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CST: 15/11/2019 01:54:11   

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

108 Days ago

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 ratio 6.5 % 15.37 %
Tier 1 risk-based capital ratio 8.0 % 15.37 %
Total risk-based capital ratio 10.0 % 16.62 %
Tier 1 leverage ratio 5.0 % 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 thousands Ending 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 thousands 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
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 thousands 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
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; unaudited Ending 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; unaudited 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  
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

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