West Town Bancorp, Inc. Announces Fourth Quarter 2018 Financial Results


RALEIGH, N.C., Feb. 11, 2019 (GLOBE NEWSWIRE) -- West Town Bancorp, Inc. (OTC PINK: WTWB) (the “Company” or “West Town”), the multi-bank financial holding company for West Town Bank & Trust and Sound Bank, announced today its financial results for the year ended December 31, 2018.  Highlights for the fourth quarter of 2018 and the Company’s year-to-date performance include the following:

  • Fourth quarter net income of $956,000 or $0.30 per diluted share, compared to $552,000 or $0.20 per diluted share for the fourth quarter of 2017.
    • Return on average assets of 0.68%, compared to 0.44% for the fourth quarter of 2017.
    • Return on average common equity of 4.87%, compared 3.62% for the fourth quarter of 2017.
    • Return on average tangible common equity (a non-GAAP financial measure) of 7.95%, compared to 4.31% for the fourth quarter of 2017.
       
  • For the year ending December 31, 2018, net income of $12,136,000 or $3.90 per diluted share, compared to $2,892,000 or $1.54 per diluted share for the year ending December 31, 2017.
    • Return on average assets of 2.24%, compared to 0.83% for the prior year period.
    • Return on average common equity of 16.41%, compared to 7.27% for the prior year period.
    • Return on tangible common equity of 24.05% compared to 10.58% for the prior year period.

Eric Bergevin, President and CEO commented, “The Company’s record earnings in 2018 was the result of execution on our strategic initiatives deployed over the past two years, including the acquisition of Windsor Advantage LLC (“Windsor”) and the expansion of our governmental guaranteed loan (“GGL”) department.  As discussed in our second quarter press release, we recorded a gain of $4,776,000 on completion of the Windsor acquisition on April 30, 2018 and earned $2.0 million in net income from operations in the remaining 8 months of 2018 (not including the $933,000 in noninterest income earned prior to the acquisition date). We earned $10.2 million in GGL revenue, a record year for the Company in large part to the ‘originate and hold’ strategy that was put in place during the 4th quarter of 2017 that helped us better leverage our capital and enhance earnings.  Additionally, we are quite pleased with the $40.2 million growth in total deposits from the prior year-end, with noninterest-bearing deposit balances accounting for $13.6 million of that total increase.  Heading into 2019, the management team is focused on the continued growth of shareholder value.”

STRONG YEAR-OVER-YEAR LOAN BALANCE SHEET GROWTH
At December 31, 2018, the Company’s total assets were $555,324,000, net loans held for investment were $406,594,000, loans held for sale were $16,552,000, total deposits were $432,917,000 and total shareholder’s equity was $77,570,000.  Compared with December 31, 2017, total assets increased $11,190,000 or 2%, loans held for investment increased $31,469,000 or 8%, loans held for sale decreased $50,154,000 or 75%, total deposits increased $40,183,000 or 10% and total shareholders’ equity increased $11,990,000 or 18%.  The decrease in loans held for sale was due to the ‘originate and hold’ strategy in the 4th quarter of 2017 that resulted in a large held for sale inventory at year-end.

Noninterest-bearing deposits increased $13,599,000 or 16% year over year, while interest-bearing deposits increased $26,584,000 or 9% during the same time period. 

Acquired Loan Summary

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

Dollars in thousands 12/31/18 9/30/18 6/30/18 3/31/18 12/31/17
           
Performing acquired loans$85,600 $98,482 $107,404 $121,852 $132,846 
Less:  remaining fair market value (FMV) adjustments (929) (1,063) (1,181) (1,400) (1,592)
Performing acquired loans, net$84,671 $97,419 $106,223 $120,452 $131,254 
FMV adjustment % 1.1% 1.1% 1.1% 1.1% 1.2%
           
Purchase credit impaired loans (PCI)$4,398 $4,446 $5,017 $5,293 $5,386 
Less:  remaining FMV adjustments (513) (554) (801) (826) (832)
PCI loans, net$3,885 $3,892 $4,216 $4,467 $4,554 
FMV adjustment % 11.7% 12.5% 16.0% 15.6% 15.4%
           
Total acquired performing loans 84,671  97,419  106,223  120,452  131,254 
Total acquired PCI loans 3,885  3,892  4,216  4,467  4,554 
Total acquired loans 88,556  101,311  110,439  124,919  135,808 
FMV adjustment % 1.6% 1.6% 1.8% 1.8% 1.8%
                

In comparison to December 31, 2017, the performing acquired loan pool decreased $47,246,000 or 36% due to principal payments and renewals.  The PCI loan pool decreased $988,000 or 18% year-over-year due to principal payments, charge-offs and foreclosures.  

CAPITAL LEVELS

At December 31, 2018, both banks’ capital ratios exceeded the minimum thresholds established for well-capitalized banks by regulatory measures.


 “Well Capitalized” MinimumsWest Town Bank & TrustSound Bank
Tier 1 common equity ratio6.5%15.12%11.07%
Tier 1 risk-based capital ratio8.0%15.12%11.07%
Total risk-based capital ratio10.0%16.37%11.55%
Tier 1 leverage ratio5.0%11.40%9.42%
       

The book value per common share increased from $22.21 at December 31, 2017 to $25.52 at December 31, 2018.  The tangible book value per common share (a non-GAAP financial measure) decreased from $19.07 at December 31, 2017 to $15.68 at December 31, 2018 due to 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 $15.68 at December 31, 2018.

ASSET QUALITY
The Company’s nonperforming assets to total assets ratio increased 6 basis points from 1.35% at December 31, 2017 to 1.41% at December 31, 2018. Compared to the prior year, non-acquired nonaccrual loan balances grew $320,000 or 5%. 

The Company recorded a $434,000 provision for loan losses during the fourth quarter of 2018, as compared to a provision of $1,129,000 in fourth quarter 2017.  The Company recorded $334,000 in net charge-offs during the 2018 fourth quarter with the remaining provision expense due to volume growth.

Dollars in thousandsEnding Balance 
  12/31/18 9/30/18 6/30/18 3/31/18 12/31/17
           
Nonaccrual loans – originated$6,538 $5,806 $6,233 $5,910 $6,218 
Nonaccrual loans – acquired 272  280  292  182  413 
OREO – originated 723  796  54  54  0 
90 days past due – originated 67  3  8  186  0 
90 days past due – acquired 251  280  553  594  697 
Total nonperforming assets 7,851  7,165  7,140  6,926  7,328 
Total nonperforming assets – originated 7,328  6,605  6,295  6,150  6,218 
           
Net charge-offs$334 $725 $216 $105 $543 
Annualized net charge-offs to total average portfolio loans 0.31% 0.68% 0.20% 0.09% 0.54%
           
Ratio of total nonperforming assets to total assets 1.41% 1.30% 1.31% 1.26% 1.35%
Ratio of total nonperforming loans to total portfolio loans 1.75% 1.57% 1.77% 1.78% 1.95%
Ratio of total allowance for loan losses to total portfolio loans 0.97% 0.95% 0.95% 0.97% 0.91%
                

NET INTEREST INCOME AND MARGIN
Net interest income for the three months ended December 31, 2018 decreased $1,000 in comparison to the fourth quarter of 2017, while the net interest margin decreased from 4.66% for the fourth quarter of 2017 to 4.26% for the fourth quarter of 2018.  The margin compression is largely related to the increase in the cost of funds from 0.93% to 1.33% due to increased deposit competition and interest rates.

NET INTEREST INCOME AND MARGIN
(Includes Sound Bank as of 9/1/2017)

Dollars in thousandsThree Months Ended Twelve Months Ended 
  12/31/18 9/30/18 6/30/18 3/31/18 12/31/17  12/31/18 12/31/17
Quarterly average balances:               
Loans$424,758$ 426,160$435,778$446,857$400,324 $433,308$280,924
Investment securities 21,060  15,377 13,949 11,353 7,346  15,461 6,014
Interest-bearing balances and other 41,472  28,481 23,258 24,803 37,640  29,546 24,238
Total interest-earning assets 487,290  470,018 472,985 483,013 445,310  478,315 311,176
Noninterest-bearing deposits 96,068  90,073 82,971 82,849 75,707  88,032 39,996
Interest-bearing liabilities:               
Interest-bearing deposits 319,900  294,502 292,409 302,119 312,155  302,260 238,327
Borrowed funds 50,792  63,356 78,457 76,422 31,574  67,176 19,340
Total interest-bearing liabilities 370,692  357,858 370,866 378,541 343,729  369,436 257,667
Total assets 553,855  536,172 538,249 536,185 495,958  541,150 347,781
Common shareholders’ equity 77,817  77,129 73,725 67,013 60,432  73,959 39,746
Tangible common equity (1) 47,695  46,667 49,882 57,799 50,795  50,472 36,503
                

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

Dollars in thousandsThree Months Ended Twelve Months Ended
  12/31/18 9/30/18 6/30/18 3/31/18 12/31/17  12/31/18 12/31/17
Interest Income/Expense:               
Loans$6,379 $ 6,329 $6,577 $6,036 $6,061  $25,321 $16,945 
Investment securities 171   111  105  64  39   450  144 
Interest-bearing balances and other 248   170  126  120  117   665  304 
Total interest income 6,798   6,610  6,808  6,220  6,217   26,436  17,393 
Deposits 1,169   906  815  771  791   3,661  2,865 
Borrowings 396   431  474  378  192   1,679  441 
Total interest expense 1,565   1,337  1,289  1,149  983   5,340  3,306 
Net interest income$5,233 $ 5,273 $5,519 $5,071 $5,234  $21,096 $14,087 
                
Average Yields and Costs:               
Loans 5.96% 5.89% 6.05% 5.48% 6.01%  5.84% 8.06%
Investment securities 3.25% 2.89% 3.01% 2.25% 2.12%  2.91% 3.19%
Interest-bearing balances and other 2.37% 2.37% 2.17% 1.96% 1.23%  2.25% 1.68%
Total interest-earning assets 5.53% 5.58% 5.77% 5.22% 5.54%  5.52% 7.47%
Total interest-bearing deposits 1.45% 1.22% 1.12% 1.03% 1.01%  1.21% 1.61%
Borrowed funds 3.09% 2.70% 2.42% 2.01% 2.41%  2.50% 3.05%
Total interest-bearing liabilities 1.67% 1.48% 1.39% 1.23% 1.13%  1.45% 1.72%
Cost of funds 1.33% 1.18% 1.14% 1.01% 0.93%  1.17% 1.48%
Net interest margin 4.26% 4.45% 4.68% 4.26% 4.66%  4.41% 6.05%
                       

NONINTEREST INCOME
Noninterest income for the three months ended December 31, 2018 was $4,717,000, an increase of $3,171,000 or 205% as compared to the same prior year period.  Specific items to note for the fourth quarter of 2018 include:

  • Governmental lending revenue of $1,793,000 was an increase of $1,601,000 or 834% in comparison to the fourth quarter of 2017 primarily due to the originate-and-hold strategy instituted in the fourth quarter of 2017 that compressed gain on loan sales during that quarter; and
  • Windsor revenue totaled $2,116,000, an increase of 1,913,000 or 924% as compared to the $213,000 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 fourth quarter of 2018 was $8,187,000, an increase of $2,290,000 or 39% from $5,897,000 for the three months ended December 31, 2017.  Most of the increases in compensation, occupancy, and other operating expenses are related to the inclusion of Windsor expenses for the full three-month period in 2018 as compared to no expenses in the fourth quarter of 2017 as well as new positions and annual salary increases. 

BRANCH NETWORK REORGANIZATION
On July 16, 2018, Sound Bank and West Town Bank & Trust entered into a purchase and assumption agreement pursuant to which Sound Bank would acquire West Town Bank & Trust’s two North Carolina branches located in Edenton, NC and Winterville, NC.  The branch transaction closed on October 26, 2018, following receipt of required regulatory approvals.  In addition to the transfer of certain real property in Edenton, NC, the branch reorganization resulted in the transfer of approximately $34.1 million in loan assets, $32.7 million in deposit liabilities, and $3.6 million in additional paid in capital to Sound Bank from its sister institution, West Town Bank & Trust. 

ABOUT WEST TOWN BANCORP, INC.
West Town Bancorp, Inc. is the multi-bank financial holding company for West Town Bank & Trust, a North Riverside, IL based state-chartered bank, and Sound Bank, a Morehead City, NC based state-chartered bank. West Town Bank & Trust provides banking services through its offices in Illinois, while Sound Bank provides banking services through its offices in North Carolina. Primary deposit products are checking, savings, and time certificate 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.  Sound Bank’s primary regulators are the North Carolina Commissioner of Banks 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 that these disclosures were prepared. These statements can be identified by the use of words like "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; recent changes in tax law, including the impact of such changes on our tax assets and liabilities; 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 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
(Includes Sound Bank as of 9/1/2017)

Dollars in thousands; unauditedEnding Balance
  12/31/18 9/30/18 6/30/18 3/31/18 12/31/17
Assets          
Cash and due from banks$5,005 $5,292 $4,961 $4,725 $2,986 
Interest-bearing deposits 43,448  38,779  27,532  30,299  40,961 
   Total cash and cash equivalents 48,453  44,071  32,493  35,024  43,947 
Securities available for sale, at fair value 21,332  20,615  13,769  14,171  7,119 
Loans held for sale 16,552   15,819  31,994  61,286  66,706 
Loans held for investment:          
Originated loans  322,038   307,166  294,471  265,887  242,744 
Acquired loans, net  88,556   101,311  110,439  124,919  135,808 
Allowance for loan losses  (4,000)  (3,900) (3,835) (3,791) (3,427)
Net loans held for investment  406,594   404,577  401,075  387,015  375,125 
Premises and equipment, net 12,166  12,263  11,586  11,502  11,563 
Foreclosed assets 723  796  54  54  0 
Servicing assets 3,952   4,280  4,598  4,969  5,237 
Bank owned life insurance 9,034  8,977  8,917  8,853  8,796 
Accrued interest receivable 1,637  1,758  1,776  1,870  1,544 
Goodwill  19,745   19,745  19,745  7,016  7,016 
Other intangible assets, net  10,157   10,493  10,837  2,102  2,272 
Other assets 4,979  8,100  7,644  15,565  14,809 
Total assets$555,324 $551,494 $544,488 $549,427 $544,134 
           
Liabilities and Shareholders’ Equity          
Liabilities          
Deposits:          
Noninterest-bearing$97,777 $94,829 $88,172 $86,561 $84,178 
Interest-bearing 335,140  305,257  289,416  298,711  308,556 
Total deposits 432,917  400,086  377,588  385,272  392,734 
Short term borrowings 27,000  58,400  73,400  81,500  72,100 
Long term borrowings 6,781  7,267  7,754  6,314  6,803 
Accrued interest payable 868  550  466  389  296 
Other liabilities 10,189  8,746  9,600  7,984  6,621 
Total liabilities 477,755  475,049  468,808  481,459  478,554 
Shareholders’ equity          
Preferred stock 0  0  0  0  0 
Common stock, voting 2,686  2,666  2,660  2,623  2,623 
Common stock, non-voting 329  329  329  329  329 
Additional paid-in capital 44,760  44,576  44,429  44,385  44,185 
Retained earnings 29,928  29,154  28,436  20,765  18,447 
Accumulated other comprehensive loss  (134)  (280) (174) (134) (4)
Total shareholders’ equity 77,569   76,445   75,680  67,968  65,580 
Total liabilities and shareholders’ equity$555,324 $551,494 $544,488 $549,427 $544,134 
                

Financial Performance (Consolidated)
(Includes Sound Bank as of 9/1/2017)

Dollars in thousands, except per share data; unauditedThree Months Ended
 Twelve Months Ended
  12/31/18 9/30/18 6/30/18 3/31/18 12/31/17  12/31/18 12/31/17 
Interest income                
Interest and fees on loans$6,379$6,329$6,577$6,036$6,062  $25,321$16,946  
Investment securities & deposits 419 281 231 184 155   1,115 448  
Total interest income 6,798 6,610 6,808 6,220 6,217   26,436 17,394  
Interest expense                
Interest on deposits 1,169 906 815 771 792   3,661 2,865  
Interest on borrowed funds 396 431 474 378 191   1,679 441  
Total interest expense 1,565 1,337 1,289 1,149 983   5,340 3,306  
Net interest income 5,233 5,273 5,519 5,071 5,234   21,096 14,088  
Provision for loan losses 434 789 261 469 1,129   1,953 2,177  
Noninterest income                
Government lending revenue 1,793 1,121 4,241 3,054 192   10,209 4,095  
Mortgage revenue 359 491 868 455 515   2,173 4,707  
Service charge revenue 228 196 222 219 203   865 324  
Bank owned life insurance income 58 59 64 57 60   238 170  
Windsor revenue 2,116 1,791 1,683 0 0   5,590 0  
Income from Windsor investment 0 0 369 564 203   933 1,500  
Loss on sale of securities 0 0 0 0 0   0 (7) 
Gain on consolidation of Windsor 0 0 4,776 0 0   4,776 0  
Other noninterest income 163 211 133 172 373   679 738  
Total noninterest income 4,717 3,869 12,356 4,521 1,546   25,463 11,527  
Noninterest expense                
Compensation 4,689 4,245 4,050 3,266 3,248   16,250 11,342  
Occupancy and equipment 536 522 462 413 434   1,933 1,417  
Loan and special assets 437 67 407 362 373   1,273 1,087  
Professional services 511 437 317 274 313   1,539 1,130  
Data processing 381 326 325 313 316   1,345 854  
Communication 208 191 203 235 188   837 469  
Advertising 135 147 418 54 109   754 369  
Loss on sale of foreclosed assets 0 0 41 0 0   41 0  
Transaction-related expenses 31 5 74 14 60   124 588  
Other operating expense 1,259 1,013 1,118 864 856   4,254 2,323  
Total noninterest expense 8,187 6,953 7,415 5,795 5,897   28,350 19,579  
Income (loss) before income taxes 1,329 1,400 10,199 3,328 (246)  16,256 3,859  
Income tax expense (benefit) 373 372 2,528 847 (798)  4,120 967  
Net income$956$1,028$7,671$2,481$552  $12,136$2,892  
Basic earnings per common share$0.31$0.34$2.58$0.84$0.21  $4.07$1.60  
Diluted earnings per common share$0.30$0.33$2.47$0.80$0.20  $3.90$1.54  
Weighted average common shares outstanding 3,008 2,996 2,980 2,952 2,649   2,984 1,804  
Diluted average common shares outstanding 3,124 3,127 3,115 3,087 2,755   3,110 1,881  
                   

Performance Ratios
(Includes Sound Bank as of 9/1/2017)

 Three Months Ended Twelve Months Ended
  12/31/18 9/30/18 6/30/18 3/31/18 12/31/17  12/31/18 12/31/17
                
PER COMMON SHARE               
Basic earnings per common share$0.31 $0.34 $2.58 $0.84 $0.21  $4.07 $1.60 
Diluted earnings per common share$0.30 $0.33 $2.47 $0.80 $0.20  $3.90 $1.54 
Book value per common share$25.52 $25.31 $25.11 $23.02 $22.21  $25.52 $22.21 
Tangible book value per common share$15.68 $15.30 $14.96 $19.94 $19.07  $15.68 $19.07 
                
FINANCIAL RATIOS (ANNUALIZED)               
Return on average assets 0.68% 0.76% 5.72% 1.88% 0.44%  2.24% 0.83%
Return on average common shareholders’ equity 4.87% 5.29% 41.73% 15.02% 3.62%   

16.41


%
  

7.27


%
Return on tangible common equity 7.95% 8.74% 61.68% 18.30% 4.31%  24.05% 10.58%
Net interest margin (FTE) 4.26% 4.45% 4.68% 4.26% 4.66%  4.41% 6.05%
Efficiency ratio(1) 82.3% 76.1% 56.6% 60.4% 87.0%  67.9% 76.4%
                       

(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.


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