalents, partially offset by a $3.2 million decrease in available-for-sale securities.

Cash and Cash Equivalents. Cash and cash equivalents increased $9.7 million, or 72.9%, to $23.0 million at March 31, 2024 from $13.3 million at December 31, 2023. This increase was primarily due to a $9.0 million increase in FHLB advances, a $2.7 million increase in advance payments by borrowers for taxes and insurance and $2.4 million from maturities, prepayments and calls of available-for-sale securities, partially offset by a $4.4 million decrease in deposits.

Available-for-Sale Securities. Available-for-sale securities decreased $3.2 million, or 2.9%, to $106.4 million at March 31, 2024, from $109.6 million at December 31, 2023. This decrease was primarily due to maturities, payments and calls of securities totaling $2.4 million and a $750,000 increase in the net unrealized loss on available-for-sale securities. The net unrealized loss on available-for-sale securities held in the portfolio was $10.2 million at March 31, 2024.

Loans Held for Sale. Loans held for sale increased $122,000, to $826,000 at March 31, 2024. The volume of loans originated and sold remains relatively low, as a result of the changing interest rate environment and lower inventory of housing available in our market. Mortgage loan originations and sales were $2.2 million and $2.1 million, respectively, during the first three months of 2024 compared to $2.3 million and $2.5 million, respectively, for the same period in 2023.

Loans. Loans held for investment, net of deferred costs, decreased $1.5 million, or 0.4%, to $397.1 million at March 31, 2024, from $398.6 million at December 31, 2023. This decrease was primarily the result of a $4.5 million decrease in commercial loans, partially offset by a $2.0 million increase commercial real estate loans and a $1.3 million increase in first mortgage loans.

Allowance for Credit Losses. The ACL for loans was $3.7 million, or 0.93%, of loans, net of deferred costs, at March 31, 2024 compared to an ACL for loans of $3.7 million, or 0.94% of loans, net of deferred costs, at December 31, 2023. During the first quarter of 2024, we recorded a $68,000 negative provision for credit losses and $13,000 in net recoveries. The ACL for unfunded loan commitments was $1.0 million at March 31, 2024, compared to $875,000 at December 31, 2023. The increase in the ACL for unfunded loan commitments was the result of a $143,000 provision for credit losses. The additional provision was due to an $11.2 million increase in unfunded loan commitments which are expected to fund, from $47.3 million at December 31, 2023 to $58.5 million at March 31, 2024. Nonaccrual loans represented 0.28% of total loans at March 31, 2024 and December 31, 2023. Net recoveries for the three months ended March 31, 2024 were $13,000 compared to net recoveries of $3,000 for the three months ended March 31, 2023.

Other Assets. Other assets increased $629,000, or 6.7%, from $9.0 million at December 31, 2023 to $9.6 million at March 31, 2024. This increase was primarily due to a $400,000 increase in prepaid insurance premiums and a $200,000 increase in net deferred tax assets.

FHLB Stock. FHLB stock increased $400,000, or 9.5%, from $4.2 million at December 31, 2023 to $4.6 million at March 31, 2024. This increase was primarily due to the net increase in FHLB advances and the requirement by FHLB to hold additional stock as a result of the increased level of advances.

Deposits. Deposits decreased $4.4 million, or 1.1%, to $399.3 million at March 31, 2024, from $403.7 million at December 31, 2023. During this period, noninterest bearing checking accounts decreased $5.4 million, or 6.9%, money market accounts decreased $3.0 million, or 3.4%, and savings accounts decreased $2.6 million, or 5.6%. These decreases were partially offset by a $6.3 million, or 4.0%, increase in certificates of deposit. As market rates have increased and remain elevated, there has been a continuing shift in our deposit mix from noninterest bearing checking accounts, negotiable order of withdrawal ("NOW") accounts, savings accounts and money market accounts to higher rate certificates of deposits. The decrease in noninterest bearing and money market deposits was also partially due to the use of these funds by our commercial customers to fund their operations, as their borrowing costs have increased during the current interest rate environment. The Company continues to build upon its banking relationships with its core customers, including deposits, and in attracting new relationships.

Advance Payments by Borrowers for Taxes and Insurance. Advance payments by borrowers for taxes and insurance increased $2.7 million to $3.9 million at March 31, 2024 from $1.2 million at December 31, 2023. The increase was due to normal seasonal activity.

FHLB Advances. FHLB advances increased $9.0 million, or 12.7%, to $80.0 million at March 31, 2024, from $71.0 million at December 31, 2023. The level of FHLB advances was increased to fund anticipated cash outflows related to loans and deposits.

Total Stockholders’ Equity. Total stockholders’ equity decreased $1.3 million to $71.5 million at March 31, 2024, from $72.8 million at December 31, 2023. The decrease was primarily due to an other comprehensive loss of $592,000, as a result of an increase in the net unrealized loss on available-for-sale securities, the Company's purchase of $548,000 of its common stock during the three months ended March 31, 2024 under its stock repurchase plan and a net loss of $306,000.

Average Balances and Yields

The following tables sets forth average balance sheets, average yields and costs, and certain other information at and for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or interest expense.


	Three Months Ended March 31,
	2024								2023
	Average Outstanding Balance			Interest and Dividends		Yield/Cost Rate			Average Outstanding Balance			Interest and Dividends		Yield/Cost Rate
	(Dollars in thousands)
Interest-earning assets:
Loans(1)	$	399,417		$	4,799		4.83	%	$	364,331		$	3,826		4.26	%
Securities available-for-sale		107,683			1,040		3.89	%		113,864			602		2.15	%
Other interest-earning assets		13,048			194		5.98	%		19,619			284		5.87	%
Total interest-earning assets		520,148			6,033		4.67	%		497,814			4,712		3.84	%
Non-interest-earning assets		34,933								36,969
Total assets	$	555,081							$	534,783
Interest-earning liabilities:
NOW accounts	$	29,011		$	87		1.20	%	$	31,429		$	52		0.67	%
Money market accounts		84,027			479		2.29	%		115,328			542		1.91	%
Savings accounts		45,368			6		0.05	%		58,805			7		0.05	%
Certificates of deposit		164,590			1,819		4.45	%		82,878			381		1.86	%
Total interest-bearing deposits		322,996			2,391		2.98	%		288,440			982		1.38	%
Federal Home Loan Bank advances		80,401			578		2.89	%		80,028			493		2.50	%
Other interest-bearing liabilities		3,373			1		0.16	%		3,946			2		0.22	%
Total interest-bearing liabilities		406,770			2,970		2.94	%		372,414			1,477		1.61	%
Non-interest-bearing deposits		69,798								82,531
Other non-interest-bearing liabilities		8,556								6,482
Total liabilities		485,124								461,427
Total stockholders’ equity		69,957								73,356
Total liabilities and stockholders’ equity	$	555,081							$	534,783
Net interest income				$	3,063							$	3,235
Net interest-earning assets	$	113,378							$	125,400
Interest rate spread(2)							1.73	%							2.23	%
Net interest margin(3)							2.37	%							2.64	%
Average interest-earning assets to average interest-bearing liabilities		127.87	%							133.67	%

(1)

Includes net loan expenses of $18,000 and $19,000 for the three months ended March 31, 2024 and 2023, respectively.

(2)

Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

(3)

Net interest margin represents net interest income divided by average total interest-earning assets.

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 average rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior period average 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 included within the following table.


	Three Months Ended March 31, 2024 vs. 2023
	Increase (Decrease) Due to
	Volume			Rate			Total Increase (Decrease)
	(Dollars in thousands)
Interest-earning assets:
Loans	$	389		$	584		$	973
Securities		(31	)		469			438
Other		(98	)		8			(90	)
Total interest-earning assets		260			1,061			1,321
Interest-bearing liabilities:
NOW		4			(39	)		(35	)
Money market deposits		289			(226	)		63
Savings		1			—			1
Certificates of deposit		(593	)		(845	)		(1,438	)
Total interest-bearing deposits		(299	)		(1,110	)		(1,409	)
Borrowings		(4	)		(81	)		(85	)
Other		—			1			1
Total interest-bearing liabilities		(303	)		(1,190	)		(1,493	)
Change in net interest income	$	(43	)	$	(129	)	$	(172	)

Comparison of Operating Results for the Three Months Ended March 31, 2024 and 2023

Net Loss. We recorded a net loss of $306,000 for the three months ended March 31, 2024, compared to a net loss of $361,000 for the three months ended March 31, 2023. The decrease in net loss was primarily due to a $144,000 decrease in noninterest expenses and a $134,000 increase in noninterest income, partially offset by a $172,000 decrease in net interest income after provision for credit losses.

Interest and Dividend Income. Interest and dividend income increased $1.3 million, or 27.7%, to $6.0 million for the three months ended March 31, 2024, from $4.7 million for the three months ended March 31, 2023. The increase was due primarily to an $1.0 million increase in interest and fees on loans and a $438,000 increase in interest income on securities. The increase in interest and fees earned on loans was primarily due to a $35.1 million increase in the average amount of loans outstanding, from $364.3 million in the first quarter of 2023 to $399.4 million in the first quarter of 2024, and a 57 basis point increase in the yield earned on loans, from 4.26% for the first quarter of 2023 to 4.83% in the first quarter of 2024. The increase in the yield earned on loans during the first quarter of 2024 was primarily due to increases in market rates. The increase in loans is consistent with the Company's strategy to grow the loan portfolio. The increase in interest on securities was primarily due to a 174 basis point increase in the yield earned on loans, from 2.15% for the first quarter of 2023 to 3.89% in the first quarter of 2024. The increase in yield was primarily due to the balance sheet repositioning strategies that the Company implemented during 2023.

Interest Expense. Interest expense increased $1.5 million, or 100.0%, to $3.0 million for the three months ended March 31, 2024, from $1.5 million for the three months ended March 31, 2023. This increase was primarily due to a $1.4 million increase in interest expense on deposits and an $85,000 increase in interest expense on FHLB advances. The increase in interest expense on deposits was primarily due to a 160 basis point increase in the average rate paid on deposits and a $34.6 million increase in average interest-bearing deposits outstanding from the first quarter of 2023 to the first quarter of 2024. The increase in interest expense on deposits was primarily due to the increase in market rates of interest and a shift in our deposit mix. As market rates increased, many of our deposit customers transferred funds from noninterest bearing checking accounts and lower rate deposit accounts into higher rate certificates of deposit. The average balance of noninterest bearing checking accounts decreased $12.7 million, or 15.4%, NOW accounts decreased $2.4 million, or 7.6%, savings accounts decreased $13.4 million, or 22.8%, and money market accounts decreased

$31.3 million, or 27.1%, respectively, from the first quarter of 2023 to the first quarter of 2024. During the same period, the average balance of certificates of deposits increased $81.7 million, or 98.6%. Interest expense on certificates of deposit increased $1.4 million from the first quarter of 2023 to the first quarter of 2024 as a result of the increase in average balance and also a 259 basis point increase in the average rate paid on these accounts.

Net Interest Income. Net interest income decreased $172,000, or 5.3%, to $3.1 million for the three months ended March 31, 2024, from $3.2 million for the three months ended March 31, 2023. This decrease was primarily due to a $1.5 million increase in interest expense partially offset by a $1.3 million increase in interest and dividend income. Our net interest rate spread decreased 50 basis points to 1.73% for the three months ended March 31, 2024, from 2.23% for the three months ended March 31, 2023. Our net interest margin decreased 27 basis points to 2.37%, from 2.64% over the same period.

Provision for Credit Losses. The provision for credit losses was $75,000 for the three months ended March 31, 2024 and the three months ended March 31, 2023, respectively. The provision was primarily due to an increase in unfunded loan commitments.

Noninterest Income. Noninterest income increased $134,000, from $770,000 for the three months ended March 31, 2023 to $904,000 for the three months ended March 31, 2024. The increase was primarily due to a $117,000 increase in unrealized gains on marketable equity securities. The increase in unrealized gains on marketable equity securities was due to an increase in the market value of mutual funds held in our deferred compensation plan. We record an offsetting amount for the change in the market of equity securities in noninterest expense.

Noninterest Expense. Noninterest expense decreased $144,000, or 3.2%, to $4.3 million for the three months ended March 31, 2024 from $4.4 million for the three months ended March 31, 2023. This decrease was primarily due to a $328,000 decrease in salaries and benefits expense, partially offset by a $117,000 increase in unrealized gains on marketable equity securities. The decrease in salaries and benefits expense was primarily the result of cost savings initiatives implemented by the Company, including the review of all open positions prior to rehiring and a reduction-in-force ("RIF") implemented in April 2023. These actions have resulted in a reduction in the number of full-time equivalent employees from 106 at September 30, 2022, to 88 at March 31, 2024.

The increase in unrealized gains on marketable equity securities was due to an increase in the market value of mutual funds held in our deferred compensation plan. We record an offsetting amount for the change in the market of equity securities in noninterest income.

Income Tax Expense. We recorded an income tax benefit of $100,000 for the three months ended March 31, 2024, compared to a tax benefit of $151,000 for the three months ended March 31, 2023. The decrease in income tax benefit was primarily due to the decreased loss before taxes during the three months ended March 31, 2024 as compared to the loss before taxes for the three months ended March 31, 2023.

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.

Our asset/liability management strategy attempts to manage the impact of changes in interest rates on net interest income, our primary source of earnings. Among the techniques we use to manage interest rate risk are:

•

originating commercial real estate and commercial loans, which tend to have shorter terms and higher interest rates than owner occupied one- to four-family residential real estate loans, and which generate customer relationships that can result in larger non-interest-bearing checking accounts;

•

selling substantially all of our conforming and eligible jumbo, longer-term, fixed-rate one- to four-family residential real estate loans and retaining the non-conforming and shorter-term, fixed-rate and adjustable-rate one- to four-family residential real estate loans that we originate, subject to market conditions and periodic review of our asset/liability management needs; and

•

reducing our dependence on jumbo and brokered certificates of deposit to support lending and investment activities and increasing our reliance on core deposits, including checking accounts and savings accounts, which are less interest rate sensitive than certificates of deposit.

Our board of directors is responsible for the review and oversight of our executive management team and other essential operational staff which are responsible for our asset/liability analysis. These officers act as an asset/liability committee and are

charged with developing and implementing an asset/liability management plan, and they meet at least quarterly to review pricing and liquidity needs and assess our interest rate risk. 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.

We do not engage in material hedging activities, such as engaging in futures, options or swap transactions, or investing in high-risk mortgage derivatives, such as collateralized mortgage obligation residual interests, real estate mortgage investment conduit residual interests or stripped mortgage-backed securities.

The table below sets forth, as of March 31, 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.


Change in Interest Rates (basis points) (1)	Net Interest Income Year 1 Forecast		Year 1 Change from Level
	(Dollars in thousands)
+400	$	13,345		1.45	%
+300		13,487		2.53	%
+200		13,544		2.96	%
+100		13,313		1.21	%
Level		13,154		—	%
-100		13,173		0.14	%
-200		12,937		(1.65	)%
-300		12,920		(1.78	)%
-400		12,887		(2.03	)%

(1)

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

Economic Value of Equity. We also monitor interest rate risk through the use of a simulation model that estimates the amounts by which the fair value of our assets and liabilities (our economic value of equity or “EVE”) would change in the event of a range of assumed changes in market interest rates. The quarterly reports developed in the simulation model assist us in identifying, measuring, monitoring and controlling interest rate risk to ensure compliance within our policy guidelines.

The table below sets forth, as of March 31, 2024, the estimated changes in our EVE that would result from the designated instantaneous changes in market interest rates. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.


			Estimated Increase (Decrease) in EVE
Basis Point (“bp”) Change in Interest Rates(1)	Estimated EVE(2)		Amount			Percent
	(Dollars in thousands)
+400	$	68,670	$	(4,464	)		(6.10	)%
+300		70,066		(3,068	)		(4.20	)%
+200		71,564		(1,570	)		(2.15	)%
+100		72,195		(939	)		(1.28	)%
Level		73,134		—			—
-100		73,759		625			0.85	%
-200		73,866		732			1.00	%
-300		72,512		(622	)		(0.85	)%
-400		68,488		(4,646	)		(6.35	)%

(1)

Assumes an instantaneous 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.

The table above indicates that at March 31, 2024, in the event of a 100-basis point increase in interest rates, we would have experienced a 1.28% decrease in our EVE and in the event of a 100-basis point decrease in interest rates, we would have experienced a 0.85% increase in our EVE. In the event of a 200-basis point increase in interest rates at March 31, 2024, we would have

experienced a 2.15% decrease in our EVE and in the event of a 200-basis point decrease in interest rates, we would have experienced a 1.00% increase in our EVE.

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement. Modeling changes in EVE 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. In this regard, the EVE table presented assumes 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 EVE table provides 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 on EVE and will differ from actual results. EVE 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, deposits and borrowings.

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. Our primary sources of funds are deposits, FHLB advances, principal and interest payments on loans and securities, proceeds from the sale of loans, and proceeds from maturities of securities. At March 31, 2024, we had $80.0 million outstanding in advances from the FHLB. At March 31, 2024, we had $93.2 million in additional borrowing capacity at the Federal Home Loan Bank of Chicago, based on the level of qualifying real estate loans currently pledged to the FHLB. Additionally, at March 31, 2024, we had a $12.0 million federal funds line of credit with the BMO Harris Bank, none of which was drawn at March 31, 2024. The Company also had an $11.5 million line of credit at the Federal Reserve based on pledged commercial real estate loans of approximately $14.1 million at March 31, 2024. The Company had not drawn on the Federal Reserve line as of March 31, 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 cash equivalents and available-for-sale investment securities. 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. Net cash used in operating activities was $398,000 for the three months ended March 31, 2024, as compared to $1.1 million net cash used in operating activities for the three months ended March 31, 2023. Net cash used in operating activities for the three months ended March 31, 2024 primarily consisted of the origination of $2.2 million in mortgage loans held for sale, a $338,000 increase in accrued interest receivable and other assets, a $337,000 increase in the fair value of marketable equity securities and a $306,000 net loss, partially offset by $2.1 million in proceeds from the sale of mortgage loans held for sale and a $456,000 increase in accrued interest payable and other liabilities. Net cash used in operating activities for the three months ended March 31, 2023 primarily consisted of the origination of $2.3 million in mortgage loans held for sale, a $481,000 increase in accrued interest receivable and other assets, a $387,000 decrease in accrued interest payable and other liabilities and a $361,000 net loss, partially offset by $2.5 million in proceeds from the sale of mortgage loans held for sale. Net cash provided by investing activities was $3.4 million for the three months ended March 31, 2024, as compared to $5.8 million used in investing activities for the three months ended March 31, 2023. Net cash provided by investment activities during the three months ended March 31, 2024 consisted primarily of $2.4 million from maturities, calls and payments on available-for-sale securities and a $1.5 million net decrease in loans, partially offset by a $400,000 increase in FHLB stock. Net cash used in investment activities during the three months ended March 31, 2023 consisted primarily of a $7.6 million net increase in loans and a $1.4 million increase in FHLB stock, partially offset by $3.3 million from maturities, calls and payments on available-for-sale securities. Net cash provided by financing activities was $6.7 million for the three months ended March 31, 2024, as compared to $7.6 million for the three months ended March 31, 2023. Net cash provided by financing activities for the first three months of 2024 primarily resulted from borrowings of $53.0 million of FHLB advances and a $2.7 million increase in advance payments by borrowers for taxes and insurance, partially offset by $44.0 million in principal payments on FHLB advances and a $4.4 million decrease in deposits. Net cash provided by financing activities for the first three months of 2023 primarily resulted from borrowings of $64.5 million of FHLB advances and a $3.0 million increase in advance payments by borrowers for taxes and insurance, partially offset by $44.0 million in principal payments on FHLB advances and a $15.8 million decrease in deposits.

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 current strategy to increase core deposits, along with the continued use of FHLB advances as well as brokered certificates of deposit as needed.

Capital

At March 31, 2024, PyraMax Bank exceeded all of its regulatory capital requirements with a Tier 1 leverage capital level of $63.1 million, or 11.2% of adjusted total assets, which is above the well-capitalized required level of $28.1 million, or 5.0%. The Bank had total risk-based capital of $67.8 million, or 15.9% of risk-weighted assets, which is above the well-capitalized required level of $42.6 million, or 10.0%. Management is not aware of any conditions or events since the most recent notification that would change our category. For additional information, see Note 13 of the Notes to Financial Statements.

Off-Balance Sheet Arrangements and 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 potential 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 as the loans we make. For additional information, see Note 9 of the Notes to Financial Statements.

Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include operating leases for premises and equipment, agreements with respect to borrowings and deposits, and agreements with respect to securities.

Impact of Inflation and Changing Prices

The financial statements and related data presented herein have been prepared in accordance with generally accepted accounting principles in the United States of America which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

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 March 31, 2024. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

There were no changes in the Company’s internal control over financial reporting in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during the first quarter of 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are not involved in any pending legal proceedings as a plaintiff or defendant other than routine legal proceedings occurring in the ordinary course of business, and at March 31, 2024, we were not involved in any legal proceedings, the outcome of which would be material to our financial condition or results of operations.

Item 1A. Risk Factors

In addition to the other information set forth in the Form 10-Q, you should carefully consider the risk factors that appeared under Item 1A “Risk Factors” disclosed in the Company’s December 31, 2023 Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

Common Stock Repurchases. The following table presents information regarding shares of our common stock repurchased during the three months ended March 31, 2024.


Period	Total Number of Shares (or Units) Purchases (1)		Weighted Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of a Publicly Announced Plans or Programs		Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs

January 1 to January 31, 2024		49,065		7.57		49,065		501,428
February 1 to February 29, 2024		13,277		7.68		13,277		488,151
March 1 to March 31, 2024		7,306		6.92		7,306		480,845

On July 29, 2022, the Company adopted a stock repurchase program. On August 26, 2022, the Company received a non-objection letter from the FRB permitting the Company to repurchase 319,766 shares of its common stock, which represented 5% of the shares outstanding at the time discussions were held with the FRB. The Company began purchasing shares on September 1, 2022 and as of June 7, 2023, the Company had repurchased all 319,766 shares for a total purchase price of $3.4 million.

On April 28, 2023, the Company adopted a second stock repurchase program. On June 9, 2023, the Company received a non-objection letter from the FRB permitting the Company to repurchase 621,522 shares of its common stock, which represented 10% of the shares outstanding at the time discussions were held with the FRB. The Company began purchasing shares on June 15, 2023 and as of March 31, 2024, the Company had repurchased 140,677 shares for a total purchase price of $1.0 million.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits


Exhibit
Number		Description

3.1		Articles of Incorporation of 1895 Bancorp of Wisconsin, Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-254135))

3.2		Bylaws of 1895 Bancorp of Wisconsin, Inc. (incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-254135))

31.1		Certification of Chief Executive Officer Pursuant to Section 312 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer Pursuant to Section 312 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.0		The following materials for the quarter ended March 31, 2024, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive (Loss) Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements *
104.0		The cover page of this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024, formatted in iXBRL (contained in Exhibit 101.0) *

_____________

* Furnished, not filed.

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.


		1895 BANCORP OF WISCONSIN, INC.


Date: May 8, 2024		/s/ David R. Ball
		David R. Ball
		President and Chief Executive Officer


Date: May 8, 2024		/s/ Steven T. Klitzing
		Steven T. Klitzing
		Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

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1895 Bancorp of Wisconsin (BCOW) 10-Q2024 Q1 Quarterly report

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