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West Town Bancorp, Inc. Announces Third Quarter 2018 Financial Results

Company Release - 11/2/2018 4:51 PM ET

RALEIGH, N.C., Nov. 02, 2018 (GLOBE NEWSWIRE) -- West Town Bancorp, Inc. (OTC PINK: WTWB) (the “Company” or “West Town”), the multi-bank financial holding company for West Town Bank & Trust and Sound Bank, announced today its financial results for the quarter ended September 30, 2018.  Highlights for the third quarter of 2018 and the Company’s year-to-date performance include the following:

  • Third quarter net income of $1,028,000 or $0.33 per diluted share, compared to $947,000 or $0.56 per diluted share for the third quarter of 2017.
    -- Return on average assets of 0.76%, compared to 1.09% for the third quarter of 2017.
    -- Return on average common equity of 5.29%, compared 9.62% for the third quarter of 2017.
    -- Return on average tangible common equity of 8.74%, compared to 9.99% for the third quarter of 2017.
  • Year-to-date net income of $11,180,000 or $3.60 per diluted share, compared to $2,340,000 or $1.47 per diluted share for the nine-month period ending September 30, 2017.
    -- Return on average assets of 2.78%, compared to 1.05% for the prior year period.
    -- Return on average common equity of 20.56%, compared to 9.49% for the prior year period.
    -- Return on tangible common equity of 29.08%, compared to 9.81% for the prior year period.

Eric Bergevin, President and CEO, commented, “2018 is shaping up to be a banner year for the Company due to the impact of the Company’s strategic initiatives deployed, starting with the Sound Bank acquisition that occurred on September 1, 2017: 

  • In comparison to September 30, 2017, portfolio loans have grown 16% and our emphasis on relationship and commercial banking has resulted in a 34% increase in noninterest deposits.
  • The completion of our acquisition of Windsor Advantage LLC (“Windsor”) has resulted in a net income contribution by Windsor of $1.1 million since the acquisition date of April 30, 2018.  This does not include the $933,000 in noninterest income earned prior to the acquisition date.
  • We have earned revenue of $12.5 million from loan sales in the secondary market due in large part to the ‘originate and hold’ strategy that was put in place during the 4th quarter of 2017.
  • Our efficiency ratio has improved to 63.3% in the first nine months of 2018 (excluding one-time gains on sale of assets and consolidation) from the 72.6% in the first nine months of 2017.  

As anticipated, our third quarter results were down in comparison to the prior two quarters of this year due to the completion of our ‘originate and hold’ governmental guaranteed loan strategy and the inherent seasonal impact tax equity investment has on utility scale solar finance and development.   Also, in comparison to the second quarter of 2018, earnings are down due to the pre-tax $4,776,000 gain on the consolidation of Windsor that occurred with the purchase of the remaining 56.5% of Windsor in the second quarter.  We anticipate finishing the year strong with a robust governmental guaranteed pipeline heading into the fourth quarter.”

STRONG YEAR-OVER-YEAR LOAN BALANCE SHEET GROWTH
At September 30, 2018, the Company’s total assets were $551,494,000, net loans held for investment were $404,577,000, loans held for sale were $15,819,000, total deposits were $400,086,000 and total shareholder’s equity was $76,445,000.  Compared with September 30, 2017, total assets increased $62,295,000 or 13%, loans held for investment increased $56,291,000 or 16%, loans held for sale decreased $5,204,000 or 25%, total deposits increased $11,388,000 or 3% and total shareholders’ equity increased $11,467,000 or 18%.

Noninterest deposits increased $23,845,000 or 34% year over year while interest-bearing deposits decreased $12,457,000 or 4% during the same time-period. 

Acquired Loan Summary

Dollars in thousands 9/30/18 6/30/18 3/31/18 12/31/17 9/30/17
           
Performing acquired loans$98,482 $107,404 $121,852 $132,846  142,087 
Less:  remaining fair market value (FMV) adjustments (1,063) (1,181) (1,400) (1,592) (1,783)
Performing acquired loans, net$97,419 $106,223 $120,452 $131,254  140,304 
FMV adjustment % 1.1% 1.1% 1.1% 1.2% 1.3%
                
Purchase credit impaired loans (PCI)$4,446 $5,017 $5,293 $5,386  5,657 
Less:  remaining FMV adjustments (554) (801) (826) (832) (967)
PCI loans, net$3,892 $4,216 $4,467 $4,554  4,690 
FMV adjustment % 12.5% 16.0% 15.6% 15.4% 17.1%
                
Total acquired performing loans 97,419  106,223  120,452  131,254  140,304 
Total acquired PCI loans 3,892  4,216  4,467  4,554  4,690 
Total acquired loans 101,311  110,439  124,919  135,808  144,994 
FMV adjustment % 1.6% 1.8% 1.8% 1.8% 1.9%
                

In comparison to September 30, 2017, the performing acquired loan pool decreased $42,885,000 or 31% as of September 30, 2018.  The reduction is due to $34,114,000 in net principal payments and $8,884,000 in renewals which moved to the originated category at the time of renewal.  The PCI loan pool decreased $798,000 year-over-year due primarily to net principal payments and a $265,000 transfer to foreclosed properties. 

CAPITAL LEVELS

At September 30, 2018, both banks’ capital ratios exceed the minimum thresholds established for well-capitalized banks by regulatory measures.

 “Well Capitalized”
Minimums
West Town
Bank & Trust
Sound Bank
Tier 1 common equity ratio6.5%13.3%11.9%
Tier 1 risk-based capital ratio8.0%13.3%11.9%
Total risk-based capital ratio10.0%14.6%12.2%
Tier 1 leverage ratio5.0%11.5%9.4%

The book value per common share increased from $22.03 at September 30, 2017 to $25.31 at September 30, 2018.  The tangible book value per common share decreased from $18.69 at September 30, 2017 to $15.30 at September 30, 2018 due to the Company’s acquisition of the remaining 56.5% of Windsor which occurred on April 30, 2018.  The tangible book value per common share increased from $14.96 at June 30, 2018 to $15.30 at September 30, 2018.

ASSET QUALITY
The Company’s nonperforming assets to total assets ratio decreased 38 basis points from 1.68% at September 30, 2017 to 1.30% at September 30, 2018. Excluding acquired loans, the Company’s nonperforming assets to total loans and OREO ratio decreased 116 bps from 3.30% at September 30, 2017 to 2.14% at September 30, 2018 as nonaccrual loan balances have declined and originated loans have increased $101,033,000 during the same 12-month period. 

The Company recorded a $789,000 provision for loan losses during the third quarter of 2018, as compared to a provision of $491,000 in third quarter 2017.  The Company recorded $725,000 in net charge-offs during the third quarter with the remaining provision expense due to volume growth.  Excluding acquired loans, the ratio of allowance for loan and lease losses as a percentage of total originated loans decreased 11 bps from one year earlier, from 1.38% at September 30, 2017 to 1.27% at September 30, 2018.

  
Dollars in thousandsEnding Balance
  9/30/18 6/30/18 3/31/18 12/31/17 9/30/17
           
Nonaccrual loans – originated$5,806 $6,233 $5,910 $6,218 $6,803 
Nonaccrual loans – acquired 280  292  182  413  0 
OREO – originated 796  54  54  0  0 
OREO – acquired 0  0  0  0  0 
90 days past due – originated 3  8  186  0  0 
90 days past due – acquired 280  553  594  697  1,396 
Total nonperforming assets 7,165  7,140  6,926  7,328  8,199 
Total nonperforming assets – originated 6,605  6,295  6,150  6,218  6,803 
           
Net charge-offs$725 $216 $105 $543 $230 
Annualized net charge-offs to total average portfolio loans 0.68% 0.20% 0.09% 0.54% 0.34%
           
Ratio of total nonperforming assets to total assets 1.30% 1.31% 1.26% 1.35% 1.68%
Ratio of total nonperforming loans to total portfolio loans 1.57% 1.77% 1.78% 1.95% 2.35%
Ratio of total allowance for loan losses to total portfolio loans 0.95% 0.95% 0.97% 0.91% 0.81%
           
Excluding acquired (Non-GAAP)          
Ratio of nonperforming assets to loans and OREO 2.14% 2.14% 2.31% 2.56% 3.30%
Ratio of nonperforming loans to loans 1.89% 2.12% 2.29% 2.56% 3.30%
Ratio of allowance for loan losses to loans 1.27% 1.30% 1.43% 1.41% 1.38%
                

NET INTEREST INCOME AND MARGIN
Net interest income for the three months ended September 30, 2018 increased $1,722,000 or 48% in comparison to the third quarter of 2017 while the net interest margin decreased from 4.58% for the third quarter of 2017 to 4.45% for the third quarter of 2018.  The increased net interest income is due to the acquisition of Sound Bank which occurred on September 1, 2017.  The margin compression is a combination of a reduction in the yield on earning assets from 5.63% to 5.58% and an increase in the cost of funds from 1.10% to 1.18% due to increased deposit competition and interest rates.

NET INTEREST INCOME AND MARGIN
(Includes Sound Bank as of 9/1/2017)

Dollars in thousandsThree Months Ended
 Year-to-Date 
  9/30/18 6/30/18 3/31/18 12/31/17 9/30/17  9/30/18 9/30/17
Quarterly average balances:               
Loans$426,160$435,778$446,857$400,324$273,225 $436,189$240,686
Investment securities 15,377 13,949 11,353 7,346 6,944  13,575 5,566
Interest-bearing balances and other 28,481 23,258 24,803 37,640 27,171  25,527 19,722
Total interest-earning assets 470,018 472,985 483,013 445,310 307,340  475,291 265,974
Noninterest-bearing deposits 90,073 82,971 82,849 75,707 40,028  85,324 27,961
Interest-bearing liabilities:               
Interest-bearing deposits 294,502 292,409 302,119 312,155 239,475  296,315 213,447
Borrowed funds 63,356 78,457 76,422 31,574 13,748  72,697 15,217
Total interest-bearing liabilities 357,858 370,866 378,541 343,729 253,223  369,012 228,664
Total assets 536,172 538,249 536,185 495,958 343,328  536,869 296,754
Common shareholders’ equity 77,129 73,725 67,013 60,432 40,848  72,659 32,983
Tangible common equity 46,667 49,882 57,799 50,795 37,617  51,408 31,894
                
                


Dollars in thousandsThree Months Ended Year-to-Date
  9/30/18 6/30/18 3/31/18 12/31/17 9/30/17  9/30/18 9/30/17
Interest Income/Expense:               
Loans$6,329 $6,577 $6,036 $6,061 $4,223  $18,942 $10,884 
Investment securities, tax 111  105  64  39  47   280  105 
Interest-bearing balances and other 170  126  120  117  95   416  188 
Total interest income 6,610  6,808  6,220  6,217  4,365   19,638  11,177 
Deposits 906  815  771  791  712   2,492  2,073 
Borrowings 431  474  378  192  102   1,283  250 
Total interest expense 1,337  1,289  1,149  983  814   3,775  2,323 
Net interest income$5,273 $5,519 $5,071 $5,234 $3,551  $15,863 $8,854 
                
Average Yields and Costs:               
Loans 5.89% 6.05% 5.48% 6.01% 6.13%  5.81% 6.05%
Investment securities 2.89% 3.01% 2.25% 2.12% 2.71%  2.75% 2.52%
Interest-bearing balances and other 2.37% 2.17% 1.96% 1.23% 1.39%  2.18% 1.27%
Total interest-earning assets 5.58% 5.77% 5.22% 5.54% 5.63%  5.52% 5.62%
Total interest-bearing deposits 1.22% 1.12% 1.03% 1.01% 1.18%  1.12% 1.30%
Borrowed funds 2.70% 2.42% 2.01% 2.41% 2.94%  2.36% 2.20%
Total interest-bearing liabilities 1.48% 1.39% 1.23% 1.13% 1.28%  1.37% 1.36%
Cost of funds 1.18% 1.14% 1.01% 0.93% 1.10%  1.11% 1.21%
Net interest margin 4.45% 4.68% 4.26% 4.66% 4.58%  4.46% 4.45%
                       

NONINTEREST INCOME
Noninterest income for the three months ended September 30, 2018 was $3,869,000, an increase of $856,000 or 28% as compared to the same prior year period.  Specific items to note:

  • Windsor revenue totaled $1,791,000, an increase of $1,272,000 or 245% as compared to the income earned from the investment in Windsor during the same prior year period.  The increase is directly attributable to the Company’s acquisition of the remaining 56.5% of Windsor that it did not previously own, which acquisition occurred during the 2018 second quarter and resulted in Windsor becoming a wholly owned subsidiary of the Company. 
  • Service charges increased $107,000 or 120% as compared to the third quarter of 2017 due to the acquisition of Sound Bank that occurred on September 1, 2017;
  • Governmental lending revenue decreased $416,000 or 27% in comparison to the third quarter of 2017; and
  • Mortgage revenue decreased $208,000 or 30% in comparison to the third quarter of 2017.

NONINTEREST EXPENSE
Noninterest expense for the third quarter of 2018 increased $2,499,000 or 56% from $4,454,000 for the three months ended September 30, 2017 to $6,953,000 for the three months ended September 30, 2018.  The increase is primarily due to the inclusion of Sound Bank and Windsor expenses for the full three-month period in 2018 as compared to one month of expenses included from Sound Bank and no expenses from Windsor in the third quarter of 2017.

BRANCH NETWORK REORGANIZATION
On July 16, 2018, Sound Bank and West Town Bank & Trust entered into a purchase and assumption agreement pursuant to which Sound Bank would acquire West Town Bank & Trust’s two North Carolina branches located in Edenton, NC and Winterville, NC.  The branch transaction closed on October 26, 2018, following receipt of required regulatory approvals.  In addition to the transfer of certain real property in Edenton, NC, the branch reorganization resulted in the transfer of approximately $34.1 million in loan assets, $32.7 million in deposit liabilities, and $3.6 million in additional paid in capital to Sound Bank from its sister institution, West Town Bank & Trust.  The closing of the transaction, which occurred subsequent to the quarter ending September 30, 2018, is not fully reflected in the results reported in this release.

ABOUT WEST TOWN BANCORP, INC.
West Town Bancorp, Inc. is the multi-bank financial holding company for West Town Bank & Trust, a North Riverside, IL based state-chartered bank, and Sound Bank, a Morehead City, NC based state-chartered bank. West Town Bank & Trust provides banking services through its offices in Illinois, while Sound Bank provides banking services through its offices in North Carolina. Primary deposit products are checking, savings, and time certificate accounts, and primary lending products are government guaranteed lending, residential mortgage, commercial, and installment loans. The Company is also the parent company of Windsor Advantage, LLC, a loan servicing company, and West Town Insurance Agency, Inc., an insurance agency.  The Company is registered with, and supervised by, the Federal Reserve.  West Town Bank & Trust’s primary regulators are the Illinois Department of Financial and Professional Regulation and the FDIC.  Sound Bank’s primary regulators are the North Carolina Commissioner of Banks and the FDIC.

For more information, visit https://investors.westtownbancorp.com.

Important Note Regarding Forward-Looking Statements
This release contains certain forward-looking statements with respect to the financial condition, results of operations, and business of the Company. These forward-looking statements involve risks and uncertainties and are based on the beliefs and assumptions of the management of the Company and on the information available to management at the time that these disclosures were prepared. These statements can be identified by the use of words like "expect," "anticipate," "estimate," and "believe," variations of these words, and other similar expressions. Readers should not place undue reliance on forward-looking statements as a number of important factors could cause actual results to differ materially from those in the forward-looking statements. Factors that could cause a difference include, among others: changes in the national and local economies or market conditions; changes in interest rates, deposit flows, loan demand, and asset quality, including real estate and other collateral values; changes in Small Business Administration rules, regulations, or loan products, including the section 7(a) program; changes in other government guaranteed loan programs or our ability to participate in such programs; recent changes in tax law, including the impact of such changes on our tax assets and liabilities; changes in banking regulations and accounting principles, policies, or guidelines; the inability to realize cost savings or revenues or to implement integration plans and other consequences associated with the Company’s acquisition activities; the failure of our strategic investments or acquisitions to perform as anticipated and the impact of any impairments to our intangible assets, such as goodwill; and the impact of competition from traditional or new sources. These, and other factors that may emerge, could cause decisions and actual results to differ materially from current expectations. The Company assumes no obligation to revise, update, or clarify forward-looking statements to reflect events or conditions after the date of this release.   


Consolidated Balance Sheet
(Includes Sound Bank as of 9/1/2017)

Dollars in thousands; unauditedEnding Balance 
  9/30/18 6/30/18 3/31/18 12/31/17 9/30/17
Assets          
Cash and due from banks$5,292 $4,961 $4,725 $2,986 $7,629 
Interest-bearing deposits 38,779  27,532  30,299  40,961  57,502 
Total cash and cash equivalents 44,071  32,493  35,024  43,947  65,131 
Securities available for sale, at fair value 20,615  13,769  14,171  7,119  7,468 
Loans held for sale 15,819  31,994  61,286  66,706  21,023 
Loans held for investment:          
Originated loans 307,166  294,471  265,887  242,744  206,133 
Acquired loans, net 101,311  110,439  124,919  135,808  144,994 
Allowance for loan losses (3,900) (3,835) (3,791) (3,427) (2,841)
Net loans held for investment 404,577  401,075  387,015  375,125  348,286 
Premises and equipment, net 12,263  11,586  11,502  11,563  11,693 
Foreclosed assets 796  54  54  0  0 
Servicing assets 4,280  4,598  4,969  5,237  5,568 
Bank owned life insurance 8,977  8,917  8,853  8,796  8,736 
Accrued interest receivable 1,758  1,776  1,870  1,544  1,758 
Goodwill 19,745  19,745  7,016  7,016  7,016 
Other intangible assets, net 10,493  10,837  2,102  2,272  2,450 
Other assets 8,100  7,644  15,565  14,809  10,070 
Total assets$551,494 $544,488 $549,427 $544,134 $489,199 
           
Liabilities and Shareholders’ Equity          
Liabilities          
Deposits:          
Noninterest-bearing$94,829 $88,172 $86,561 $84,178 $70,984 
Interest-bearing 305,257  289,416  298,711  308,556  317,714 
Total deposits 400,086  377,588  385,272  392,734  388,698 
Short term borrowings 58,400  73,400  81,500  72,100  12,000 
Long term borrowings 7,267  7,754  6,314  6,803  7,309 
Accrued interest payable 550  466  389  296  218 
Other liabilities 8,746  9,600  7,984  6,621  15,996 
Total liabilities 475,049  468,808  481,459  478,554  424,221 
Shareholders’ equity          
Preferred stock 0  0  0  0  7,570 
Common stock, voting 2,666  2,660  2,623  2,623  1,922 
Common stock, non-voting 329  329  329  329  0 
Additional paid-in capital 44,576  44,429  44,385  44,185  37,563 
Retained earnings 29,154  28,436  20,765  18,447  17,895 
Accumulated other comprehensive income (loss) (280) (174) (134) (4) 28 
Total shareholders’ equity 76,445  75,680  67,968  65,580  64,978 
Total liabilities and shareholders’ equity$551,494 $544,488 $549,427 $544,134 $489,199 
                
                

Financial Performance (Consolidated)
(Includes Sound Bank as of 9/1/2017)

Dollars in thousands, except per share data; unauditedThree Months Ended
 Year-to-Date
  9/30/18 6/30/18 3/31/18 12/31/17 9/30/17  9/30/18 9/30/17
Interest income               
Interest and fees on loans$6,329$6,577$6,036$6,062 $4,223  $18,942$10,884 
Investment securities & deposits 281 231 184 155  142   696 293 
Total interest income 6,610 6,808 6,220 6,217  4,365   19,638 11,177 
Interest expense               
Interest on deposits 906 815 771 792  712   2,492 2,073 
Interest on borrowed funds 431 474 378 191  102   1,283 250 
Total interest expense 1,337 1,289 1,149 983  814   3,775 2,323 
Net interest income 5,273 5,519 5,071 5,234  3,551   15,863 8,854 
Provision for loan losses 789 261 469 1,129  491   1,519 1,048 
Noninterest income               
Government lending revenue 1,121 4,241 3,054 192  1,537   8,416 3,903 
Mortgage revenue 491 868 455 515  699   1,814 4,192 
Service charge revenue 196 222 219 203  89   637 121 
Bank owned life insurance income 59 64 57 60  42   180 110 
Windsor revenue 1,791 1,683 0 0  0   3,474 0 
Income from Windsor investment 0 369 564 203  519   933 1,297 
Loss on sale of securities 0 0 0 0  (7)  0 (7)
Gain on consolidation of Windsor 0 4,776 0 0  0   4,776 0 
Other noninterest income 211 133 172 373  134   516 365 
Total noninterest income 3,869 12,356 4,521 1,546  3,013   20,746 9,981 
Noninterest expense               
Compensation 4,245 4,050 3,266 3,248  2,481   11,561 8,094 
Occupancy and equipment 522 462 413 434  303   1,397 983 
Loan and special assets 67 407 362 373  287   836 714 
Professional services 437 317 274 313  155   1,028 817 
Data processing 326 325 313 316  247   964 538 
Communication 191 203 235 188  112   629 281 
Advertising 147 418 54 109  91   619 260 
(Gain) loss on sale of foreclosed assets 0 41 0 0  0   41 (165)
Transaction-related expenses 5 74 14 60  231   93 528 
Other operating expense 1,013 1,118 864 856  547   2,995 1,632 
Total noninterest expense 6,953 7,415 5,795 5,897  4,454   20,163 13,682 
Income (loss) before income taxes 1,400 10,199 3,328 (246) 1,619   14,927 4,105 
Income tax expense (benefit) 372 2,528 847 (798) 672   3,747 1,765 
Net income$1,028$7,671$2,481$552 $947  $11,180$2,340 
Basic earnings per common share (1) $0.34$2.58$0.84$0.21 $0.59  $3.76$1.54 
Diluted earnings per common share (1) $0.33$2.47$0.80$0.20 $0.56  $3.60$1.47 
Weighted average common shares outstanding (1) 2,996 2,980 2,952 2,649  1,626   2,976 1,597 
Diluted average common shares outstanding (1) 3,127 3,115 3,087 2,755  1,932   3,106 1,667 
                   
                   

Performance Ratios
(Includes Sound Bank as of 9/1/2017)

 Three Months Ended Year-to-Date
  9/30/18 6/30/18 3/31/18 12/31/17 9/30/17(1)  9/30/18 9/30/17
                
PER COMMON SHARE                      
Basic earnings per common share$0.34 $2.58 $0.84 $0.21 $0.59  $3.76 $1.54 
Diluted earnings per common share$0.33 $2.47 $0.80 $0.20 $0.56  $3.60 $1.47 
Book value per common share$25.31 $25.11 $23.02 $22.21 $22.03  $25.31 $22.03 
Tangible book value per common share$15.30 $14.96 $19.94 $19.07 $18.69  $15.30 $18.69 
                       
FINANCIAL RATIOS (ANNUALIZED)                      
Return on average assets 0.76% 5.72% 1.88% 0.44% 1.09%  2.78% 1.05%
Return on average common shareholders’ equity 5.29% 41.73% 15.02% 3.62% 9.62%  20.56% 9.49%
Return on average tangible common shareholders’ equity 8.74% 61.68% 18.30% 4.31% 9.99%  29.08% 9.81%
Net interest margin (FTE) 4.45% 4.68% 4.26% 4.66% 4.58%  4.46% 4.45%
Efficiency ratio 76.1% 56.6% 60.4% 87.0% 67.8%  63.3% 72.6%

             
(1)  Calculation of book value per common share and tangible book value per common share for September 30, 2017, includes the 698,580 common shares that were issued in October 2017 for the Sound Bank acquisition and the convertible preferred equity as if converted to 329,130 shares of common stock.  These incremental shares are not included in EPS calculations for the quarter ended September 30, 2017.

Contact: Eric Bergevin, 252-482-4400

WT Bancorp.jpg

Source: West Town Bancorp