BCOW 10-Q Quarter ended March 31, 2019

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, 2019

OR

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

For the transition period from to

Commission File No. 001-38778

1895 Bancorp of Wisconsin, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Federal		83-3078306
(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)

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  ☒

4,876,677 shares of the Registrant’s common stock, par value $0.01 per share, were issued and outstanding as of May 10, 2019.

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

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, 2019 (unaudited) and December 31, 2018			1
		Consolidated Statements of Operations for the Three Months Ended March  31, 2019 and 2018 (unaudited)			2
		Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2019 and 2018 (unaudited)			3
		Consolidated Statement of Stockholders’ Equity for the Three Months Ended March 31, 2019 (unaudited)			4
		Consolidated Statements of Cash Flows for the Three Months Ended March  31, 2019 and 2018 (unaudited)			5
		Notes to Financial Statements (unaudited)			6
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			35
Item 4.		Controls and Procedures			35
PART II. OTHER INFORMATION
Item 1.		Legal Proceedings			35
Item 1A.		Risk Factors			35
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			35
Item 3.		Defaults Upon Senior Securities			36
Item 4.		Mine Safety Disclosures			36
Item 5.		Other Information			36
Item 6.		Exhibits			36
		SIGNATURES			37

EXPLANATORY NOTE

1895 Bancorp of Wisconsin, Inc. (the “Company,” “we” or “our”) was formed in January 2019 to serve as the mid-tier stock holding company for PyraMax Bank, FSB (“PyraMax Bank”) upon the reorganization of PyraMax Bank into the two-tier mutual holding company structure. The reorganization was completed on January 8, 2019. Prior to January 8, 2019, the Company had no assets or liabilities and had not conducted any business activities other than organizational activities. Accordingly, financial information contained in this Quarterly Report on Form 10-Q relates solely to PyraMax Bank for any period prior to January 8, 2019.

The financial information contained in this Quarterly Report on Form 10-Q should be read in conjunction with the audited financial statements, and related notes, of the Company at and for the year ended December 31, 2018 contained in the Company’s Annual Report Form 10-K, as filed with the Securities and Exchange Commission on April 1, 2019.

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

1895 BANCORP OF WISCONSIN, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

		March 31, 2019				December 31, 2018
		(unaudited)
Assets
Cash and due from banks		$	32,540			$	7,782
Fed funds sold			2,143				141
Cash and cash equivalents			34,683				7,923
Available for sale securities, stated at fair value			64,695				65,731
Loans held for sale			1,233				771
Loans, net of allowance for loan losses of $3,426 and $3,262, respectively			360,083				369,830
Premises and equipment, net			7,692				8,163
Mortgage servicing rights, net			2,117				2,103
Federal Home Loan Bank stock, at cost			984				1,261
Accrued interest receivable			1,170				1,106
Cash value of life insurance			13,500				13,400
Other assets			10,794				10,811
TOTAL ASSETS		$	496,951			$	481,099
Liabilities and Stockholders’ Equity
Deposits			405,665				406,137
Advance payments by borrowers for taxes and insurance			4,333				1,240
Federal Home Loan Bank advances			24,651				30,010
Accrued interest payable			503				372
Other liabilities			5,108				5,159
Total liabilities			440,260				442,918
Common stock, $0.01 par value, 90,000,000 shares authorized, 4,876,677 shares issued as of March 31, 2019			49				—
Additional paid-in capital			19,980				—
Unallocated common stock of Employee Stock Ownership Plan, 175,528 shares as of March 31, 2019			(1,755	)			—
Retained earnings			39,293				39,764
Accumulated other comprehensive loss, net of income taxes			(876	)			(1,583	)
Total stockholders’ equity			56,691				38,181
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	496,951			$	481,099

See accompanying notes to financial statements.

1

1895 BANCORP OF WISCONSIN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

		Three months ended March 31,
		2019				2018
		(unaudited)
Interest and dividend income:
Loans, including fees		$	3,988			$	3,401
Securities, taxable			392				494
Other			65				11
Total interest and dividend income			4,445				3,906
Interest expense:
Interest-bearing deposits			1,180				795
Borrowed funds			123				144
Total interest expense			1,303				939
Net interest income			3,142				2,967
Provision for loan losses			—				—
Net interest income after provision for loan losses			3,142				2,967
Noninterest income:
Service charges and other fees			186				191
Loan servicing			222				144
Net gain on sale of loans			124				220
Net gain on sale of securities			—				21
Increase in cash surrender value of insurance			100				99
Other			118				11
Total noninterest income			750				686
Noninterest expense:
Salaries and employee benefits			2,427				2,087
Foreclosed assets, net			7				1
Advertising and promotions			56				12
Data processing			206				206
Occupancy and equipment			458				419
FDIC assessment			93				78
Other			1,325				707
Total noninterest expense			4,572				3,510
(Loss) income before income taxes			(680	)			143
(Credit) provision for income taxes			(209	)			13
Net (loss) income		$	(471	)		$	130
Earnings per common share
Basic		$	(0.10	)		$	N/A
Diluted		$	(0.10	)		$	N/A
Average common shares outstanding
Basic			4,701				N/A
Diluted			4,701				N/A

See accompanying notes to financial statements.

2

1895 BANCORP OF WISCONSIN, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

		Three months ended March 31,
		2019				2018
		(unaudited)
Net (loss) income		$	(471	)		$	130
Other comprehensive income (loss):
Unrealized holding gains (losses) arising during the period			969				(994	)
Reclassification adjustment for gains realized in net income			—				(21	)
Other comprehensive income (loss) before income tax effect			969				(1,015	)
Income tax effect of other comprehensive income (loss) items			262				(274	)
Other comprehensive income (loss), net of income tax			707				(741	)
Comprehensive income (loss)		$	236			$	(611	)

See accompanying notes to financial statements.

3

1895 BANCORP OF WISCONSIN, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands)

		Common stock				Additional paid- in capital				Unallocated common stock of ESOP				Retained earnings				Accumulated other comprehensive loss				Total
Balance as of January 1, 2019		$	—			$	—			$	—			$	39,764			$	(1,583	)		$	38,181
Net loss			—				—				—				(471	)			—				(471	)
Other comprehensive income			—				—				—				—				707				707
Net proceeds from stock offering (4,876,677 shares issued)			49				19,980				—				—				—				20,029
Purchase of ESOP shares (175,528 shares purchased)			—				—				(1,755	)			—				—				(1,755	)
Balance as of March 31, 2019		$	49			$	19,980			$	(1,755	)		$	39,293			$	(876	)		$	56,691

See accompanying notes to financial statements.

4

1895 BANCORP OF WISCONSIN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

		Three months ended March 31,
		2019				2018
		(unaudited)
Cash flows from operating activities:
Net (loss) income		$	(471	)		$	130
Adjustments to reconcile net (loss) income to net cash from operating activities:
Net amortization of investment securities			63				105
Depreciation			172				160
Write-down of premises and equipment			—				8
Gain on sale of premises and equipment			(97	)			—
Net gain on sale of investment securities			—				(21	)
Deferred income taxes			(203	)			(1	)
Originations of mortgage loans held for sale			(17,201	)			(15,390	)
Proceeds from sales of mortgage loans held for sale			16,863				13,220
Net gain on sale of mortgage loans held for sale			(124	)			(220	)
Net change in cash value of life insurance			(100	)			(99	)
Changes in operating assets and liabilities:
Mortgage servicing rights			(14	)			81
Accrued interest receivable and other assets			(106	)			(67	)
Accrued interest payable and other liabilities			80				(552	)
Net cash used in operating activities			(1,138	)			(2,646	)
Cash Flows From Investing Activities
Proceeds from sales of securities available for sale			—				9,518
Maturities, prepayments, and calls of securities available for sale			1,942				1,753
Net decrease (increase) in loans			9,747				(27,842	)
Net capital receipts (expenditures) for premises and equipment			396				(103	)
Net decrease (increase) in Federal Home Loan Bank stock			277				(90	)
Cash paid, net of cash received, for sale of branch			(3,490	)			—
Net cash provided by (used in) investing activities			8,872				(16,764	)
Cash Flows From Financing Activities
Net increase in deposits			3,018				9,107
Net increase in advance payments by borrowers for taxes and insurance			3,093				4,004
Net proceeds from stock offering			18,274				—
Proceeds from issuance of Federal Home Loan Bank advances			—				1,992
Principal payments on Federal Home Loan Bank advances			(5,359	)			—
Net cash provided by financing activities			19,026				15,103
Net increase (decrease) in cash and cash equivalents			26,760				(4,307	)
Cash and cash equivalents at beginning of period			7,923				12,497
Cash and cash equivalents at end of period		$	34,683			$	8,190
Supplemental cash flow information:
Cash paid during the year for interest		$	1,172			$	939
Cash paid during the year for income taxes			—				—
Non-cash investing and financing activities

On January 4, 2019, the Company sold its West Mitchell Street branch. The sale consisted of premises and equipment and related deposit accounts at the branch. The Company received a premium of $114. In conjunction with the sale, the values of assets and liabilities were as follows:

Cash		$	3,490
Premises and equipment			686
Deposits			4,290

See accompanying notes to financial statements.

5

1895 BANCORP OF WISCONSIN, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

(in thousands)

NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION

1895 Bancorp of Wisconsin, Inc. (the “Company”) was formed in January 2019 to serve as the mid-tier stock holding company for PyraMax Bank, FSB (the “Bank”) upon the reorganization of the Bank into the two-tier mutual holding company structure. As of December 31, 2018, the reorganization had not been completed, and therefore, the Company had no assets or liabilities and had not conducted any business activities other than organizational activities as of and for the year ended December 31, 2018. Accordingly, the financial information contained in these financial statements relates solely to the Bank for periods prior to January 8, 2019.

PyraMax Bank, FSB (the “Bank”) is chartered as a federal savings bank. The 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. The Bank is subject to competition from other financial and nonfinancial institutions providing financial products. In addition, the Bank is subject to the regulations of certain regulatory agencies and undergoes periodic examination by those regulatory agencies.

On September 5, 2018, the Board of Directors of the Bank adopted a Plan of Reorganization from a Mutual Savings Bank to a Mutual Holding Company and Stock Issuance Plan (the “Plan”). The Plan was approved by the Board of Governors of the Federal Reserve System and by the affirmative vote of a majority of the total votes eligible to be cast by the voting members of the Bank at a special meeting. Pursuant to the Plan, on January 8, 2019, the Bank converted to a stock savings bank and issued all of its outstanding stock to a new holding company, named 1895 Bancorp of Wisconsin, Inc. Pursuant to the Plan, the new holding company sold 2,145,738 shares of common stock (including 175,528 shares to be issued to the Bank’s employee stock ownership plan “ESOP”) at $10.00 per share, for gross offering proceeds of approximately $21.5 million in its subscription offering. In addition, on January 8, 2019, 48,767 shares and $100,000 were contributed to a newly formed charitable foundation, 1895 Bancorp of Wisconsin Community Foundation. 1895 Bancorp of Wisconsin, Inc. was organized as a corporation under the laws of the United States and offered 45% of its common stock to be outstanding to the Bank’s eligible members, the ESOP, a community foundation and certain other persons. 1895 Bancorp of Wisconsin, MHC was organized as a mutual holding company under the laws of the United States and owns 55% of the outstanding common stock of 1895 Bancorp of Wisconsin, Inc.

The accompanying unaudited interim 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 financial statements contain all normal recurring adjustments necessary to present fairly the financial positions results of operations, changes in equity and cash flows for the periods presented.

The accompanying unaudited financial statements and related notes should be read in conjunction with the audited annual financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the Securities and Exchange Commission on April 1, 2019.

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. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the fair values of securities, financial instruments and mortgage servicing rights, and the valuation of deferred income tax assets. Actual results could differ from those estimates.

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 following recent accounting standards reflect those that relate to non-issuer companies.

6

1895 BANCORP OF WISCONSIN, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

(in thousands)

NOTE 2 – RECENT ACCOUNTING STANDARDS

The Bank recently adopted the following Accounting Standards Updates (“ASU”) issued by the Financial Accounting Standards Board (“FASB”):

ASU 2014-09, Revenue from Contracts with Customers (Topic 606) . This amendment supersedes and replaces nearly all existing revenue recognition guidance. Under the amended guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Management adopted this new accounting standard beginning with the interim period ended March 31, 2019, with no material impact on the Bank’s financial statements.

The following ASUs have been issued by the FASB and may impact the Bank’s financial statements in future reporting periods:

ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326) . ASU 2016-13 requires organizations to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. Early adoption will be permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Management is currently assessing the impact of adopting ASU 2016-13 on the Bank’s financial statements.

ASU 2016-02, Leases (Topic 842) . This ASU affects any entity that enters into a lease, and is intended to increase the transparency and comparability of financial reporting. The ASU requires, among other changes, a lessee to recognize on its balance sheet a lease asset and a lease liability for those leases previously classified as operating leases. The lease asset will represent the right to use the underlying asset for the lease term, and the lease liability will represent the discounted value of the required lease payments to the lessor. The ASU will also require entities to disclose key information about leasing arrangements. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted. Management is currently evaluating the impact of adopting ASU 2016-02 on the Bank’s financial statements.

ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Liabilities . This ASU applies to all entities that hold financial assets or owe financial liabilities, and is intended to provide more useful information on the recognition, measurement, presentation and disclosure of financial instruments. Among other things, this ASU 1) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; 2) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; 3) eliminates the requirement to disclose the fair values of financial instruments measured at amortized cost for entities that are not public business entities; 4) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair values required to be disclosed for financial instruments measured at amortized cost; 5) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; 6) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and 7) clarifies that an entity should evaluate the need for a valuation allowance on deferred tax assets related to available-for-sale securities in combination with the entity’s other deferred tax assets. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 31, 2019. Early adoption is permitted. The adoption of ASU 2016-01 is not expected to have a material impact on the Bank’s financial statements.

7

1895 BANCORP OF WISCONSIN, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

(in thousands)

NOTE 3 – SECURITIES AVAILABLE-FOR-SALE

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

		March 31, 2019
		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
		(in thousands)
Obligations of states and political subdivisions		$	10,829			$	36			$	(107	)		$	10,758
Government-sponsored mortgage-backed securities			51,184				18				(1,145	)			50,057
Corporate collateralized mortgage obligations			390				1				—				391
Asset-backed securities			3,243				—				(2	)			3,241
Certificates of deposit			249				—				(1	)			248
Total		$	65,895			$	55			$	(1,255	)		$	64,695
		December 31, 2018
		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
		(in thousands)
Obligations of states and political subdivisions		$	11,348			$	25			$	(204	)		$	11,169
Government-sponsored mortgage-backed securities			52,363				4				(1,992	)			50,375
Corporate collateralized mortgage obligations			410				1				(1	)			410
Asset-backed securities			3,530				2				(1	)			3,531
Certificates of deposit			249				—				(3	)			246
Total		$	67,900			$	32			$	(2,201	)		$	65,731

The amortized costs and fair values of securities available-for-sale, 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, 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, 2019
		Amortized Cost				Fair Value
		(in thousands)
Debt and other securities:
Due in one year or less		$	1,445			$	1,445
Due after one through 5 years			6,435				6,388
Due after 5 through 10 years			3,198				3,173
Due after 10 years			—				—
Mortgage-related securities			51,574				50,448
Asset-backed securities			3,243				3,241
Total		$	65,895			$	64,695

8

1895 BANCORP OF WISCONSIN, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

(in thousands)

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, 2019
		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		$	—			$	—			$	7,747			$	(107	)		$	7,747			$	(107	)
Government-sponsored mortgage-backed securities			—				—				45,257				(1,145	)			45,257				(1,145	)
Asset-backed securities			2,558				(2	)			—				—				2,558				(2	)
Certificates of deposit			—				—				248				(1	)			248				(1	)
Total		$	2,558			$	(2	)		$	53,252			$	(1,253	)		$	55,810			$	(1,255	)

		December 31, 2018
		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		$	1,567			$	(5	)		$	6,909			$	(199	)		$	8,476			$	(204	)
Government-sponsored mortgage-backed securities			29				—				49,549				(1,992	)			49,578				(1,992	)
Corporate collateralized mortgage obligations			204				—				147				(1	)			351				(1	)
Asset-backed securities			813				(1	)			—				—				813				(1	)
Certificates of deposit			—				—				246				(3	)			246				(3	)
Total		$	2,613			$	(6	)		$	56,851			$	(2,195	)		$	59,464			$	(2,201	)

At March 31, 2019 and December 31, 2018, respectively, the Bank had 51 and 59 debt securities with unrealized losses representing aggregate depreciation of approximately 2.2% and 3.6% from their respective amortized cost bases. These unrealized losses relate principally to changes in interest rates and were not caused by changes in the financial condition of the issuers, the quality of any underlying assets or applicable credit enhancements. In analyzing whether unrealized losses on debt securities are other-than-temporary, management considers whether the securities are issued by a government body or agency, whether a rating agency has downgraded the securities, industry analysts’ reports, the financial condition and performance of the issuer and the quality of any underlying assets or credit enhancements. As management has the intent and ability to hold these debt securities to projected recovery, none of these declines are deemed to be other-than-temporary.

The following table provides a summary of the proceeds from sales of securities available-for-sale, as well as gross gains and losses, for the periods presented:

		Three Months ended March 31,
		2019				2018
		(in thousands)
Proceeds from sales of securities available-for-sale		$	—			$	9,518
Gross realized gains			—				91
Gross realized losses			—				70

9

1895 BANCORP OF WISCONSIN, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

(in thousands)

NOTE 4 – LOANS

Major classifications of loans are summarized as follows:

		March 31, 2019				December 31, 2018
		(in thousands)
Commercial:
Real estate		$	189,440			$	191,645
Land development			2,405				2,187
Other			32,495				30,508
Residential real estate:
First mortgages			99,944				108,084
Construction			1,797				2,097
Consumer:
Home equity and lines of credit			35,122				36,154
Other			1,838				1,914
Subtotal			363,041				372,589
Net deferred loan fees			468				503
Allowance for loan losses			(3,426	)			(3,262	)
Loans, net		$	360,083			$	369,830

The Bank provides several types of loans to its customers, including commercial, residential, construction and consumer loans. Significant loan concentrations are considered to exist for a financial institution 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 the Bank’s credit risks are geographically concentrated within the metropolitan Milwaukee, Wisconsin area, there are no concentrations with individual borrowers or groups of related borrowers.

During the normal course of business, the Bank 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, 2019 and December 31, 2018, respectively, the Bank had transferred $16,739 and $61,328 in participation loans which were eligible for sales treatment to other financial institutions, all of which were being serviced by the Bank.

An analysis of past due loans is presented below:

		March 31, 2019
		30-89 Days Past Due				90 Days or More Past Due				Total Past Due				Current				Total Loans
		(in thousands)
Commercial:
Real estate		$	—			$	—			$	—			$	189,440			$	189,440
Land development			—				303				303				2,102				2,405
Other			—				—				—				32,495				32,495
Residential real estate:
First mortgages			1,069				227				1,296				98,648				99,944
Construction			—				—				—				1,797				1,797
Consumer:
Home equity and lines of credit			218				35				253				34,869				35,122
Other			—				—				—				1,838				1,838
Total		$	1,287			$	565			$	1,852			$	361,189			$	363,041

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1895 BANCORP OF WISCONSIN, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

(in thousands)

		December 31, 2018
		30-89 Days Past Due				90 Days or More Past Due				Total Past Due				Current				Total Loans
		(in thousands)
Commercial:
Real estate		$	—			$	—			$	—			$	191,645			$	191,645
Land development			—				303				303				1,884				2,187
Other			—				—				—				30,508				30,508
Residential real estate:
First mortgages			1,470				91				1,561				106,523				108,084
Construction			—				—				—				2,097				2,097
Consumer:
Home equity and lines of credit			215				13				228				35,926				36,154
Other			2				—				2				1,912				1,914
Total		$	1,687			$	407			$	2,094			$	370,495			$	372,589

There were no loans 90 days or more past due and accruing interest as of March 31, 2019 or December 31, 2018.

A summary of activity in the allowance for loan losses for the three months ended March 31, 2019 and 2018 is presented below:

		Commercial				Residential				Consumer				Total
		(in thousands)
Three months ended March 31, 2019
Allowance for loan losses
Beginning balance		$	1,448			$	1,250			$	564			$	3,262
Provision for loan losses			—				—				—				—
Loans charged-off			—				(37	)			(1	)			(38	)
Recoveries			196				—				6				202
Ending balance		$	1,644			$	1,213			$	569			$	3,426
Three months ended March 31, 2018
Allowance for loan losses
Beginning balance		$	1,369			$	1,246			$	478			$	3,093
Provision for loan losses			—				—				—				—
Loans charged-off			—				—				(5	)			(5	)
Recoveries			3				—				12				15
Ending balance		$	1,372			$	1,246			$	485			$	3,103

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1895 BANCORP OF WISCONSIN, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

(in thousands)

A summary of the allowance for loan losses for loans evaluated individually and collectively for impairment is presented below:

		March 31, 2019
		Commercial				Residential				Consumer				Total
		(in thousands)
Loans:
Individually evaluated for impairment		$	1,152			$	1,153			$	35			$	2,340
Collectively evaluated for impairment			223,188				100,588				36,925				360,701
Total loans		$	224,340			$	101,741			$	36,960			$	363,041
Allowance for loan losses:
Individually evaluated for impairment		$	—			$	6			$	6			$	12
Collectively evaluated for impairment			1,644				1,207				563				3,414
Total allowance for loan losses		$	1,644			$	1,213			$	569			$	3,426

		December 31, 2018
		Commercial				Residential				Consumer				Total
		(in thousands)
Loans:
Individually evaluated for impairment		$	1,165			$	1,176			$	36			$	2,377
Collectively evaluated for impairment			223,175				109,005				38,032				370,212
Total loans		$	224,340			$	110,181			$	38,068			$	372,589
Allowance for loan losses:
Individually evaluated for impairment		$	—			$	6			$	6			$	12
Collectively evaluated for impairment			1,448				1,244				558				3,250
Total allowance for loan losses		$	1,448			$	1,250			$	564			$	3,262

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

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.

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1895 BANCORP OF WISCONSIN, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

(in thousands)

A summary of the Bank’s internal risk ratings of loans is presented below:

		March 31, 2019
		Pass				Watch and Special Mention				Substandard				Total
		(in thousands)
Commercial:
Real estate		$	182,533			$	5,974			$	933			$	189,440
Land development			401				1,701				303				2,405
Other			28,654				3,690				151				32,495
Total		$	211,588			$	11,365			$	1,387			$	224,340

		December 31, 2018
		Pass				Watch and Special Mention				Substandard				Total
		(in thousands)
Commercial:
Real estate		$	186,303			$	4,403			$	939			$	191,645
Land development			158				1,726				303				2,187
Other			25,939				4,408				161				30,508
Total		$	212,400			$	10,537			$	1,403			$	224,340

There were no loans rated Doubtful or Loss as of March 31, 2019 and December 31, 2018.

Residential real estate and consumer loans are generally evaluated based on whether or not loans are performing in accordance with their contractual terms. Information regarding the credit quality indicators most closely monitored for residential real estate and consumer loans is presented below:

		March 31, 2019
		Performing				Non Performing				Total
		(in thousands)
Residential real estate:
First mortgages		$	98,709			$	1,235			$	99,944
Construction			1,797				—				1,797
Consumer:
Home equity and lines of credit			34,923				199				35,122
Other			1,838				—				1,838
Total		$	137,267			$	1,434			$	138,701

		December 31, 2018
		Performing				Non Performing				Total
		(in thousands)
Residential real estate:
First mortgages		$	107,018			$	1,066			$	108,084
Construction			2,097				—				2,097
Consumer:
Home equity and lines of credit			35,984				170				36,154
Other			1,914				—				1,914
Total		$	147,013			$	1,236			$	148,249

13

1895 BANCORP OF WISCONSIN, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

(in thousands)

Information regarding impaired loans is presented below:

		As of and for the Three Months Ended March 31, 2019
		Recorded Investment				Unpaid Principal				Reserve				Average Investment				Interest Recognized
		(in thousands)
Impaired loans with reserve:
Commercial:
Real estate		$	—			$	—			$	—			$	—			$	—
Land development			—				—				—				—				—
Other			—				—				—				—				—
Residential real estate:
First mortgages			91				91				6				91				—
Construction			—				—				—				—				—
Consumer:
Home equity and lines of credit			6				6				6				6				—
Other			—				—				—				—				—
Total impaired loans with reserve			97				97				12				97				—
Impaired loans with no reserve:
Commercial:
Real estate			698				698				NA				700				8
Land development			303				303				NA				303				—
Other			151				151				NA				156				2
Residential real estate:
First mortgages			1,062				1,369				NA				1,067				4
Construction			—				—				NA				—				—
Consumer:
Home equity and lines of credit			29				56				NA				30				—
Other			—				—				NA				—				—
Total impaired loans with no reserve			2,243				2,577				NA				2,256				14
Total impaired loans		$	2,340			$	2,674			$	12			$	2,353			$	14

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