RALEIGH, N.C., Aug. 05, 2020 (GLOBE NEWSWIRE) -- West Town Bancorp, Inc. (OTC PINK: WTWB) (the “Company” or “West Town”), the financial holding company for West Town Bank & Trust (“the Bank”), released its financial results for the three and six months ended June 30, 2020.  The quarter and year-to-date net incomes were significantly impacted by the revenues of its wholly-owned subsidiary, Windsor Advantage, LLC (“Windsor”) as Windsor processed more than 13,500 Paycheck Protection Plan (“PPP”) loan applications totaling more than $2.3 billion for over 40 of its institutional lender clients, driving almost $14.2 million in gross revenues for the three months ended June 30, 2020.  In addition, the six-month net income results included a $4.1 million year-over-year increase in the provision for loan losses which was impacted by the global spread of the coronavirus ("COVID-19") and the related effects on the economic environment.  Highlights include the following:

  • Second quarter net income of $6.3 million or $2.84 per diluted share, compared to net income of $5.9 million or $1.94 per diluted share for the second quarter of 2019.
  • Provision for loan losses of $665,000 for the second quarter of 2020 compared to $477,000 for the same period in 2019.
  • Return on average assets of 7.11%, compared to 5.70% for the second quarter of 2019.
  • Return on average common equity of 35.34%, compared to 28.92% for the second quarter of 2019.
  • Return on average tangible common equity (a non-GAAP financial measure) of 49.86%, compared to 41.06% for the second quarter of 2019.
  • Windsor processing and servicing revenue of $14.2 million, compared to $2.0 million for the same period in 2019.
  • Mortgage origination and sales revenue of $1.6 million as compared to $1.1 million for the same period in 2019.

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. Sound Bank, 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 Sound Bank, beginning on May 6, 2019, are deconsolidated from the financial results of the Company.  Therefore, on a comparative basis, the Company’s second quarter and year-to-date financial results for 2020 do not include any operating impact from Sound Bank, whereas the financial results for the same periods in 2019 are impacted by the performance of Sound Bank.

Eric Bergevin, President & CEO, commented, “We are extremely pleased with the results of our first full quarter since the COVID pandemic began.  The Company’s second quarter performance and year-to-date net incomes were the result of significantly increased revenues from Windsor.  We recognize that without the dedication Windsor’s staff demonstrated during this period, these efforts which provided PPP funds to approximately 350,000 small businesses would not have been possible.  In addition, mortgage-related activity resulted in a record setting quarter given the favorable rate environment.  The Company was also able to use the profits derived from its subsidiaries to retire all of its existing parent company debt.  We are also quite pleased with the growth in core deposits over the past 6 months.  The increase in part reflects the overall success the Company has had with targeted bank deposit products to underserved segments.  We will continue to embrace our government lending “Originate and Hold” strategy to further leverage our capital and enhance long-term earnings.”

BALANCE SHEET
At June 30, 2020, the Company’s total assets were $355.7 million, net loans held for investment were $234.0 million, loans held for sale were $23.1 million, total deposits were $265.0 million and total shareholders’ equity was $73.5 million.  Compared with December 31, 2019, total assets increased $41.1 million or 13%, net loans held for investment increased $14.4 million or 7%, loans held for sale increased $10.5 million or 84%, total deposits increased $44.5 million or 20%, and total shareholders’ equity increased $5.8 million or 9%.  The increases in assets and loans reflect the Banks’s participation in the PPP program for its existing customers as well as an “Originate and Hold” strategy which began in mid-first quarter of 2020 for Government Guaranteed Loans (“GGL”) whereby the Company holds the guaranteed portion of loans originated rather than selling them in the secondary market at a premium.  While this strategy has a short-term negative impact on profitability, the impact of leveraging the capital of the Company’s Bank subsidiary, earning the additional spread income and ultimately taking the gains on premium should enhance overall long-term profitability.   The increase in deposits in part reflects the overall success the Company has recently had in focusing on specific industries and banking those clients.  The Company was also able to use the profits derived from its subsidiaries to retire the existing parent company debt of approximately $5.95 million, leaving broad access to alternative cash sources from various lines of credit.  The increase in total shareholders’ equity was primarily a result of the income posted for the second quarter.

CAPITAL LEVELS
At June 30, 2020, the regulatory capital ratios of West Town Bank & Trust exceeded the minimum thresholds established for well-capitalized banks under applicable banking regulations.

  “Well Capitalized”
Minimum
Basel III Fully
Phased-In
West Town
Bank & Trust

 
 Tier 1 common equity ratio6.50%7.00%13.50% 
 Tier 1 risk-based capital ratio8.00%8.50%13.50% 
 Total risk-based capital ratio10.00%10.50%14.76% 
 Tier 1 leverage ratio5.00%4.00%10.33% 

The Company’s book value per common share increased from $28.12 at June 30, 2019 to $33.19 at June 30, 2020.  The Company’s tangible book value per common share (a non-GAAP financial measure) increased from $20.67 at June 30, 2019 to $23.90 at June 30, 2020 as a result of share repurchases over the period and the net income of the Company.

ASSET QUALITY

The Company’s nonperforming assets to total assets ratio decreased from 3.99% at December 31, 2019 to 3.45% at June 30, 2020, as management continued to address credit concerns surrounding the potential economic impact of COVID-19 and the widespread societal responses to the pandemic. Nonaccrual loans decreased $1.4 million as of June 30, 2020 as compared to December 31,2019 while foreclosed assets increased $1.1 million during the same period. During the fourth quarter of 2019, the Company formed Patriarch, LLC as a subsidiary of the holding company to expedite the liquidation and recovery of certain Bank assets and as of June 30, 2020, Patriarch held $4.2 million in foreclosed assets.  The Bank regularly conducts impairment analyses on all nonperforming assets with updated appraisals to ensure the assets are carried at the lower of fair market value or book value, with any deficits charged off immediately versus carrying specific reserves.

Despite improving asset quality ratios quarter over quarter, the Company recorded a $665,000 provision for loan losses during the second quarter of 2020, as compared to a provision of $477,000 in second quarter 2019, in response to concerns over deteriorating economic conditions driven by the ongoing COVID-19 pandemic.  Expected loss estimates consider the impacts of decreased economic activity and higher unemployment, partially offset by the mitigating benefits of government stimulus and industry wide loan modification efforts. The Company recorded $667,000 million in net charge-offs during the second quarter 2020.

      
(Dollars in thousands)6/30/203/31/2012/31/199/30/196/30/19
Nonaccrual loans$7,799 $7,732 $9,200 $4,813 $3,290 
Foreclosed assets 4,464  5,243  3,370  2,028  2,069 
90 days past due and still accruing -  -  -  -  - 
Total nonperforming assets 12,263  12,975  12,570  6,841  5,359 
      
Net charge-offs$667 $2,390 $779 $138 $200 
Annualized net charge-offs to total average portfolio loans 1.13% 4.39% 1.36% 0.25% 0.27%
      
Ratio of total nonperforming assets to total assets 3.45% 4.16% 3.99% 2.21% 1.77%
Ratio of total nonperforming loans to total loans 3.33% 3.66% 4.19% 2.31% 1.60%
Ratio of total allowance for loan losses to total loans 2.05% 2.27% 1.72% 1.64% 1.62%
                

NET INTEREST INCOME AND MARGIN
Net interest income for the three months ended June 30, 2020 decreased $797,000 or 19% in comparison to the second quarter of 2019, largely due to the deconsolidation of Sound Bank from the consolidated financial statements as of May 6, 2019.    The net interest margin was 4.70% for both the second quarter of 2019 and 2020.  However, there were decreases in both earning asset yield and interest-bearing costs as a result of the targeted fed funds rate decision by the Federal Open Market Committee, which decreased by 1.00% on March 15, 2020 in response to economic concerns over the COVID-19 pandemic.   Interest-earning asset yields decreased from 6.10% to 5.93% and interest-bearing liabilities cost decreased from 2.03% to 1.74% year-over-year between June 30 2019 and June 30, 2020.

Net interest income for the six months ended June 30, 2020 decreased $2.9 million or 29% in comparison to the same period in 2019, largely due to the deconsolidation of Sound Bank from the consolidated financial statements as of May 6, 2019.

    
 Three Months Ended Year-To-Date
(Dollars in thousands)6/30/203/31/2012/31/199/30/196/30/19 6/30/206/30/19
Average balances:        
Loans$250,125$226,683$229,965$220,939$297,501 $238,404$366,542
Investment securities 24,743 23,861 21,572 21,111 20,960  24,302 21,040
Interest-bearing balances and other 22,326 17,046 16,238 16,801 47,025  19,686 50,858
Total interest-earning assets 297,194 267,590 267,775 258,851 365,486  282,392 438,439
Noninterest-bearing deposits 64,617 56,329 52,464 47,199 75,643  60,473 94,240
Interest-bearing liabilities:        
Interest-bearing deposits 185,507 166,567 179,162 170,390 234,603  176,037 286,643
Borrowed funds 23,459 16,475 6,167 6,452 17,204  19,967 27,528
Total interest-bearing liabilities 208,966 183,042 185,329 176,842 251,807  196,004 314,171
Total assets 353,179 313,476 311,293 300,011 416,840  333,327 496,740
Common shareholders' equity 71,035 68,445 67,078 68,448 82,090  69,740 80,394
Tangible common equity (1) 50,343 47,570 46,448 47,637 57,825  48,957 53,371
         
Interest income/expense:        
Loans$4,283$4,559$4,139$4,315$5,218 $8,842$12,340
Investment securities 72 95 82 76 100  167 267
Interest-bearing balances and other 36 76 83 105 241  112 597
Total interest income 4,391 4,730 4,304 4,496 5,559  9,121 13,204
Deposits 835 845 979 942 1,104  1,680 2,536
Borrowings 70 109 56 72 172  179 502
Total interest expense 905 954 1,035 1,014 1,276  1,859 3,038
Net interest income$3,486$3,776$3,269$3,482$4,283 $7,262$10,166
         
(1) Non-GAAP financial measure. Tangible common equity is calculated by subtracting intangible assets from common shareholders' equity
 


 Three Months Ended Year-To-Date
 6/30/203/31/2012/31/199/30/196/30/19 6/30/206/30/19
Average yields and costs:        
Loans6.87%8.07%7.14%7.75%7.04% 7.44%6.79%
Investment securities1.16%1.59%1.52%1.44%1.91% 1.37%2.54%
Interest-bearing balances and other0.65%1.79%2.03%2.48%2.06% 1.14%2.37%
Total interest-earning assets5.93%7.09%6.38%6.89%6.10% 6.48%6.07%
Interest-bearing deposits1.81%2.03%2.17%2.19%1.89% 1.91%1.78%
Borrowed funds1.20%2.65%3.60%4.43%4.01% 1.80%3.68%
Total interest-bearing liabilities1.74%2.09%2.22%2.27%2.03% 1.90%1.95%
Cost of funds1.33%1.60%1.73%1.80%1.56% 1.45%1.50%
Net interest margin4.70%5.66%4.84%5.34%4.70% 5.16%4.68%
         

NONINTEREST INCOME
Noninterest income for the three months ended June 30, 2020 was $16.2 million, an increase of $4.7 million or 41% as compared to the three months ended June 30, 2019.  Specific items to note include:

  • Windsor, a subsidiary of the Company which offers an SBA and USDA loan servicing platform, had processing and servicing revenue totaling $14.2 million for the three months ended June 30, 2019, an increase of $12.2 million, or 620% as compared to the $2.0 million in income earned during the three months ended June 30, 2019.  The increase is directly attributable to the significant impact of the volume of PPP loans processed by the Company during the quarter as well as continued growth in the volume in the servicing portfolio as Windsor brings in new customers.
  • GGL revenue was $37,000 in the second quarter of 2020, a decrease of $1.7 million or 98% in comparison to the same period in 2019.  GGL volume was impacted by the Company’s “Originate and Hold” strategy as the Company moved to leverage its balance sheet for long-term profitability.
  • Mortgage revenue totaled $1.6 million, an increase of $460,000 or 41% as compared to the second quarter 2019.  Mortgage loans originated to sell to the secondary market increased from $22.2 million in the second quarter 2019 to $46.2 million in the second quarter 2020.

Noninterest income for the six months ended June 30, 2020 was $20.8 million, an increase of $6.1 million or 42% as compared to the $14.7 million in the same prior year period.  The most notable increase was due to Windsor revenues, which increased by $12.4 million period over period from $3.5 million in the six months ended June 30, 2019 to $15.9 million for the six months ended June 30, 2020.

NONINTEREST EXPENSE
Noninterest expense for the second quarter of 2020 was $10.8 million, an increase of $3.6 million or 50%, from $7.2 million for the second quarter of 2019.  The primary cause for the change was increased compensation expense including overtime and temporary assistance as a result of the significant workload associated with the PPP program which drove the additional Windsor revenues previously mentioned.  For the six-month period ended June 30, 2020, noninterest expense increased from $14.7 million in the first six months of 2019 to $16.9 million for the same period in 2020, also as a result of additional compensation due to the PPP program.

ABOUT WEST TOWN BANCORP, INC.
West Town Bancorp, Inc. is a financial holding company based in Raleigh, NC.  The Company is changing names to Integrated Financial Holdings, Inc in the third quarter 2020 after a successful shareholder vote approving the action on July 23, 2020.  A specific press release outlining the name change is anticipated to be published in early August 2020.  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)6/30/203/31/2012/31/199/30/196/30/19
Assets      
Cash and due from banks$6,183 $5,928 $5,021 $4,085 $2,665 
Interest-bearing deposits 11,644  8,518  9,849  16,068  14,450 
 Total cash and cash equivalents 17,827  14,446  14,870  20,153  17,115 
Interest-bearing time deposits 2,746  2,746  2,746  2,746  2,746 
Securities, at fair value 26,081  24,946  21,087  21,804  20,716 
Loans held for sale 23,072  11,839  12,568  13,965  14,902 
Loans held for investment:     
 Originated loans 238,926  216,423  223,470  211,647  209,492 
 Allowance for loan and lease losses (4,906) (4,907) (3,837) (3,462) (3,400)
  Loans held for investment, net 234,020  211,516  219,633  208,185  206,092 
Premises and equipment, net 4,761  4,740  4,761  4,795  4,832 
Foreclosed assets 4,464  5,243  3,370  2,028  2,069 
Loan servicing assets 3,262  3,528  3,358  3,053  3,220 
Bank owned life insurance 5,082  5,048  5,021  4,993  4,964 
Accrued interest receivable 1,422  1,067  1,116  1,079  1,196 
Goodwill 13,161  13,161  13,150  12,721  12,721 
Other intangible assets, net 7,409  7,596  7,782  7,968  8,154 
Other assets 12,349  6,370  4,729  5,779  4,638 
   Total assets$355,656 $312,246 $314,191 $309,269 $303,365 
         
Liabilities and Shareholders' Equity     
Liabilities     
Deposits:     
 Noninterest-bearing$66,874 $59,360 $49,573 $54,380 $46,068 
 Interest-bearing 198,108  162,059  170,869  177,472  164,619 
  Total deposits 264,982  221,419  220,442  231,852  210,687 
Borrowings 6,000  17,649  19,295  2,382  5,868 
Accrued interest payable 391  433  429  424  433 
Other liabilities 10,771  5,735  6,300  8,092  7,562 
 Total liabilities 282,144  245,236  246,466  242,750  224,550 
Shareholders’ equity:     
Common stock, voting 2,193  2,193  2,166  2,206  2,674 
Common stock, non-voting 22  22  22  22  129 
Additional paid in capital 24,357  24,162  24,245  24,771  38,557 
Retained earnings 46,629  40,371  41,203  39,446  37,375 
Accumulated other comprehensive income 311  262  89  74  80 
 Total shareholders’ equity 73,512  67,010  67,725  66,519  78,815 
   Total liabilities and shareholders’ equity$355,656 $312,246 $314,191 $309,269 $303,365 
         


       
Financial Performance (Consolidated)      
         
(Dollars in thousands except shareThree Months Ended Year-To-Date
and per share data; unaudited)6/30/203/31/2012/31/199/30/196/30/19 6/30/206/30/19
Interest income        
Loans$4,283 $4,559 $4,139 $4,315 $5,218  $8,842 $12,340 
Investment securities and deposits 108  171  165  181  341   279  864 
Total interest income 4,391  4,730  4,304  4,496  5,559   9,121  13,204 
Interest expense        
Interest on deposits 835  845  979  942  1,104   1,680  2,536 
Interest on borrowed funds 70  109  56  72  172   179  502 
Total interest expense 905  954  1,035  1,014  1,276   1,859  3,038 
Net interest income 3,486  3,776  3,269  3,482  4,283   7,262  10,166 
Provision for loan losses 665  3,460  1,155  200  477   4,125  650 
Noninterest income        
Windsor processing and servicing        
revenue 14,186  1,713  2,256  1,774  1,970   15,899  3,457 
Government guaranteed lending 37  755  2,288  983  1,754   792  2,634 
Mortgage 1,573  1,418  716  975  1,113   2,991  1,548 
Bank-owned life insurance 34  27  28  29  44   61  100 
Service charge 11  19  29  23  99   30  325 
Gain on deconsolidation of Sound Bank -  -  -  -  6,425   -  6,425 
Other noninterest 367  709  98  153  92   1,076  214 
Total noninterest income 16,208  4,641  5,415  3,937  11,497   20,849  14,703 
Noninterest expense        
Compensation 5,682  3,753  3,750  3,199  3,385   9,435  7,646 
Occupancy and equipment 519  256  221  343  338   775  844 
Loan and special asset expenses 816  242  318  (523) 510   1,058  689 
Professional services 676  490  359  432  569   1,166  1,151 
Data processing 165  148  109  161  198   313  543 
Software 1,913  249  172  160  199   2,162  425 
Communications 82  89  80  33  110   171  336 
Advertising 215  55  86  51  109   270  221 
Transaction-related 4  17  16  1  916   21  959 
Amortization of intangibles 186  186  186  186  233   372  563 
Other operating expenses 589  545  464  335  643   1,134  1,287 
Total noninterest expense 10,847  6,030  5,761  4,378  7,210   16,877  14,664 
Income (loss) before income taxes 8,182  (1,073) 1,768  2,841  8,093   7,109  9,555 
Income tax expense (benefit) 1,924  (241) 37  687  2,174   1,683  2,571 
Net income (loss)$ 6,258 $ (832)$ 1,731 $ 2,154 $ 5,919  $ 5,426 $ 6,984 
         
Basic earnings (loss) per common share$2.87 $(0.38)$0.79 $0.93 $1.97  $2.48 $2.38 
Diluted earnings (loss) per common share$2.84 $(0.37)$0.78 $0.91 $1.94  $2.44 $2.34 
Weighted average common shares        
outstanding 2,177  2,193  2,196  2,328  2,997   2,204  3,025 
Diluted average common shares        
outstanding 2,185  2,232  2,234  2,369  3,045   2,221  3,080 
         


         
Performance Ratios        
          
  Three Months Ended Year-To-Date
  6/30/203/31/2012/31/199/30/196/30/19 6/30/206/30/19
PER COMMON SHARE        
 Basic earnings (loss) per common share$2.87 $(0.38)$0.79 $0.93 $1.97  $2.48 $2.38 
 Diluted earnings (loss) per common share 2.84  (0.37) 0.78  0.91  1.94   2.44  2.34 
 Book value per common share 33.19  30.25  30.78  29.86  28.12   33.19  28.12 
 Tangible book value per common share 23.90  20.88  21.27  20.57  20.67   23.90  20.67 
          
FINANCIAL RATIOS (ANNUALIZED)        
 Return on average assets 7.11% -1.06% 2.21% 2.85% 5.70%  3.26% 2.84%
 Return on average common shareholders'        
 equity 35.34% -4.88% 10.24% 12.49% 28.92%  15.60% 17.52%
 Return on average tangible common        
 equity 49.86% -7.02% 14.79% 17.94% 41.06%  22.23% 26.39%
 Net interest margin 4.70% 5.66% 4.84% 5.34% 4.70%  5.16% 4.68%
 Efficiency ratio (1) 55.1% 71.4% 66.2% 59.0% 67.3%  60.0% 74.3%
          
 (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.
  

Loan Concentrations

The top ten commercial loan concentrations as of June 30, 2020 were as follows:

  % of
  Commercial
(in millions)AmountLoans
Solar Electric Power Generation$48.729%
Hotels (except Casino Hotels) and Motels 13.58%
Lessors of Nonresidential Buildings (except Miniwarehouses) 18.911%
Lessors of Residential Buildings and Dwellings 9.35%
Other Activities Related to Real Estate 7.64%
General Freight Trucking, Local 4.73%
Golf Courses and Country Clubs 4.43%
Lessors of Other Real Estate Property 6.34%
Child Day Care Services 3.72%
Colleges, Universities, and Professional Schools 3.52%
     

Eric Bergevin, 252-482-4400