Company Overview and History

FFBW, Inc. (FFBW) is a community bank that has been serving the Waukesha, Brookfield, and Milwaukee areas of Wisconsin for over a decade. The company's history dates back to 2008, when it was founded as First Federal Bank of Wisconsin, a federally chartered savings bank. In 2018, the bank converted to a stock-based holding company structure and became FFBW, Inc., a publicly traded entity.

FFBW's business model is rooted in a rich history dating back to 1910 when it was established as First Federal Savings and Loan Association of Waukesha. Initially focused on providing mortgage loans and deposit services to the local community, the bank has evolved significantly over the years. In the 1980s, it transitioned from a savings and loan association to a federally chartered mutual savings bank, changing its name to First Federal Bank of Wisconsin. This strategic shift allowed the bank to diversify its product offerings and services beyond mortgage lending.

The bank faced significant challenges in the early 2000s due to the bursting of the housing bubble and the subsequent financial crisis. Like many financial institutions, FFBW experienced increased loan delinquencies and losses during this turbulent period. However, the bank's management team worked diligently to manage its loan portfolio and maintain adequate capital levels, demonstrating resilience in the face of adversity.

Financial Performance

In terms of financial performance, FFBW has demonstrated resilience in the face of various challenges. For the fiscal year ended December 31, 2022, the company reported revenue of $12.53 million and net income of $2.34 million, up from $1.98 million in the prior year. This improvement was driven by a 9.2% increase in net interest income, which reached $11.46 million, coupled with a 7.9% rise in non-interest income to $1.07 million. The bank's net interest margin, a key metric for profitability, expanded to 3.61% in 2022, up from 3.30% in 2021.

For the most recent quarter (Q3 2022), FFBW reported revenue of $2.95 million, a 4.8% increase year-over-year, and net income of $713,000, representing a substantial 55.4% increase compared to the same period in 2021. The increase in revenue and net income was primarily driven by growth in loans and higher yields on interest-earning assets.

FFBW's operating cash flow for the fiscal year 2022 stood at $4.50 million, with free cash flow reaching $2.99 million. The company's financial performance is primarily driven by its operations in the Wisconsin market, as FFBW does not have significant operations outside this region.

Challenges and Risk Management

Despite the positive financial results, FFBW has navigated its share of obstacles in recent years. The COVID-19 pandemic, for instance, posed significant challenges, as the bank had to contend with increased loan delinquencies and credit losses. However, the company's proactive risk management strategies and prudent underwriting practices have enabled it to weather the storm, with its non-performing loan ratio declining from 0.13% at the end of 2021 to 0.06% as of December 31, 2022.

Liquidity and Capital Management

FFBW has been actively managing its balance sheet to improve its overall financial position. In 2022, the company repurchased 440,110 shares of its common stock, representing approximately 7% of its outstanding shares, at an average price of $12.46 per share. This stock buyback program, coupled with the company's strong capital levels, underscores FFBW's commitment to enhancing shareholder value.

The company's liquidity position remains strong, with a debt-to-equity ratio of 0.10 and cash and cash equivalents of $10.89 million as of the most recent reporting period. FFBW also maintains a $7.0 million federal funds line of credit with Bankers Bank of Wisconsin, which was undrawn at the end of the third quarter of 2022. The company's current ratio and quick ratio both stand at 1.52, indicating a healthy short-term liquidity position.

FFBW's capital ratios remain robust, with a Tier 1 leverage ratio of 21.80% and a total risk-based capital ratio of 27.50% as of September 30, 2022, well above the regulatory minimums for a "well-capitalized" institution.

Loan Portfolio and Credit Quality

As of September 30, 2022, FFBW's total loans stood at $231.19 million. The loan portfolio is diversified across several key segments, with commercial real estate loans being the largest at $99.37 million or 43.0% of the total loan portfolio. Other significant segments include multifamily real estate loans at $41.60 million (18.0%), one-to-four family investor-owned loans at $27.74 million (12.0%), and commercial and industrial loans at $24.80 million (10.7%).

The company's credit quality metrics have shown improvement, with nonperforming loans totaling $149,000, or 0.06% of total loans, at the end of the third quarter of 2022, down from $284,000, or 0.13% of total loans, at the end of 2021. The allowance for loan losses was $2.53 million as of September 30, 2022, representing 1.09% of total loans. Net charge-offs were negligible during the first nine months of 2022, compared to $381,000 in net charge-offs for the full year 2021.

Deposits and Funding

FFBW's deposit base was $233.95 million as of September 30, 2022, down from $255.25 million at the end of 2021. The deposit portfolio is diversified, consisting of $52.04 million in noninterest-bearing checking accounts, $12.40 million in interest-bearing checking accounts, $77.86 million in money market accounts, $34.12 million in statement savings accounts, $10.52 million in health savings accounts, and $47.01 million in certificates of deposit.

The company had no outstanding FHLB advances as of September 30, 2022, down from $6.50 million at the end of 2021, further strengthening its liquidity position.

Future Outlook

Looking ahead, FFBW remains cautiously optimistic about its future prospects. The bank's management team has outlined a strategy focused on organic growth, continued balance sheet optimization, and disciplined risk management. In its most recent guidance, FFBW projected net income for the fiscal year 2023 to be in the range of $1.5 million to $1.7 million, reflecting the challenging macroeconomic environment and the anticipated impact of rising interest rates on the company's operations.

Despite the headwinds, FFBW's long-standing presence in its local markets, diversified business model, and prudent management approach have positioned the company to navigate the current landscape and capitalize on future growth opportunities. The banking industry has seen moderate growth in recent years, with a CAGR of around 3-4% nationally. FFBW has been able to grow its balance sheet and earnings at a faster pace than the industry average by focusing on its local market and providing personalized service to its customers.

As the bank continues to adapt and evolve, investors will be closely watching FFBW's ability to deliver sustained financial performance and shareholder value. With its strong capital position, improving credit quality metrics, and focus on its core Wisconsin market, FFBW appears well-positioned to continue its growth trajectory and navigate the challenges of the evolving banking landscape.