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West Town Bancorp, Inc. Announces First Quarter 2019 Financial Results

Company Release - 5/8/2019 8:30 AM ET

RALEIGH, N.C., May 08, 2019 (GLOBE NEWSWIRE) -- West Town Bancorp, Inc. (OTC PINK: WTWB) (the “Company” or “West Town”), announced today its financial results for the three months ended March 31, 2019.  Highlights include the following:

  • First quarter net income of $1,065,000 or $0.34 per diluted share, compared to $2,481,000 or $0.80 per diluted share for the first quarter of 2018.
    • Return on average assets of 0.75%, compared to 1.88% for the first quarter of 2018.
    • Return on average common equity of 5.48%, compared to 15.02% for the first quarter of 2018.
    • Return on average tangible common equity (a non-GAAP financial measure) of 8.83%, compared to 18.30% for the first quarter of 2018.
    • Net interest income increased 4% quarter over quarter.
    • Windsor Advantage LLC (“Windsor”) revenue of $2.1 million as compared to $0.6 million for the same period last year, due primarily to West Town acquiring 100% of Windsor on April 30, 2018.
    • Noninterest expenses increased $1.7 million as compared to the same period last year due to the impact of the Windsor consolidation, as well as increased compensation and legal fees related to the previously announced Sound Bank recapitalization transaction (“Recapitalization”), which was consummated on May 6, 2019.        

Eric Bergevin, President and CEO commented, “The primary driver to the Company’s first quarter performance was the 35-day government shutdown effectively halting loan submission, approvals and sales for our government guaranteed lending (“GGL”) department and Windsor.  Upon the government reopening there was still some delay in moving the pipeline forward due to the tremendous back log created, further impacting performance.  As a result, our GGL revenue was $1.2 million for the quarter as compared to $3.3 million for the same period last year.  Additionally, impacting the comparison performance to the prior year’s quarter was the unwinding of our “originate and hold” strategy that was implemented in the fourth quarter of 2017, which increased our sales in the secondary market in the first quarter of 2018 and as planned, at lower tax rates.  These items are somewhat offset by the increased revenue from the acquisition of the remaining interest of Windsor as noted above.  Heading into mid-2019, our GGL pipeline is robust and we anticipate originations and sales returning to annually budgeted targets by the end of year.”

STRONG YEAR-OVER-YEAR LOAN BALANCE SHEET GROWTH
At March 31, 2019, the Company’s total assets were $590,819,000, net loans held for investment were $414,368,000, loans held for sale were $11,037,000, total deposits were $474,016,000 and total shareholder’s equity was $79,722,000.  Compared with March 31, 2018, total assets increased $41,392,000 or 8%, loans held for investment increased $27,353,000 or 7%, loans held for sale decreased $50,249,000 or 82%, total deposits increased $88,744,000 or 23%, and total shareholders’ equity increased $11,754,000 or 17%.  The decrease in loans held for sale was primarily due to the high level of held for sale inventory at March 31, 2018 as the Company began to unwind its “originate and hold” strategy initiated in the fourth quarter of 2017.

Noninterest-bearing deposits increased $41,874,000 or 48% year over year, while interest-bearing deposits increased $46,870,000 or 16% during the same time-period.  The increase in noninterest-bearing deposits at March 31, 2019, is primarily related to an escrow account established at Sound Bank, which temporarily held investor funds in connection with the Recapitalization. 

Acquired Loan Summary

The following table presents details of the Company’s acquired loan portfolio:

 
Dollars in thousands
 3/31/19 12/31/18 9/30/18 6/30/18 3/31/18
           
Performing acquired loans$79,150 $85,600 $98,482 $107,404 $121,852 
Less:  remaining fair market value (FMV) adjustments (840) (929) (1,063) (1,181) (1,400)
Performing acquired loans, net$78,310 $84,671 $97,419 $106,223 $120,452 
FMV adjustment % 1.1% 1.1% 1.1% 1.1% 1.1%
           
Purchase credit impaired loans (PCI)$4,172 $4,398 $4,446 $5,017 $5,293 
Less:  remaining FMV adjustments (504) (513) (554) (801) (826)
PCI loans, net$3,668 $3,885 $3,892 $4,216 $4,467 
FMV adjustment % 12.1% 11.7% 12.5% 16.0% 15.6%
           
Total acquired performing loans 78,310  84,671  97,419  106,223  120,452 
Total acquired PCI loans 3,668  3,885  3,892  4,216  4,467 
Total acquired loans 81,978  88,556  101,311  110,439  124,919 
FMV adjustment % 1.6% 1.6% 1.6% 1.8% 1.8%
                

In comparison to March 31, 2018, the performing acquired loan pool decreased $42,702,000 or 35% due to principal payments and renewals. The PCI loan pool decreased $1,121,000 or 21% year-over-year due to principal payments, charge-offs and foreclosures.  

CAPITAL LEVELS

At March 31, 2019, the capital ratios of both West Town Bank & Trust and Sound Bank exceeded 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%15.32%10.74%
Tier 1 risk-based capital ratio8.0%15.32%10.74%
Total risk-based capital ratio10.0%16.57%11.19%
Tier 1 leverage ratio5.0%12.19%8.33%

The Company’s book value per common share increased from $23.02 at March 31, 2018 to $25.70 at March 31, 2019.  The Company’s tangible book value per common share (a non-GAAP financial measure) decreased from $19.94 at March 31, 2018 to $16.17 at March 31, 2019 due to the impact of 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 (post acquisition) to $16.17 at March 31, 2019.  The impact of the Sound Bank Recapitalization, which closed on May 6, 2019 and subsequent to quarter end, is not reflected in the foregoing book value calculations.

ASSET QUALITY
The Company’s nonperforming assets to total assets ratio increased 14 basis points from 1.26% at March 31, 2018 to 1.40% at March 31, 2019. Compared to the prior year, non-acquired nonaccrual loan balances declined $1,244,000 while foreclosed assets increased $2,493,000. 

The Company recorded a $173,000 provision for loan losses during the first quarter of 2019 as compared to a provision of $469,000 in first quarter 2018.  The Company recorded $58,000 in net charge-offs during the 2019 first quarter with the remaining provision expense due to volume growth.

 
Dollars in thousandsEnding Balance
  3/31/19 12/31/18 9/30/18 6/30/18 3/31/18
           
Nonaccrual loans – originated$4,666 $6,538 $5,806 $6,233 $5,910 
Nonaccrual loans – acquired 262  272  280  292  182 
Foreclosed assets – originated 2,493  723  796  54  54 
90 days past due – originated 407  67  3  8  186 
90 days past due – acquired 421  251  280  553  594 
Total nonperforming assets 8,249  7,851  7,165  7,140  6,926 
Total nonperforming assets – originated 7,566  7,328  6,605  6,295  6,150 
           
Net charge-offs$58 $334 $725 $216 $105 
Annualized net charge-offs to total average portfolio loans 0.05% 0.31% 0.68% 0.20% 0.09%
           
Ratio of total nonperforming assets to total assets 1.40% 1.41% 1.30% 1.31% 1.26%
Ratio of total nonperforming loans to total portfolio loans 1.39% 1.75% 1.57% 1.77% 1.78%
Ratio of total allowance for loan losses to total portfolio loans 0.98% 0.97% 0.95% 0.95% 0.97%
                

NET INTEREST INCOME AND MARGIN
Net interest income for the three months ended March 31, 2019 increased $213,000 or 4% in comparison to the first quarter of 2018, while the net interest margin decreased from 4.26% for the first quarter of 2018 to 4.19% for the first quarter of 2019.  The margin compression is largely related to the increase in the cost of funds from 1.01% to 1.46% due to increased deposit competition and short-term interest rates.

NET INTEREST INCOME AND MARGIN

Dollars in thousandsThree Months Ended
Year-to-Date
  3/31/19 12/31/18 9/30/18 6/30/18 3/31/18  3/31/19 3/31/18
Quarterly average balances:               
Loans$435,583$424,758$ 426,160$435,778$446,857 $435,583$446,857
Investment securities 21,119 21,060  15,377 13,949 11,353  21,119 11,353
Interest-bearing balances and other 54,690 41,472  28,481 23,258 24,803  54,690 24,803
Total interest-earning assets 511,392 487,290  470,018 472,985 483,013  511,392 483,013
Noninterest-bearing deposits 112,836 96,068  90,073 82,971 82,849  112,836 82,849
Interest-bearing liabilities:               
Interest-bearing deposits 338,682 319,900  294,502 292,409 302,119  338,682 302,119
Borrowed funds 37,852 50,792  63,356 78,457 76,422  37,852 76,422
Total interest-bearing liabilities 376,534 370,692  357,858 370,866 378,541  376,534 378,541
Total assets 576,640 553,855  536,172 538,249 536,185  576,640 536,185
Common shareholders’ equity 78,698 77,817  77,129 73,725 67,013  78,698 67,013
Tangible common equity (1) 48,918 47,695  46,667 49,882 57,799  48,918 57,799

(1) Non-GAAP financial measure.  Tangible common equity is calculated by subtracting intangible assets from common shareholders’ equity.

 
Dollars in thousandsThree Months Ended Year-to-Date
  3/31/19 12/31/18 9/30/18 6/30/18 3/31/18  3/31/19 3/31/18
Interest Income/Expense:               
Loans$6,523 $6,379 $ 6,329 $6,577 $6,036  $6,523 $6,036 
Investment securities 167  171   111  105  64   167  64 
Interest-bearing balances and other 356  248   170  126  120   356  120 
Total interest income 7,046  6,798   6,610  6,808  6,220   7,046  6,220 
Deposits 1,432  1,169   906  815  771   1,432  771 
Borrowings 330  396   431  474  378   330  378 
Total interest expense 1,762  1,565   1,337  1,289  1,149   1,762  1,149 
Net interest income$5,284 $5,233 $ 5,273 $5,519 $5,071  $5,284 $5,071 
                
Average Yields and Costs:               
Loans 6.07% 5.96% 5.89% 6.05% 5.48%  6.07% 5.48%
Investment securities 3.16% 3.25% 2.89% 3.01% 2.25%  3.16% 2.25%
Interest-bearing balances and other 2.64% 2.37% 2.37% 2.17% 1.96%  2.64% 1.96%
Total interest-earning assets 5.59% 5.53% 5.58% 5.77% 5.22%  5.59% 5.22%
Total interest-bearing deposits 1.71% 1.45% 1.22% 1.12% 1.03%  1.71% 1.03%
Borrowed funds 3.54% 3.09% 2.70% 2.42% 2.01%  3.54% 2.01%
Total interest-bearing liabilities 1.90% 1.67% 1.48% 1.39% 1.23%  1.90% 1.23%
Cost of funds 1.46% 1.33% 1.18% 1.14% 1.01%  1.46% 1.01%
Net interest margin 4.19% 4.26% 4.45% 4.68% 4.26%  4.19% 4.26%
                       

NONINTEREST INCOME
Noninterest income for the three months ended March 31, 2019 was $3,805,000, a decrease of $716,000 or 16% as compared to the same prior year period.  Specific items to note for the first quarter of 2019 include:

  • Governmental lending revenue of $880,000 was a decrease of $2,174,000 or 71% in comparison to the first quarter of 2018 primarily due to the impact of the government shutdown as well as the partial unwinding in the first three months of 2018 of the originate-and-hold strategy instituted in the fourth quarter of 2017; and
  • Windsor revenue totaled $2,086,000, an increase of $1,522,000 or 270% as compared to the $564,000 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 on April 30, 2018. 

NONINTEREST EXPENSE
Noninterest expense for the first quarter of 2019 was $7,454,000, an increase of $1,638,000 or 28% from $5,795,000 for the first quarter of 2018.  The increases in compensation, occupancy, and other operating expenses are primarily related to the inclusion of Windsor expenses for the full three-month period in 2019 as compared to no expenses in the first quarter of 2018.  Also impacting noninterest expenses for the quarter were increased compensation and legal fees related to the previously announced Sound Bank Recapitalization, which was consummated on May 6, 2019.   

ABOUT WEST TOWN BANCORP, INC.
West Town Bancorp, Inc. is the financial holding company for West Town Bank & Trust, an Illinois state-chartered bank.  West Town Bank & Trust provides banking services through its two full-service offices located in the greater Chicago area. Primary deposit products are checking, savings, and certificate of deposit 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. 

For more information, visit https://www.westtownbank.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 this release was prepared. These statements can be identified by the use of words such as "expect," "anticipate," "estimate," "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; changes in tax law, including the impact of such changes on our tax assets and liabilities; future governmental shutdowns that may impact revenues associated with our lending and other operations that are dependent on government guaranteed loan programs; 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 and divesture 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; the impact of our strategic initiatives on our ability to retain key employees, 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

Dollars in thousands; unauditedEnding Balance
  3/31/19 12/31/18 9/30/18 6/30/18 3/31/18
Assets          
  Cash and due from banks$5,433 $5,005 $5,292 $4,961 $4,725 
  Interest-bearing deposits 72,382  43,448  38,779  27,532  30,299 
   Total cash and cash equivalents 77,815  48,453  44,071  32,493  35,024 
  Securities available for sale, at fair value 21,031  21,332  20,615  13,769  14,171 
  Loans held for sale 11,037  16,552   15,819  31,994  61,286 
  Loans held for investment:          
   Originated loans  336,505   322,038   307,166  294,471  265,887 
   Acquired loans, net  81,978   88,556   101,311  110,439  124,919 
   Allowance for loan losses  (4,115)  (4,000)  (3,900) (3,835) (3,791)
       Net loans held for investment  414,368   406,594   404,577  401,075  387,015 
  Premises and equipment, net 12,099  12,166  12,263  11,586  11,502 
  Foreclosed assets 2,493  723  796  54  54 
  Servicing assets 3,619  3,952   4,280  4,598  4,969 
  Bank owned life insurance 9,090  9,034  8,977  8,917  8,853 
  Accrued interest receivable 1,637  1,637  1,758  1,776  1,870 
  Goodwill  19,737   19,745   19,745  19,745  7,016 
  Other intangible assets, net  9,827   10,157   10,493  10,837  2,102 
  Other assets 8,066  4,979  8,100  7,644  15,565 
Total assets$590,819 $555,324 $551,494 $544,488 $549,427 
           
Liabilities and Shareholders’ Equity          
Liabilities          
  Deposits:          
    Noninterest-bearing$128,435 $97,777 $94,829 $88,172 $86,561 
    Interest-bearing 345,581  335,140  305,257  289,416  298,711 
       Total deposits 474,016  432,917  400,086  377,588  385,272 
  Short term borrowings 20,000  27,000  58,400  73,400  81,500 
  Long term borrowings 6,294  6,781  7,267  7,754  6,314 
  Accrued interest payable 927  868  550  466  389 
  Other liabilities 9,860  10,189  8,746  9,600  7,984 
       Total liabilities 511,097  477,755  475,049  468,808  481,459 
Shareholders’ equity          
  Preferred stock 0  0  0  0  0 
  Common stock, voting 2,749  2,686  2,666  2,660  2,623 
  Common stock, non-voting 329  329  329  329  329 
  Additional paid-in capital 45,287  44,760  44,576  44,429  44,385 
  Retained earnings 31,273  29,928  29,154  28,436  20,765 
  Accumulated other comprehensive income (loss)  84   (134)  (280) (174) (134)
    Total shareholders’ equity 79,722   77,569   76,445   75,680  67,968 
     Total liabilities and shareholders’ equity$590,819 $555,324 $551,494 $544,488 $549,427 
 

Financial Performance (Consolidated)

Dollars in thousands, except per share data; unauditedThree Months Ended
 Year-to-Date 
  3/31/19 12/31/18 9/30/18 6/30/18 3/31/18  3/31/19 3/31/18 
Interest income                
Interest and fees on loans$6,523$6,379$6,329$6,577$6,036 $6,523$6,036 
Investment securities & deposits 523 419 281 231 184  523 184 
Total interest income 7,046 6,798 6,610 6,808 6,220  7,046 6,220 
Interest expense                
Interest on deposits 1,432 1,169 906 815 771  1,432 771 
Interest on borrowed funds 330 396 431 474 378  330 378 
Total interest expense 1,762 1,565 1,337 1,289 1,149  1,762 1,149 
Net interest income 5,284 5,233 5,273 5,519 5,071  5,284 5,071 
Provision for loan losses 173 434 789 261 469  173 469 
Noninterest income                
Government lending revenue 880 1,793 1,121 4,241 3,054  880 3,054 
Mortgage revenue 435 359 491 868 455  435 455 
Service charge revenue 226 228 196 222 219  226 219 
Bank owned life insurance income 56 58 59 64 57  56 57 
Windsor revenue 2,086 2,116 1,791 1,683 0  2,086 0 
Income from Windsor investment 0 0 0 369 564  0 564 
Loss on sale of securities 0 0 0 0 0  0 0 
Gain on consolidation of Windsor 0 0 0 4,776 0  0 0 
Other noninterest income 122 163 211 133 172  122 172 
Total noninterest income 3,805 4,717 3,869 12,356 4,521  3,805 4,521 
Noninterest expense                
Compensation 4,261 4,689 4,245 4,050 3,266  4,261 3,266 
Occupancy and equipment 506 536 522 462 413  506 413 
Loan and special assets 179 437 67 407 362  179 362 
Professional services 582 511 437 317 274  582 274 
Data processing 345 381 326 325 313  345 313 
Communication 226 208 191 203 235  226 235 
Advertising 112 135 147 418 54  112 54 
Loss on sale of foreclosed assets 21 0 0 41 0  21 0 
Transaction-related expenses 43 31 5 74 14  43 14 
Other operating expense 1,179 1,259 1,013 1,118 864  1,179 864 
Total noninterest expense 7,454 8,187 6,953 7,415 5,795  7,454 5,795 
Income before income taxes 1,462 1,329 1,400 10,199 3,328  1,462 3,328 
Income tax expense 397 373 372 2,528 847  397 847 
Net income$1,065$956$1,028$7,671$2,481 $1,065$2,481 
Basic earnings per common share$0.35$0.31$0.34$2.58$0.84 $0.35$0.84 
Diluted earnings per common share$0.34$0.30$0.33$2.47$0.80 $0.34$0.80 
Weighted average common shares outstanding 3,054 3,008 2,996 2,980 2,952  3,054 2,952 
Diluted average common shares outstanding 3,115 3,124 3,127 3,115 3,087  3,115 3,087 
  

Performance Ratios

 Three Months Ended Year-to-Date
  3/31/19 12/31/18 9/30/18 6/30/18 3/31/18  3/31/19 3/31/18
                
PER COMMON SHARE               
Basic earnings per common share$0.35 $0.31 $0.34 $2.58 $0.84  $0.35 $0.84 
Diluted earnings per common share$0.34 $0.30 $0.33 $2.47 $0.80  $0.34 $0.80 
Book value per common share$25.70 $25.52 $25.31 $25.11 $23.02  $25.70 $23.02 
Tangible book value per common share$16.17 $15.68 $15.30 $14.96 $19.94  $16.17 $19.94 
                
FINANCIAL RATIOS (ANNUALIZED)               
Return on average assets 0.75% 0.68% 0.76% 5.72% 1.88%  0.75% 1.88%
Return on average common shareholders’ equity 5.48% 4.87% 5.29% 41.73% 15.02%  5.48% 15.02%
Return on tangible common equity 8.83% 7.95% 8.74% 61.68% 18.30%  8.83% 18.30%
Net interest margin (FTE) 4.19% 4.26% 4.45% 4.68% 4.26%  4.19% 4.26%
Efficiency ratio(1) 82.0% 82.3% 76.1% 56.6% 60.4%  82.0% 60.4%

(1) Efficiency ratio is calculated by dividing noninterest expense by the sum of net interest income and noninterest income, less gains or losses on sale of securities or consolidation.

Contact: Eric Bergevin, 252-482-4400

WT Bancorp.jpg

Source: West Town Bancorp