SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended December 31, 2018

OR

For the transition period from _______________ to _______________

Commission File No. 333-227307

TEB Bancorp, Inc.

(Exact name of registrant as specified in its charter)

414-476-6434

(Registrant’s telephone number)

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 x      

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

YES x    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.

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 x

As of March 26, 2019, no shares of the Registrant’s common stock, par value $0.01 per share, were issued and outstanding.

EXPLANATORY NOTE

TEB Bancorp, Inc., a Maryland corporation (the “Company” or the “Registrant”), has been formed to serve as the holding company for The Equitable Bank, S.S.B. and subsidiaries (the “Bank”) as part of the Bank’s reorganization to the mutual holding company form of organization. As of December 31, 2018, the reorganization had not been completed, and, as of that date, the Registrant had no assets or liabilities, and had not conducted any business other than that of an organizational nature. Accordingly, unaudited financial and other information of the Bank is included in this quarterly report on Form 10-Q.

As part of the reorganization, the Bank changed the fiscal year end from September 30 to June 30, effective June 30, 2018.

The unaudited consolidated financial statements and other information contained in the Quarterly Report on Form 10-Q should be read in conjunction with the Bank’s audited consolidated financial statements as of and for the nine months ended June 30, 2018 and for the year ended September 30, 2017 contained in the Company’s definitive prospectus dated February 11, 2019 (the “Prospectus”) as filed with the Securities and Exchange Commission pursuant to Securities Act Rule 424(b)(3) on February 22, 2019.

Part I Financial Information

Item 1 Financial Statements

THE EQUITABLE BANK, S.S.B. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

As if December 31, 2018 (Unaudited) and June 30, 2018

See accompanying notes to condensed consolidated financial statements.

THE EQUITABLE BANK, S.S.B. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three and Six Months Ended December 31, 2018 and 2017 (Unaudited)

See accompanying notes to condensed consolidated financial statements.

THE EQUITABLE BANK, S.S.B. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Three and Six Months Ended December, 2018 and 2017 (Unaudited)

See accompanying notes to condensed consolidated financial statements.

THE EQUITABLE BANK, S.S.B. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Six Months Ended December 31, 2018 and 2017 (Unaudited)

See accompanying notes to condensed consolidated financial statements.

THE EQUITABLE BANK, S.S.B. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended December 31, 2018 and 2017 (Unaudited)

See accompanying notes to condensed consolidated financial statements.

THE EQUITABLE BANK, S.S.B. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2018 (unaudited) and June 30, 2018 and for the Three and Six Months Ended
December 31, 2018 and 2017 (Unaudited)

NOTE 1 – Summary of Significant Accounting Policies

Basis of Presentation

The Equitable Bank, S.S.B. (the “Bank”) is a state chartered mutual savings bank providing a full range of financial services. The Bank grants commercial, residential and consumer loans, and accepts deposits from customers primarily in the Metropolitan Milwaukee area, which is in southeastern Wisconsin. Equitable is subject to competition from other financial institutions and nonfinancial institutions providing financial products. Additionally, the Bank is subject to the regulations of certain regulatory agencies and undergoes periodic examination by those regulatory agencies.

The accompanying unaudited condensed consolidated financial statements of the Bank were prepared in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Accordingly, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto of the Bank as of and for the nine months ended June 30, 2018. Reference is made to the accounting policies of the Bank described in the Notes to the consolidated Financial Statements contained in the prospectus of TEB Bancorp, Inc. (“the Company”) dated February 11, 2019.

The interim condensed consolidated financial statements as of December 31, 2018, and for the three and six months ended December 31, 2018 and 2017 are unaudited and reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. Such adjustments are the only adjustments contained in the interim financial statements. The results of operations for the three and six months ended December 31, 2018, are not necessarily indicative of the results to be achieved for the year ending June 30, 2019 or any other period.

The Bank evaluates subsequent events through the date of filing with the Securities and Exchange Commission.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts and operations of the Bank and its wholly-owned subsidiaries, Equitable Investment Corp. and Savings Financial Corporation. All significant intercompany accounts and transactions have been eliminated.

Use of Estimates

In preparing the condensed consolidated financial statements in conformity with U.S. GAAP, management of the Bank is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated 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 loan losses, the pension actuarial assumptions, and the valuation of deferred tax assets.

Reclassification

Certain June 30, 2018 amounts have been reclassified to conform to the December 31, 2018 presentation. The reclassifications had no effect on reported amounts of consolidated net income (loss) or equity.

THE EQUITABLE BANK, S.S.B. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2018 (unaudited) and June 30, 2018 and for the Three and Six Months Ended
December 31, 2018 and 2017 (Unaudited)

Going Concern

On February 15, 2012, the Board of Directors of the Bank executed a Stipulation and Consent to the Issuance of an Amended Consent Order (“Consent Order”), jointly issued by the Federal Deposit Insurance Corporation (“FDIC”) and Wisconsin Department of Financial Institutions (“WDFI”). Pursuant to the Consent Order, the Bank has taken certain actions to address issues identified by the FDIC and WDFI. The Consent Order requires the Bank to, among other things, (i) retain qualified management; (ii) increase Board oversight; (iii) maintain minimum Tier 1 capital of 8% of average assets and minimum total risk-based capital of 12% of risk weighted assets; revise the capital plan submitted to the FDIC and WDFI (iv) revise the written plan to manage concentrations of credit; (v) revise the written plan to reduce the level of loan relationships and real estate owned greater than $500,000 and 90 days delinquent or classified substandard or doubtful; (vi) obtain monthly Board approval of the allowance for loan losses; (vii) revise the profit plan; and (viii) provide written status reports to the FDIC following each quarter end. The Consent Order will remain in effect until terminated, modified, or suspended in writing by the FDIC or WDFI. Management is required to submit an annual budget to the regulatory agencies in response to the amended consent order. The most recent budget submitted was as of January 1, 2019. The compliance with these items is monitored by management and the Board of Directors on a monthly basis.

The condensed consolidated financial statements had been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Non -compliance with the regulatory Consent Order due to low levels of capital raised a substantial doubt about the ability of the Bank to continue as a going concern. Management has a plan to pursue reorganization to a mutual holding company and sell a minority share of the stock to the public which will increase capital levels. The Bank believes it has corrected all outstanding issues other than the low capital levels and returning to profitability. If the Bank is unable to achieve compliance with requirements of the Consent Order, the FDIC or WDFI could force a sale, liquidation, or federal conservatorship or receivership of the Bank. See Note 12 “Regulatory Capital Requirements” for additional information.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Ongoing liquidity is needed to meet the financial obligations that arise in the ordinary course of business. Our primary needs for liquidity are 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, principal and interest payments on loans and securities, proceeds from the sale of loans, and proceeds from maturities of securities. We also have the ability to borrow from the Federal Home Loan Bank of Chicago and from U.S. Bank. At December 31, 2018, we had an $82.1 million line of credit with the Federal Home Loan Bank of Chicago, and had $52.1 million of borrowings outstanding as of that date. We also had a $5.0 million line of credit with U.S. Bank, with no borrowings outstanding as of that date.

NOTE 2 – Recent Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) issues Accounting Standards Updates (“ASU”s) to the FASB Accounting Standards Codification (“ASC”). This section provides a summary description of recent ASUs that management expects may have an impact on the consolidated financial statements issued in the near future. Pursuant to final approvals with respect to the mutual holding reorganization, as discussed in Note 19, the Company will be classified as an emerging growth company and will elect to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Exchange Act of 1934. Effective dates reflect this election.

In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses which amends the implementation date for nonpublic entities’ annual financial statements to align with their interim financial statements and clarifies the scope of the guidance in ASU 2016-13. The update will allow management to delay implementation of ASU 2016-13 until fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, due to the Company’s status as an emerging growth company. Management is currently evaluating the impact of other aspects in the update on the Bank’s consolidated results of operations, financial position and cash flows.

THE EQUITABLE BANK, S.S.B. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2018 (unaudited) and June 30, 2018 and for the Three and Six Months Ended
December 31, 2018 and 2017 (Unaudited)

In August 2018, the FASB issued ASU No. 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans, which amends the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments in this update removed disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. The amendments in this update are effective for public business entities in fiscal years ending after December 15, 2020. The Bank is required to adopt the new standard for fiscal years ending after December 15, 2021. Early adoption is permitted. Management is currently evaluating the adoption of the new standard on the Bank’s consolidated results of operations, financial position and cash flows.

In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which amends FASB ASC Topic 842, Leases, to (1) add an optional transition method that would permit entities to apply the new requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption, and (2) provide a practical expedient for lessors regarding the separation of the lease and non-lease components of a contract. This guidance did not change management’s assessment of the impact of ASU No. 2016-02 on the Bank’s consolidated results of operations, financial position or cash flows.

In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, leases to address certain narrow aspects of the guidance issued in ASU No. 2016-02. This guidance did not change management’s assessment of the impact of ASU No. 2016-02 on the Bank’s consolidated results of operations, financial position or cash flows.

In May 2018, the FASB issued ASU No. 2018-06, Codification Improvements to Topic 942, Financial Services - Depository and Lending. This update superseded outdated guidance related to the Office of the Comptroller of the Currency’s Banking Circular 202, Accounting for Net Deferred Tax Charges. Management does not expect the new guidance to have a material impact on the Bank’s consolidated results of operations, financial position or cash flows.

NOTE 3 – Fair Value of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer liabilities in an orderly transaction between market participants at the measurement date (exit price) and establishes a framework for measuring fair value.

To determine fair value the Bank utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Bank is able to classify fair value balances based on the observability of those inputs. The guidance establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:

THE EQUITABLE BANK, S.S.B. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2018 (unaudited) and June 30, 2018 and for the Three and Six Months Ended
December 31, 2018 and 2017 (Unaudited)

A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Assets

Available for sale securities Where quoted prices for securities are available in an active market, those securities are classified within Level 1 of the valuation hierarchy. If such quoted market prices are not available, then fair values are estimated using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Examples of securities with similar characteristics, which would generally be classified within Level 2 of the valuation hierarchy, include certain AAA-rated U.S. government sponsored agency securities, municipal obligations, and mortgage-backed securities. A security using financial models based upon primarily unobservable inputs, such as commercial paper, would generally be classified within Level 3 of the valuation hierarchy.

Impaired Loans The Bank does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses may be established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the collateral exceeds the recorded investments in such loans and for which carrying amount will remain at amortized cost. Impaired loans where an allowance is established based on the fair value of collateral or expected cash flows require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, less selling costs, the Bank records the impaired loan as a non-recurring Level 3 valuation. At December 31, 2018 and June 30, 2018, substantially all of the impaired loans were evaluated based on the fair value of the collateral with adjustments to their appraised values ranging from 5-15% for selling costs.

Other real estate owned, net Assets on which the underlying collateral has been repossessed are initially recorded at the fair market value of the real estate acquired less estimated costs to sell.

Subsequently, other real estate owned is carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, less selling costs, the Bank records the repossessed asset as a non-recurring Level 3 valuation. At December 31, 2018 and June 30, 2018 substantially all of the Other real estate owned was evaluated based on the fair value of the collateral with adjustments to their appraised values ranging from 5-15% for selling costs.

THE EQUITABLE BANK, S.S.B. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2018 (unaudited) and June 30, 2018 and for the Three and Six Months Ended
December 31, 2018 and 2017 (Unaudited)

The following tables set forth, by level within the fair value hierarchy, the Bank's financial assets that were accounted for at fair value on a recurring and non-recurring basis as of December 31, 2018 and June 30, 2018, respectively. According to fair value guidance, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to their fair value measurement. The Bank's assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

The following table presents assets measured at fair value on a recurring basis:

Fair value of level 3 assets measured on a recurring basis is determined based upon financial models using primarily unobservable inputs. The Bank had no level 3 assets as of December 31, 2018 or June 30, 2018.

Assets measured at fair value on non-recurring basis:

THE EQUITABLE BANK, S.S.B. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2018 (unaudited) and June 30, 2018 and for the Three and Six Months Ended
December 31, 2018 and 2017 (Unaudited)

Financial Disclosures about Fair Value of Financial Instruments

Accounting guidance requires disclosures of the estimated fair value of certain financial instruments and the methods and significant assumptions used to estimate their fair values. Certain financial instruments and all non-financial instruments are excluded from the scope of the guidance. Accordingly, the fair value disclosures required by the guidance are only indicative of the value of individual financial instruments, as of the dates indicated and should not be considered an indication of the fair value of Bank.

The estimated fair values of financial instruments are as follows:

The methods and assumptions that were used to estimate the fair value of financial assets and financial liabilities that are measured at fair value on a recurring and non-recurring basis have been previously disclosed. The following methods and assumptions were used to estimate the fair value of other financial instruments for which it is practicable to estimate that value:

Cash and cash equivalents – Due to their short term nature, the carrying amount of cash equivalents approximates fair value and is categorized in level 1 of the fair value hierarchy.

Interest bearing deposits in banks – The carrying amount approximates fair value and is categorized in level 2 of the fair value hierarchy.

Available for sale securities – The fair value is estimated using quoted market prices or by using pricing models and is categorized in level 2 of the fair value hierarchy.

Federal Home Loan Bank stock – No secondary market exists for FHLB stock. The stock is bought and sold at par by the FHLB and management believes the carrying amount approximates fair value and is categorized in level 2 of the fair value hierarchy.

Loans– The fair value of variable rate loans that reprice frequently are based on carrying values. The 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 and is categorized in level 3 of the fair value hierarchy.

Loans held for sale – Fair value is based on commitments on hand from investors or prevailing market prices and is categorized in level 2 of the fair value hierarchy.

Accrued interest receivable – The carrying amount approximates fair value and is categorized in level 1 of the fair value hierarchy.

THE EQUITABLE BANK, S.S.B. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2018 (unaudited) and June 30, 2018 and for the Three and Six Months Ended
December 31, 2018 and 2017 (Unaudited)

Deposits – Fair value of deposits with no stated maturity, such as demand deposits, savings, and money market accounts, 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 offered on similar time deposits. Deposits are categorized in level 3 of the fair value hierarchy.

Federal Home Loan Bank borrowings – The carrying amount approximates fair value and is categorized in level 2 of the fair value hierarchy.

Accrued interest payable – The carrying amount approximates fair value and is categorized in level 1 of the fair value hierarchy.

The estimated fair value of fee income on letters of credit at September 30, 2018 and June 30, 2018 is insignificant. Loan commitments on which the committed interest rate is less than the current market rate are also insignificant at September 30, 2018 and June 30, 2018.

NOTE 4 – Cash and Due From Banks

The Bank is required to maintain vault cash and reserve balances with Federal Reserve Bank is based upon a percentage of deposits. These requirements approximated $1,513,000 at December 31, 2018 and $1,439,000 at June 30, 2018.

NOTE 5 – Available for Sale Securities

Amortized costs and fair values of available for sale securities are summarized as follows:

THE EQUITABLE BANK, S.S.B. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2018 (unaudited) and June 30, 2018 and for the Three and Six Months Ended
December 31, 2018 and 2017 (Unaudited)

The following tables present the portion of the Bank's available for sale securities portfolio which has gross unrealized losses, reflecting the length of time that individual securities have been in a continuous unrealized loss position:

Management does not believe any individual unrealized loss as of December 31, 2018 represents other than temporary impairment. The Bank holds $14,257,663, comprised of 70 securities, in obligations of states and political subdivisions at December 31, 2018 that have an unrealized loss existing for 12 months or greater. Management believes the temporary impairment in fair value was caused by market fluctuations in interest rates. Although these securities are classified as available for sale, management does not have the intent to sell the security and it is more likely than not it will be able to hold the security through a recovery period or until maturity.

Management does not believe any individual unrealized loss as of June 30, 2018 represents other than temporary impairment. The Bank holds $2,045,230, comprised of nine securities, in obligations of states and political subdivisions at June 30, 2018 that have an unrealized loss existing for 12 months or greater. Management believes the temporary impairment in fair value was caused by market fluctuations in interest rates. Although these securities are classified as available for sale, management does not have the intent to sell the security and it is more likely than not it will be able to hold the security through a recovery period or until maturity.

The amortized cost and fair value of available for sale securities as of December 31, 2018 are shown below by contractual maturity. Expected maturities of mortgage-backed securities will differ from contractual maturities since the anticipated maturities are not readily determinable. Therefore, these securities are not included in the maturity categories in the following maturity summary:

THE EQUITABLE BANK, S.S.B. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2018 (unaudited) and June 30, 2018 and for the Three and Six Months Ended
December 31, 2018 and 2017 (Unaudited)

During the three months ended December 31, 2018 and 2017, the Bank did not sell any available for sale securities. The Bank pledged $7,555,000 and $7,410,000 of available for sale securities at December 31, 2018 and June 30, 2018, respectively, as collateral on public deposits and for other purposes as required or permitted by law.

NOTE 6 – Loans and Allowance for Loan Losses

Major classifications of loans are as follows:

Non-performing loans are as follows:

THE EQUITABLE BANK, S.S.B. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2018 (unaudited) and June 30, 2018 and for the Three and Six Months Ended
December 31, 2018 and 2017 (Unaudited)

Impaired loans are as follows as of and for the following periods ended:

THE EQUITABLE BANK, S.S.B. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2018 (unaudited) and June 30, 2018 and for the Three and Six Months Ended
December 31, 2018 and 2017 (Unaudited)