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

Company Release - 11/1/2019 5:01 PM ET

RALEIGH, N.C., Nov. 01, 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 September 30, 2019.  Highlights include the following:

Third quarter net income of $2.15 million or $0.95 per diluted share, compared to $1.03 million or $0.33 per diluted share for the third quarter of 2018.

  • Return on average assets of 2.93%, compared to 0.76% for the third quarter of 2018.
  • Return on average common equity of 12.49%, compared to 5.29% for the third quarter of 2018.
  • Return on average tangible common equity (a non-GAAP financial measure) of 17.94%, compared to 8.74% for the third quarter of 2018.
  • Windsor Advantage, LLC (“Windsor”) processing and servicing revenue of $2.39 million as compared to $1.79 million for the same period last year.

As previously announced, on May 6, 2019 Sound Bank, formerly a wholly owned subsidiary of West Town, completed a recapitalization that resulted in a significant reduction in West Town’s ownership position in the bank, which, effective October 1, 2019, changed its name to Dogwood State Bank.  Due to the reduction in West Town’s ownership position, the financial results for the Company for the third quarter of 2019 are deconsolidated from the financial results of Sound Bank.  Therefore, on a comparative basis, the Company’s financial results for the third quarter of 2019 do not include any operating impact from Sound Bank whereas the financial results for the third quarter of 2018 are impacted by the performance of Sound Bank.    

Eric Bergevin, President and CEO, commented, “We are pleased with the results of our first full quarter since the Sound Bank recapitalization.  The Company was able to deliver net income which, excluding past fair value adjustments and gains on consolidation, showed significant improvement over previous pre-recapitalization quarters, and we were able to do so with a smaller asset base and reduced outstanding share levels as a result of our recent stock repurchase program.  This resulted in a strong improvement in our earnings per share.  Windsor had another good quarter with $2.4 million in revenue, driven by a 6th consecutive quarter of increased servicing revenue.   In addition, our government guaranteed lending department originated loan commitments of $22.9 million and earned $983,000 in revenue for the third quarter.  Finally, given the strong liquidity position of the Company following the divestiture of our controlling interest in Sound Bank, we believe the share repurchases we made were an effective use of our excess cash, resulting in an accretive impact on our earnings per share this quarter and, we anticipate, in future periods.”

During the third quarter of 2019, the Company repurchased 574,919 shares of its voting and nonvoting common stock and all of its outstanding warrants.  In addition, the Company paid off a $1.9 million line of credit balance while keeping the line available for future use if needed.

BALANCE SHEET
At September 30, 2019, the Company’s total assets were $309.3 million, net loans held for investment were $211.8 million, loans held for sale were $14.0 million, total deposits were $231.9 million and total shareholder’s equity was $66.5 million.  Compared with September 30, 2018, total assets decreased $242.2 million or 44%, loans held for investment decreased $95.5 million or 31%, loans held for sale decreased $1.9 million or 12%, total deposits decreased $168.2 million or 42%, and total shareholders’ equity decreased $9.9 million or 13%.  The decreases in assets, loans and deposits were a result of the Sound Bank recapitalization and elimination of Sound Bank from the consolidated financials as of May 6, 2019.  The decrease in total shareholders’ equity resulted from the Company’s stock repurchase program partially offset by an increase in retained earnings.

CAPITAL LEVELS
At September 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 ratio6.50%15.32%
Tier 1 risk-based capital ratio8.00%15.32%
Total risk-based capital ratio10.00%16.58%
Tier 1 leverage ratio5.00%13.09%

The Company’s book value per common share increased from $25.31 at September 30, 2018 to $29.86 at September 30, 2019.  The Company’s tangible book value per common share (a non-GAAP financial measure) increased from $15.30 at September 30, 2018 to $20.57 at September 30, 2019 due primarily to the gain on deconsolidation 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 91 basis points from 1.30% at September 30, 2018 to 2.21% at September 30, 2019 primarily due to the removal of Sound Bank from the consolidated financial statements.  Nonaccrual loans decreased $993,000 as of September 30, 2019 as compared to the prior year while foreclosed assets increased $1.2 million compared to September 30, 2018.

The Company recorded a $200,000 provision for loan losses during the third quarter of 2019 as compared to a provision of $789,000 in third quarter 2018.  The Company recorded $138,000 in net charge-offs during the third quarter 2019 with the remaining provision expense due to volume growth.

  (Dollars in thousands)9/30/196/30/193/31/1912/31/189/30/18
Nonaccrual loans – originated$4,813 $3,290 $4,666 $6,538 $5,806 
Nonaccrual loans – acquired -  -  262  272  280 
Foreclosed assets - originated 2,028  2,069  2,493  723  796 
90 days past due and still accruing – originated -  -  407  67  3 
90 days past due and still accruing – acquired -  -  421  251  280 
Total nonperforming assets 6,841  5,359  8,249  7,851  7,165 
Total nonperforming assets – originated 6,841  5,359  7,566  7,328  6,605 
                
Net charge-offs$138 $200 $58 $334 $725 
Annualized net charge-offs to total average portfolio loans 0.25% 0.27% 0.05% 0.31% 0.68%
                
Ratio of total nonperforming assets to total assets 2.21% 1.77% 1.40% 1.41% 1.30%
Ratio of total nonperforming loans to total net portfolio loans 2.31% 1.57% 1.38% 1.74% 1.56%
Ratio of total allowance for loan losses to total portfolio loans 1.64% 1.62% 0.98% 0.97% 0.95%
                

NET INTEREST INCOME AND MARGIN
Net interest income for the three months ended September 30, 2019 decreased $2.4 million or 46% in comparison to the third quarter 2018, primarily due to the deconsolidation of Sound Bank from the consolidated financial statements as of May 6, 2019. The net interest margin decreased from 4.45% for the third quarter 2018 to 4.39% for the third quarter 2019.  The margin compression is largely related to the increase in the cost of funds from 1.18% to 1.80%, 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 and net interest margin by approximately 23 basis points and 18 basis points, respectively, due to the lack of dividend income. 

      
 Three Months Ended   Year-to-Date
  (Dollars in thousands)9/30/196/30/193/31/1912/31/189/30/18 9/30/199/30/18
Average balances:        
Loans$220,939$297,501$435,583$424,758$426,160 $317,221$436,189
Investment securities 21,111 20,960 21,119 21,060 15,377  21,063 13,575
Interest-bearing balances and other 16,801 47,025 54,690 41,472 28,481  39,367 25,527
Total interest-earning assets 258,851 365,486 511,392 487,290 470,018  377,651 475,291
Noninterest deposits 47,199 75,643 112,836 96,068 90,073  78,319 85,324
Interest-bearing liabilities:               
Interest-bearing deposits 170,390 234,603 338,682 319,900 294,502  247,275 296,315
Borrowed funds 6,452 17,204 37,852 50,792 63,356  20,387 72,697
Total interest-bearing liabilities 176,842 251,807 376,534 370,692 357,858  267,662 369,012
Total assets 300,011 416,840 576,640 553,855 536,172  430,151 536,869
Common shareholders' equity 68,448 82,090 78,698 77,817 77,129  76,375 72,659
Tangible common equity (1) 47,636 57,825 48,918 47,695 46,667  51,456 51,408
                
Interest income/expense:               
Loans$3,698$4,607$6,523$6,379$6,329 $14,828$18,942
Investment securities 76 100 167 171 111  343 280
Interest-bearing balances and other 105 241 356 248 170  702 416
Total interest income 3,879 4,948 7,046 6,798 6,610  15,873 19,638
Deposits 942 1,104 1,432 1,169 906  3,478 2,492
Borrowings 72 172 330 396 431  574 1,283
Total interest expense 1,014 1,276 1,762 1,565 1,337  4,052 3,775
Net interest income$2,865$3,672$5,284$5,233$5,273 $11,821$15,863
         
(1) Non-GAAP financial measure. Tangible common equity is calculated by subtracting intangible assets from common shareholders' equity
 


 Three Months Ended   Year-to-Date
 9/30/196/30/193/31/1912/31/189/30/18 9/30/199/30/18
Average yields and costs:        
Loans6.64%6.21%6.07%5.96%5.89% 6.25%5.76%
Investment securities1.44%1.91%3.16%3.25%2.89% 2.17%2.65%
Interest-bearing balances and other2.48%2.06%2.64%2.37%2.37% 2.38%2.07%
Total interest-earning assets5.95%5.43%5.59%5.53%5.58% 5.61%5.50%
Interest-bearing deposits2.19%1.89%1.71%1.45%1.22% 1.88%1.08%
Borrowed funds4.43%4.01%3.54%3.09%2.70% 3.76%2.22%
Total interest-bearing liabilities2.27%2.03%1.90%1.67%1.48% 2.02%1.31%
Cost of funds1.80%1.56%1.46%1.33%1.18% 1.57%1.07%
Net interest margin4.39%4.03%4.19%4.26%4.45% 4.18%4.47%
                

NONINTEREST INCOME
Noninterest income for the three months ended September 30, 2019 was $4.6 million, an increase of $685,000 as compared to the same prior year period.  Specific items to note include:

  • Windsor processing and servicing revenue totaled $2.4 million, an increase of $600,000 or 34% as compared to the $1.8 million in income earned from the investment in Windsor during the same prior year period.  The increase is directly attributable to the continued growth in the volume in the servicing portfolio as the company brings in new customers. 
  • Government lending revenue of $983,000 was a decrease of $138,000 or 12% in comparison to the third quarter of 2018.
  • Mortgage revenue totaled $975,000, an increase of $484,000 or 99% as compared to the third quarter 2018.  Loans originated for secondary market sale increased from $13.6 million in the third quarter 2018 to $26.4 million in the third quarter 2019.           

NONINTEREST EXPENSE
Noninterest expense for the third quarter 2019 was $4.4 million, a decrease of $2.6 million or 37%, from $7.0 million for the third quarter 2018.  The decreases in compensation, occupancy, data processing, communications and other operating expenses are primarily related to the deconsolidation of Sound Bank from the consolidated financial statements as of May 6, 2019.  Also impacting noninterest expenses for the quarter were decreased loan and legal related expenses pertaining to the guaranteed loan portfolio as the Company was able to recapture some of its previously expensed costs due to pari passu loss sharing and expense sharing agreements resulting in a negative expense for the quarter, which is nonrecurring.  

ABOUT WEST TOWN BANCORP, INC.
West Town Bancorp, Inc. is a financial holding company based in Raleigh, NC.  The Company is the 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. The Company is also the parent company of: Windsor Advantage, LLC, a loan servicing company; West Town Insurance Agency, Inc., an insurance agency; Patriarch, LLC, a real estate management company; SBA Loan Documentation Services, LLC, a loan documentation origination company; and Glenwood Structured Finance, LLC, a loan broker and large loan syndication company.  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     
      
 Ending Balance
  (Dollars in thousands, unaudited)9/30/196/30/193/31/1912/31/189/30/18
Assets
               
Cash and due from banks$4,085 $2,665 $5,433 $5,005  5,292 
Interest-bearing deposits 18,814  17,196  72,382  43,448  38,779 
 Total cash and cash equivalents 22,899  19,861  77,815  48,453  44,071 
Securities, at fair value 21,804  20,716  21,031  21,332  20,615 
Loans held for sale 13,965  14,902  11,037  16,552  15,819 
Loans held for investment:               
 Originated loans 211,647  209,492  336,505  322,038  307,166 
 Acquired loans, net -  -  81,978  88,556  101,311 
 Allowance for loan and lease losses (3,462) (3,400) (4,115) (4,000) (3,900)
  Net loans held for investment 208,185  206,092  414,368  406,594  404,577 
Premises and equipment, net 4,795  4,832  12,099  12,166  12,263 
Foreclosed assets 2,028  2,069  2,493  723  796 
Servicing assets 3,053  3,220  3,619  3,952  4,280 
Bank owned life insurance 4,993  4,964  9,090  9,034  8,977 
Accrued interest receivable 1,079  1,196  1,637  1,637  1,758 
Goodwill 12,721  12,721  19,737  19,745  19,745 
Other intangible assets, net 7,968  8,154  9,827  10,157  10,493 
Other assets 5,779  4,638  8,066  4,979  8,100 
   Total assets$309,269 $303,365 $590,819 $555,324 $551,494 
                   
Liabilities and Shareholders' Equity               
Liabilities               
Deposits:               
 Noninterest bearing$54,380 $46,068 $128,435 $97,777 $94,829 
 Interest-bearing 177,472  164,619  345,581  335,140  305,257 
  Total deposits 231,852  210,687  474,016  432,917  400,086 
Borrowings 2,382  5,868  26,294  33,781  65,667 
Accrued interest payable 424  433  927  868  550 
Other liabilities 8,092  7,562  9,860  10,189  8,746 
 Total liabilities 242,750  224,550  511,097  477,755  475,049 
Shareholders’ equity:               
Common stock, voting 2,206  2,674  2,749  2,686  2,666 
Common stock, non-voting 22  129  329  329  329 
Additional paid in capital 24,771  38,557  45,287  44,760  44,576 
Retained earnings 39,446  37,375  31,273  29,928  29,154 
Accumulated other comprehensive income (loss)  74  80  84  (134) (280)
 Total shareholders’ equity 66,519  78,815  79,722  77,569  76,445 
   Total liabilities and shareholders’ equity$309,269 $303,365 $590,819 $555,324 $551,494 
         

 

Financial Performance (Consolidated)      
         
  (Dollars in thousands except shareThree Months Ended   Nine Months Ended
  and per share data; unaudited)9/30/196/30/193/31/1912/31/189/30/18 9/30/199/30/18
Interest income                
Loans$3,698 $4,607$6,523$6,379$6,329 $14,828$18,942
Invesment securities and deposits 181  341 523 419 281  1,045 696
Total interest income 3,879  4,948 7,046 6,798 6,610  15,873 19,638
Interest expense                
Interest on deposits 942  1,104 1,432 1,169 906  3,478 2,492
Interest on borrowed funds 72  172 330 396 431  574 1,283
Total interest expense 1,014  1,276 1,762 1,565 1,337  4,052 3,775
Net interest income 2,865  3,672 5,284 5,233 5,273  11,821 15,863
Provision for loan losses 200  477 173 434 789  850 1,519
Noninterest income                
Windsor processing and servicing                
revenue 2,391  2,581 2,086 2,116 1,791  7,058 3,474
Government lending 983  1,754 880 1,793 1,121  3,617 8,416
Mortgage 975  1,113 435 359 491  2,523 1,814
Bank-owned life insurance 29  44 56 58 59  129 180
Service charge 23  99 226 228 196  348 637
Gain on deconsolidation of Sound Bank -  6,635 - - -  6,635 -
Gain on consolidation of Windsor -  - - - -  - 4,776
Income from Windsor investment -  - - - -  - 933
Other noninterest 153  92 122 163 211  367 516
Total noninterest income 4,554  12,318 3,805 4,717 3,869  20,677 20,746
Noninterest expense                
Compensation 3,199  3,385 4,261 4,689 4,245  10,845 11,561
Occupancy and equipment 343  338 506 536 522  1,187 1,397
Loan and special assets (523) 510 179 437 67  166 836
Professional services 432  569 582 511 437  1,583 1,028
Data processing 161  198 345 381 326  704 964
Communications 33  110 226 208 191  369 629
Advertising 51  109 112 135 147  272 619
Loss on sale of foreclosed assets -  35 21 - -  56 41
Transaction-related expenses 1  916 43 31 5  960 93
Other operating expenses 681  1,040 1,179 1,259 1,013  2,900 2,995
Total noninterest expense 4,378  7,210 7,454 8,187 6,953  19,042 20,163
Income before income taxes 2,841  8,303 1,462 1,329 1,400  12,606 14,927
Income tax expense 687  2,174 397 373 372  3,258 3,747
Net income$ 2,154 $ 6,129$ 1,065$ 956$ 1,028 $ 9,348$ 11,180
                 
Basic earnings per common share$0.97 $2.03$0.35$0.31$0.34 $2.58$3.76
Diluted earnings per common share$0.95 $2.00$0.34$0.30$0.33 $2.47$3.60
Weighted average common shares                
outstanding 2,328  2,997 3,054 3,008 2,996  2,980 2,976
Diluted average common shares                
outstanding 2,369  3,045 3,115 3,124 3,127  3,115 3,106
         


Performance Ratios        
          
  Three Months Ended   Year-to-Date
  9/30/196/30/193/31/1912/31/189/30/18 9/30/199/30/18
PER COMMON SHARE        
 Basic earnings per common share$0.97 $2.03 $0.35 $0.31 $0.34  $2.58 $3.76 
 Diluted earnings per common share$0.95 $2.00 $0.34 $0.30 $0.33  $2.47 $3.60 
 Book value per common share$29.86 $28.12 $25.70 $25.52 $25.31  $29.86 $25.31 
 Tangible book value per common share$20.57 $20.67 $16.17 $15.68 $15.30  $20.57 $15.30 
                        
FINANCIAL RATIOS (ANNUALIZED)
                      
 Return on average assets 2.93% 5.98% 0.75% 0.68% 0.76%  2.91% 2.78%
 Return on average common shareholders' equity 12.49% 30.35% 5.48% 4.87% 5.29%  16.36% 20.56%
 Return on tangible common equity 17.94% 42.51% 8.83% 7.95% 8.40%  24.29% 29.08%
 Net interest margin (FTE) 4.39% 4.03% 4.19% 4.26% 4.45%  4.18% 4.46%
 Efficiency ratio (1) 59.0% 77.1% 82.0% 82.3% 76.1%  69.9% 63.0%
          
 (1) Efficiency ratio is calculated by dividing noninterest expense less transaction-related costs by the sum of net interest income and noninterest income, less gains or losses on sale of securities and consolidation and the fair value adjustment on the equity investment in Sound Bank
  

Contact: Eric Bergevin, 252-482-4400

WT Bancorp.jpg

Source: West Town Bancorp