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

Credit: GlobeNewswire- Published on May 8, 2019
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 ratio 6.5 % 15.32 % 10.74 %
Tier 1 risk-based capital ratio 8.0 % 15.32 % 10.74 %
Total risk-based capital ratio 10.0 % 16.57 % 11.19 %
Tier 1 leverage ratio 5.0 % 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 thousands* *Ending 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 thousands* *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*
*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 thousands* *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*
*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; unaudited* *Ending 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                     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; unaudited* *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*  
*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       2,086    
Income from Windsor investment         369   564       564  
Loss on sale of securities                  
Gain on consolidation of Windsor         4,776          
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       41       21    
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
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