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

Company Release - 7/29/2019 8:30 AM ET

RALEIGH, N.C., July 29, 2019 (GLOBE NEWSWIRE) -- West Town Bancorp, Inc. (OTC PINK: WTWB) (the “Company” or “West Town”), the financial holding company for West Town Bank & Trust, announced today its financial results for the three months ended June 30, 2019.  Highlights include the following:

Second quarter net income of $6,129,000 or $2.00 per diluted share, compared to $7,671,000 or $2.47 per diluted share for the second quarter of 2018.

  • Return on average assets of 5.98%, compared to 5.72% for the second quarter of 2018.
  • Return on average common equity of 30.35%, compared to 41.73% for the second quarter of 2018.
  • Return on average tangible common equity (a non-GAAP financial measure) of 42.51%, compared to 61.68% for the second quarter of 2018.
  • Windsor Advantage, LLC (“Windsor”) revenue of $2,581,000 as compared to $2,052,000 for the same period last year, due primarily to West Town acquiring 100% of Windsor on April 30, 2018.

SOUND BANK RECAPITALIZATION
As previously announced, on May 6, 2019 Sound Bank, formerly a wholly-owned subsidiary of West Town, completed a recapitalization that resulted in West Town’s ownership position in the bank being significantly diluted.  As part of the recapitalization, West Town sold a substantial portion of its interest in Sound Bank through a series of concurrent secondary sales of shares of Sound Bank common stock, which resulted in gross proceeds to West Town of $28,010,000 and a pre-tax gain of approximately $6.6 million.  West Town retains an ownership interest in Sound Bank’s voting common stock of approximately 4.9% and a 9.9% total equity interest in Sound Bank.

Eric Bergevin, President and CEO commented, “We are pleased with the positive financial impact of the Sound Bank recapitalization, whereby West Town successfully monetized its investment with an over 20% return on investment in just over one and a half years.  The $6.6 million pre-tax gain obviously impacted our financial performance for the second quarter; however, at the same time, we continue to perform on all cylinders.  Our government guaranteed lending department originated loan commitments of $65.9 million and earned $1.8 million in revenue for the second quarter, while Windsor turned in a record quarter of $2.6 million in revenue, driven by a 5th consecutive quarter of increased servicing revenue.  Additionally, we paid off the Company’s outstanding $1.9 million line of credit balance while keeping the line available and deployed capital from the Sound Bank transaction into a stock repurchase program.  As of June 30, 2019, we had completed the repurchase of 103,793 shares of the Company’s voting common stock and 200,000 shares of non-voting common stock.”

BALANCE SHEET
At June 30, 2019, the Company’s total assets were $303,365,000, net loans held for investment were $206,092,000, loans held for sale were $14,902,000, total deposits were $210,687,000 and total shareholder’s equity was $78,815,000.  Compared with June 30, 2018, total assets decreased $241,123,000 or 44%, loans held for investment decreased $194,983,000 or 49%, loans held for sale decreased $17,092,000 or 53%, total deposits decreased $166,901,000 or 44%, and total shareholders’ equity increased $3,135,000 or 4%.  The decreases in assets, loans and deposits were a result of the Sound Bank recapitalization and elimination from the consolidated financials as of May 6, 2019.  The increase in total shareholders’ equity resulted from retained earnings, partially offset by the Company’s stock repurchase program.

CAPITAL LEVELS
At June 30, 2019, the regulatory capital ratios of West Town Bank & Trust exceeded the minimum thresholds established for well-capitalized banks under applicable banking regulations.

  

“Well Capitalized”
Minimums
 

West Town
Bank & Trust
Tier 1 common equity ratio6.5%15.37%
Tier 1 risk-based capital ratio8.0%15.37%
Total risk-based capital ratio10.0%16.62%
Tier 1 leverage ratio5.0%12.64%

The Company’s book value per common share increased from $25.11 at June 30, 2018 to $28.12 at June 30, 2019.  The Company’s tangible book value per common share (a non-GAAP financial measure) increased from $14.96 at June 30, 2018 to $20.67 at June 30, 2019 due primarily to the gain on sale of Sound Bank and the subsequent removal of the intangible assets associated with Sound Bank from the consolidated financial statements. 

ASSET QUALITY
The Company’s nonperforming assets to total assets ratio increased 46 basis points from 1.31% at June 30, 2018 to 1.77% at June 30, 2019 primarily due to the removal of Sound Bank from the consolidated financial statements.  Non-acquired nonaccrual loans decreased $2,943,000 as of June 30, 2019 as compared to the prior year while foreclosed assets increased $2,015,000.

The Company recorded a $477,000 provision for loan losses during the second quarter of 2019 as compared to a provision of $261,000 in second quarter 2018.  The Company recorded $200,000 in net charge-offs during the second quarter 2019 with the remaining provision expense due to volume growth.

Dollars in thousandsEnding Balance 
  6/30/19 3/31/19 12/31/18 9/30/18 6/30/18
           
Nonaccrual loans – originated$3,290 $4,666 $6,538 $5,806 $6,233 
Nonaccrual loans – acquired 0  262  272  280  292 
Foreclosed assets – originated 2,069  2,493  723  796  54 
90 days past due – originated 0  407  67  3  8 
90 days past due – acquired 0  421  251  280  553 
Total nonperforming assets 5,359  8,249  7,851  7,165  7,140 
Total nonperforming assets – originated 5,359  7,566  7,328  6,605  6,295 
           
Net charge-offs$200 $58 $334 $725 $216 
Annualized net charge-offs to total average portfolio loans 0.27% 0.05% 0.31% 0.68% 0.20%
           
Ratio of total nonperforming assets to total assets 1.77% 1.40% 1.41% 1.30% 1.31%
Ratio of total nonperforming loans to total portfolio loans 1.57% 1.38% 1.74% 1.56% 1.75%
Ratio of total allowance for loan losses to total portfolio loans 1.62% 0.98% 0.97% 0.95% 0.95%

NET INTEREST INCOME AND MARGIN
Net interest income for the three months ended June 30, 2019 decreased $1,847,000 or 33% in comparison to the second quarter 2018, primarily due to the removal of Sound Bank from the consolidated financial statements as of May 6, 2019. The net interest margin decreased from 4.68% for the second quarter 2018 to 4.03% for the second quarter 2019.  The margin compression is largely related to the increase in the cost of funds from 1.14% to 1.56%, due primarily to the deconsolidation of Sound Bank from the Company’s consolidated financial statements and the inclusion of the $9,990,000 resulting equity investment in Sound Bank in the Company’s investment portfolio, which reduced the Company’s average yield on assets by approximately 10 basis points due to it not earning dividend income. 

NET INTEREST INCOME AND MARGIN

Dollars in thousandsThree Months Ended
Year-to-Date
  6/30/19 3/31/19 12/31/18 9/30/18 6/30/18  6/30/19 6/30/18
Quarterly average balances:               
Loans$297,501$435,583$424,758$ 426,160$435,778 $366,161$441,287
Investment securities 20,960 21,119 21,060  15,377 13,949  21,039 12,658
Interest-bearing balances and other 47,025 54,690 41,472  28,481 23,258  50,836 24,026
Total interest-earning assets 365,486 511,392 487,290  470,018 472,985  438,036 477,971
Noninterest-bearing deposits 75,643 112,836 96,068  90,073 82,971  94,137 82,910
Interest-bearing liabilities:               
Interest-bearing deposits 234,603 338,682 319,900  294,502 292,409  286,355 297,237
Borrowed funds 17,204 37,852 50,792  63,356 78,457  27,470 77,445
Total interest-bearing liabilities 251,807 376,534 370,692  357,858 370,866  313,825 374,682
Total assets 416,840 576,640 553,855  536,172 538,249  496,299 537,222
Common shareholders’ equity 82,090 78,698 77,817  77,129 73,725  80,403 70,387
Tangible common equity (1) 57,825 48,918 47,695  46,667 49,882  53,396 53,818

(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
  6/30/19 3/31/19 12/31/18 9/30/18 6/30/18  6/30/19 6/30/18
Interest Income/Expense:               
Loans$4,607 $6,523 $6,379 $ 6,329 $6,577  $11,130 $12,613 
Investment securities 100  167  171   111  105   267  168 
Interest-bearing balances and other 241  356  248   170  126   597  247 
Total interest income 4,948  7,046  6,798   6,610  6,808   11,994  13,028 
Deposits 1,104  1,432  1,169   906  815   2,536  1,586 
Borrowings 172  330  396   431  474   502  852 
Total interest expense 1,276  1,762  1,565   1,337  1,289   3,038  2,438 
Net interest income$3,672 $5,284 $5,233 $ 5,273 $5,519  $8,956 $10,590 
                
Average Yields and Costs:               
Loans 6.21% 6.07% 5.96% 5.89% 6.05%  6.13% 5.76%
Investment securities 1.91% 3.16% 3.25% 2.89% 3.01%  2.54% 2.65%
Interest-bearing balances and other 2.06% 2.64% 2.37% 2.37% 2.17%  2.37% 2.07%
Total interest-earning assets 5.43% 5.59% 5.53% 5.58% 5.77%  5.51% 5.50%
Total interest-bearing deposits 1.89% 1.71% 1.45% 1.22% 1.12%  1.79% 1.08%
Borrowed funds 4.01% 3.54% 3.09% 2.70% 2.42%  3.69% 2.22%
Total interest-bearing liabilities 2.03% 1.90% 1.67% 1.48% 1.39%  1.95% 1.31%
Cost of funds 1.56% 1.46% 1.33% 1.18% 1.14%  1.50% 1.07%
Net interest margin 4.03% 4.19% 4.26% 4.45% 4.68%  4.12% 4.47%

NONINTEREST INCOME
Noninterest income for the three months ended June 30, 2019 was $12,318,000, a decrease of $38,000 as compared to the same prior year period.  Specific items to note include:

  • Government lending revenue of $1,754,000 was a decrease of $2,487,000 or 59% in comparison to the second quarter of 2018 primarily due to the unwinding in the first six months of 2018 of the originate-and-hold strategy instituted in the fourth quarter of 2017; and
  • Windsor revenue totaled $2,581,000, an increase of $529,000 or 26% as compared to the $2,052,000 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. 
  • Mortgage revenue totaled $1,113,000, an increase of $245,000 or 28% as compared to the second quarter 2018.  Loans originated for secondary market sale increased from $21,175,000 in the second quarter 2018 to $22,195,000 in the second quarter 2019.
  • The fair value adjustment on the Sound Bank equity investment was $6,635,000 for the quarter and was based on the Sound Bank recapitalization pricing.

             
NONINTEREST EXPENSE
Noninterest expense for the second quarter 2019 was $7,210,000, a decrease of $205,000 or 3%, from $7,415,000 for the second quarter 2018.  The decreases in compensation, occupancy, data processing, communications and other operating expenses are primarily related to the removal of Sound Bank from the consolidated financial statements as of May 6, 2019.  Also impacting noninterest expenses for the quarter were increased legal fees and transaction-related expenses pertaining to the Sound Bank recapitalization.  

EXPANDED STOCK REPURCHASE PROGRAM
Following the close of the 2019 second quarter, the Company received approval from the Federal Reserve Bank of Chicago to expand its current stock repurchase program and has since repurchased an additional 436,014 of the Company’s voting common shares and 107,380 of the Company’s non-voting common shares.  These most recent share repurchases occurred subsequent to June 30th and are not reflected in the Company’s reported June 30, 2019 financial information.  In commenting on the Company’s repurchase activity, Mr. Bergevin said, “We are pleased with the participation in the repurchase program to date and still have capacity to repurchase about an additional $2 million of common stock.  Given the strong liquidity position of the Company following the divestiture of our controlling interest in Sound Bank, we believe the share repurchases are an effective use of our excess cash, while also offering additional liquidity options to our shareholders.  With the reduction in the number of outstanding shares of Company common stock, we expect the repurchases will be accretive to our earnings per share in future periods.”

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 
  6/30/19 3/31/19 12/31/18 9/30/18 6/30/18
Assets          
  Cash and due from banks$2,665 $5,433 $5,005 $5,292 $4,961 
  Interest-bearing deposits 17,196  72,382  43,448  38,779  27,532 
  Total cash and cash equivalents 19,861  77,815  48,453  44,071  32,493 
  Securities available for sale, at fair value 20,716  21,031  21,332  20,615  13,769 
  Loans held for sale 14,902  11,037  16,552   15,819  31,994 
  Loans held for investment:          
  Originated loans 209,492   336,505   322,038   307,166  294,471 
  Acquired loans, net 0   81,978   88,556   101,311  110,439 
  Allowance for loan losses  (3,400)  (4,115)  (4,000)  (3,900) (3,835)
  Net loans held for investment 206,092   414,368   406,594   404,577  401,075 
  Premises and equipment, net 4,832  12,099  12,166  12,263  11,586 
  Foreclosed assets 2,069  2,493  723  796  54 
  Servicing assets 3,220  3,619  3,952   4,280  4,598 
  Bank owned life insurance 4,964  9,090  9,034  8,977  8,917 
  Accrued interest receivable 1,196  1,637  1,637  1,758  1,776 
  Goodwill 12,721   19,737   19,745   19,745  19,745 
  Other intangible assets, net 8,154   9,827   10,157   10,493  10,837 
  Other assets 4,638  8,066  4,979  8,100  7,644 
Total assets$303,365 $590,819 $555,324 $551,494 $544,488 
           
Liabilities and Shareholders’ Equity          
Liabilities          
  Deposits:          
  Noninterest-bearing$46,068 $128,435 $97,777 $94,829 $88,172 
  Interest-bearing 164,619  345,581  335,140  305,257  289,416 
  Total deposits 210,687  474,016  432,917  400,086  377,588 
  Short term borrowings 1,968  20,000  27,000  58,400  73,400 
  Long term borrowings 3,900  6,294  6,781  7,267  7,754 
  Accrued interest payable 433  927  868  550  466 
  Other liabilities 7,562  9,860  10,189  8,746  9,600 
  Total liabilities 224,550  511,097  477,755  475,049  468,808 
Shareholders’ equity          
  Preferred stock 0  0  0  0  0 
  Common stock, voting 2,674  2,749  2,686  2,666  2,660 
  Common stock, non-voting 129  329  329  329  329 
  Additional paid-in capital 38,557  45,287  44,760  44,576  44,429 
  Retained earnings 37,375  31,273  29,928  29,154  28,436 
  Accumulated other comprehensive income (loss) 80   84   (134)  (280) (174)
  Total shareholders’ equity 78,815   79,722   77,569   76,445   75,680 
Total liabilities and shareholders’ equity$303,365 $590,819 $555,324 $551,494 $544,488 

                      

Financial Performance (Consolidated)

Dollars in thousands, except per share data; unauditedThree Months Ended Year-to-Date
  6/30/19 3/31/19 12/31/18 9/30/18 6/30/18  6/30/19 6/30/18 
Interest income                
Interest and fees on loans$4,607$6,523$6,379$6,329$6,577 $11,130$12,613 
Investment securities & deposits 341 523 419 281 231  864 415 
Total interest income 4,948 7,046 6,798 6,610 6,808  11,994 13,028 
Interest expense                
Interest on deposits 1,104 1,432 1,169 906 815  2,536 1,586 
Interest on borrowed funds 172 330 396 431 474  502 852 
Total interest expense 1,276 1,762 1,565 1,337 1,289  3,038 2,438 
Net interest income 3,672 5,284 5,233 5,273 5,519  8,956 10,590 
Provision for loan losses 477 173 434 789 261  650 730 
Noninterest income                
Government lending revenue 1,754 880 1,793 1,121 4,241  2,634 7,295 
Mortgage revenue 1,113 435 359 491 868  1,548 1,323 
Service charge revenue 99 226 228 196 222  325 441 
Bank owned life insurance income 44 56 58 59 64  100 121 
Windsor revenue 2,581 2,086 2,116 1,791 1,683  4,667 2,616 
Income from Windsor investment 0 0 0 0 369  0 0 
Fair value adjustment on equity investment 6,635 0 0 0 0  6,635 0 
Gain on consolidation of Windsor 0 0 0 0 4,776  0 4,776 
Other noninterest income 92 122 163 211 133  214 305 
Total noninterest income 12,318 3,805 4,717 3,869 12,356  16,123 16,877 
Noninterest expense                
Compensation 3,385 4,261 4,689 4,245 4,050  7,646 7,316 
Occupancy and equipment 338 506 536 522 462  844 875 
Loan and special assets 510 179 437 67 407  689 769 
Professional services 569 582 511 437 317  1,151 591 
Data processing 198 345 381 326 325  543 638 
Communication 110 226 208 191 203  336 438 
Advertising 109 112 135 147 418  221 472 
Loss on sale of foreclosed assets 35 21 0 0 41  56 41 
Transaction-related expenses 916 43 31 5 74  959 88 
Other operating expense 1,040 1,179 1,259 1,013 1,118  2,219 1,982 
Total noninterest expense 7,210 7,454 8,187 6,953 7,415  14,664 13,210 
Income before income taxes 8,303 1,462 1,329 1,400 10,199  9,765 13,527 
Income tax expense 2,174 397 373 372 2,528  2,571 3,375 
Net income$6,129$1,065$956$1,028$7,671 $7,194$10,152 
Basic earnings per common share$2.03$0.35$0.31$0.34$2.58 $2.38$3.42 
Diluted earnings per common share$2.00$0.34$0.30$0.33$2.47 $2.34$3.27 
Weighted average common shares outstanding 2,997 3,054 3,008 2,996 2,980  3,025 2,966 
Diluted average common shares outstanding 3,045 3,115 3,124 3,127 3,115  3,080 3,101 



Performance Ratios

 Three Months Ended Year-to-Date
  6/30/19 3/31/19 12/31/18 9/30/18 6/30/18  6/30/19 6/30/18
                
PER COMMON SHARE               
Basic earnings per common share$2.03 $0.35 $0.31 $0.34 $2.58  $2.38 $3.42 
Diluted earnings per common share$2.00 $0.34 $0.30 $0.33 $2.47  $2.34 $3.27 
Book value per common share$28.12 $25.70 $25.52 $25.31 $25.11  $28.12 $25.11 
Tangible book value per common share$20.67 $16.17 $15.68 $15.30 $14.96  $20.67 $14.96 
                
FINANCIAL RATIOS (ANNUALIZED)               
Return on average assets 5.98% 0.75% 0.68% 0.76% 5.72%  2.96% 3.81%
Return on average common shareholders’ equity 30.35% 5.48% 4.87% 5.29% 41.73%  18.25% 29.08%
Return on tangible common equity 42.51% 8.83% 7.95% 8.74% 61.68%  27.17% 38.04%
Net interest margin (FTE) 4.03% 4.19% 4.26% 4.45% 4.68%  4.12% 4.47%
Efficiency ratio(1) 77.1% 82.0% 82.3% 76.1% 56.6%  79.5% 58.2%

(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