Market Overview

West Town Bancorp, Inc. Announces Third Quarter 2017 Financial Results

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RALEIGH, N.C., Oct. 31, 2017 (GLOBE NEWSWIRE) -- West Town Bancorp, Inc. (OTC:WTWB) (the "Company" or "West Town"), the multi-bank holding company for West Town Bank & Trust and Sound Bank, announced today its financial results for the quarter ended September 30, 2017.  Highlights for the third quarter of 2017 include the following:

• Net income of $947,000, or $0.56 per diluted share, compared to $837,000 or $0.58 per diluted share for the third quarter of 2016.

  • Return on average assets of 1.09%, compared to 1.33% for third quarter of 2016.
  • Return on average common equity of 9.20%, compared to 12.71% for the third quarter of 2016.
  • Return on average tangible common equity of 9.99%, compared to 12.71% for third quarter of 2016.
  • West Town Bank & Trust earned net income totaling $887,000 for the third quarter of 2017, resulting in a return on average assets of 1.29% and a return on average common equity of 12.02%.
  • Sound Bank contributed net income of $135,000 for the third quarter of 2017 resulting in a return on average assets of 0.83% and a return on average common equity of 6.51%.  Due to acquisition on August 31, 2017, third quarter earnings only include the month of September 2017.

 • Completed acquisition of Sound Banking Company on August 31, 2017.

  • In connection with the acquisition, the Company made the strategic decision to operate as a multi-bank holding company with two separately chartered banking subsidiaries.
  • Pursuant to the merger agreement, each share of Sound Banking Company common stock was converted into the right to receive either $12.75 in cash or 0.60 shares of West Town voting common stock.  Shareholders had the opportunity to elect between West Town common stock, cash or a combination of West Town stock and cash, subject to the limitation that 65% of Sound Banking Company shares would be converted to West Town stock and 35% of shares would be converted to the cash consideration.  The election period ended on October 9, 2017 with approximately 83% of Sound Banking Company shareholders making an election ("Electors").
    • The Electors elected 75.5% stock and 7.5% cash.  As a result of the 65% stock limitation, the stock election was prorated using a proration factor of 0.86.
    • All Sound Banking Company shareholders who did not make an election received the cash merger consideration.
  • As of the acquisition date, Sound Banking Company had total assets of $190,298,000, including $152,572,000 in loans and $171,486,000 in deposits. 
  • In connection with the acquisition, goodwill totaling $7,399,000 and a core deposit intangible totaling $2,510,000 was recorded by Sound Bank.
  • The operating results of West Town for the period ended September 30, 2017 include the results of Sound Bank subsequent to the acquisition date of August 31, 2017.  The conversion of Sound Bank's computer systems occurred in October 2017.

 • Closed on private placement of securities with aggregate gross proceeds of approximately $17.5 million and a $4.0 million debt facility with The Private Bank.

  • Issued 453,490 shares of West Town voting common stock, $1.00 par value, at a purchase price of $23.00 per share.
  • Issued 30,738 shares of a non-voting, convertible perpetual preferred stock, Series A, $100.00 par value, at a purchase price of $230.00 per share.
  • Issued a warrant to purchase 43,478 shares of West Town common stock, $1.00 par value, at a purchase price of $23.00 per share.  The warrant expires on August 31, 2022.
  • The Company down-streamed $6.0 million to West Town Bank & Trust and $2.0 million to Sound Bank during September 2017 to further strengthen bank capital ratios and support continued growth.
    • West Town Bank & Trust plans on leveraging down-streamed capital by funding and holding whole loans (SBA/USDA) for the entire 4th quarter and then resume the sale of the guaranteed portion of these loans into the secondary market in the first quarter of 2018.  This will impact short-term earnings, but will enhance our earning assets and consequently the overall earnings profile of West Town Bank & Trust and the Company.

                         
 Financial Performance (Consolidated)

In thousands, except per share data   Three Months Ended
      Nine Months Ended
 
    9/30/17
    6/30/17     3/31/17     12/31/16
    9/30/16       9/30/17     9/30/16  
Interest income                                    
Interest and fees on loans $ 4,223   $ 3,288   $ 3,373   $ 3,311   $ 3,111     $ 10,884   $ 8,584  
Investment securities & deposits   142     78     73     55     58       293     153  
Total interest income   4,365     3,366     3,446     3,366     3,169       11,177     8,737  
Interest expense                                    
Interest on deposits   712     684     677     674     594       2,073     1,679  
Interest on borrowed funds   102     92     56     38     39       250     80  
Total interest expense   814     776     733     712     633       2,323     1,759  
Net interest income   3,551     2,590     2,713     2,654     2,536       8,854     6,979  
Provision for loan losses   491     281     276     570     225       1,048     749  
Noninterest income                                    
Government lending revenue   1,537     730     1,636     2,111     1,651       3,903     5,017  
Mortgage revenue   699     1,938     1,555     1,809     2,406       4,192     6,730  
Service charge revenue   89     15     17     21     25       121     84  
Bank owned life insurance income   42     37     31     32     34       110     107  
Income from Windsor   519     573     205     0     0       1,297     0  
Gain (loss) on sale of securities   (7)     0     0     2     0       (7)     (2)  
Other noninterest income   134     119     112     118     135       365     540  
Total noninterest income   3,013     3,412     3,556     4,093     4,251       9,981     12,476  
Noninterest expense                                    
Compensation   2,481     2,812     2,801     3,525     3,075       8,094     8,767  
Occupancy and equipment   303     314     366     331     328       983     1,005  
Loan, foreclosure and OREO   287     408     19     275     606       714     1,321  
Professional services   155     404     258     1,606     393       817     916  
Data processing   247     143     148     303     168       538     612  
Communication   112     85     84     106     82       281     266  
Advertising   91     77     92     185     118       260     481  
Transaction-related expenses   231     125     172     176     122       528     122  
Other operating expense   547     438     482     488     269       1,467     1,167  
Total noninterest expense   4,454     4,806     4,422     6,995     5,161       13,682     14,657  
Income before income taxes   1,619     915     1,571     (818)     1,401       4,105     4,048  
Income tax expense   672     401     692     (281)     564       1,765     1,711  
Net income (loss) $ 947   $ 514   $ 879   $ (537)   $ 837     $ 2,340   $ 2,337  
Basic earnings (loss) per common share (1) $ 0.59   $ 0.35   $ 0.60   $ (0.39)   $ 0.60     $ 1.54   $ 1.70  
Diluted earnings (loss) per common share (1) $ 0.56   $ 0.34   $ 0.57   $ (0.38)   $ 0.58     $ 1.47   $ 1.62  
Weighted average common shares outstanding (1)   1,626     1,467     1,465     1,380     1,375       1,597     1,373  
Diluted average common shares outstanding (1)   1,932     1,534     1,531     1,445     1,445       1,667     1,446  
                                     

Performance Ratios

  Three Months Ended   Nine Months Ended
    9/30/17     6/30/17     3/31/17     12/31/16     9/30/16       9/30/17     9/30/16  
                               
PER COMMON SHARE                              
Basic earnings (loss) per common share $ 0.59   $ 0.35   $ 0.60   $ (0.39)   $ 0.60     $ 1.54   $ 1.70  
Diluted earnings (loss) per common share $ 0.56   $ 0.34   $ 0.57   $ (0.38)   $ 0.58     $ 1.47   $ 1.62  
Book value per common share (1) $ 24.65   $ 20.04   $ 19.67   $ 19.11   $ 19.35     $ 24.65   $ 19.35  
Tangible book value per common share (1) $ 20.90   $ 20.04   $ 19.67   $ 19.11   $ 19.35     $ 20.90   $ 19.35  
                               
FINANCIAL RATIOS (ANNUALIZED)                              
Return on average assets   1.09%     0.75%     1.31%     (0.80%)     1.34%       1.05%     1.34%  
Return on average shareholders' equity   9.20%     6.96%     12.57%     (7.82%)     12.70%       9.49%     12.39%  
Return on tangible common equity   9.99%     6.96%     12.57%     (7.82%)     12.70%       9.81%     12.39%  
Net interest margin (FTE)   4.58%     4.27%     4.46%     4.33%     4.47%       4.45%     4.41%  
Efficiency ratio   67.8%     80.1%     70.5%     103.7%     76.0%       72.6%     75.3%  
                                             


(1) Calculation of book value per common share and tangible book value per common share includes the 698,580 shares that were
issued in October 2017 for the Sound Bank acquisition. While these shares are not issued and outstanding as of September 30,
2017, and thus not included for EPS purposes, the equity related to the Sound Bank acquisition is included in the Company's
financial statements; therefore, the Company believes book value is more accurately presented in this manner.


Eric Bergevin, President and CEO commented, "We are pleased to report another quarter of strong earnings and growth.  We continue to see positive results from the execution of our 2017 strategic initiatives, including the Windsor Advantage LLC ("Windsor") investment made earlier this year, the acquisition of Sound Bank completed in the third quarter and the completion of the private placement in the third quarter.  We have shifted our governmental guaranteed lending strategy in the fourth quarter for West Town Bank & Trust to originate and hold whole loans, including the guaranteed portion of the new originations for a period of time to leverage our increased capital.  This shift in strategy will notably reduce short-term profitability, but will enhance the earnings profile for the bank.  It is not anticipated that the seasoning of these loans on our balance sheet will materially impact the gain on sale premium when we resume selling these loans in 90 – 120 days, but will result in a larger balance sheet producing heightened levels of interest income on a go-forward basis.  We extend a special welcome to the customers and shareholders of Sound Bank and are pleased to report that we successfully completed the conversion of the Sound Bank computer systems earlier this month."

Noninterest Income and Expense Data (Consolidated)

In thousands Three Months Ended     Nine Months Ended
    9/30/17     6/30/17     3/31/17     12/31/16     9/30/16       9/30/17     9/30/16  
                                       
Noninterest income                                      
Government lending revenue $ 1,537   $ 730   $ 1,636   $ 2,111   $ 1,651     $ 3,903   $ 5,017  
Mortgage revenue   699     1,938     1,555     1,809     2,406       4,192     6,730  
Service charge revenue   89     15     17     21     25       121     84  
Bank owned life insurance income   42     37     31     32     34       110     107  
Income from Windsor   519     573     205     0     0       1,297     0  
Gain (loss) on sale of securities   (7)     0     0     2     0       (7)     (2)  
Other noninterest income   134     119     113     118     135       365     540  
Total noninterest income   3,013     3,412     3,557     4,093     4,251       9,981     12,476  
                                       
Noninterest expense                                      
Compensation   2,481     2,812     2,801     3,525     3,075       8,094     8,767  
Occupancy and equipment   303     314     366     331     328       983     1,005  
Loan, foreclosure and OREO   287     408     19     275     606       714     1,321  
Professional services   155     404     258     1,606     393       817     916  
Data processing   247     143     148     303     168       538     612  
Communication   112     85     84     106     82       281     266  
Advertising   91     77     92     185     118       260     481  
Transaction-related expenses   231     125     172     176     122       528     122  
Other operating expense   547     438     482     488     269       1,467     1,167  
Total noninterest expense   4,454     4,806     4,422     6,995     5,161       13,682     14,657  
                                             

Total noninterest income for the third quarter of 2017 was $3,013,000, a decrease from $3,412,000 for the second quarter.  The decrease in non-interest income was due to decreased revenue from mortgage operations as a result of the strategic decision to curtail the West Town Bank & Trust's national mortgage operations that were primarily dependent on refinance loans.  On June 30, 2017, West Town Bank & Trust divested five of its out of market loan production offices and downsized its corresponding operational staff in the mortgage administrative offices.  West Town Bank & Trust has shifted its focus to local, in-market realtor relationships to capture the purchase loan transaction and expand cross-selling opportunities for deposit relationships.  As anticipated, revenue from government guaranteed lending increased in the third quarter, partially offsetting the decreased mortgage revenue. 

Total noninterest expense was $4,454,000 for the third quarter of 2017, a decrease from $4,806,000 for the second quarter.  The reduction is mainly driven by a reduction in compensation expense at West Town Bank & Trust primarily due to the reduction in overall mortgage compensation as a result of the shift in strategy discussed above.  Also contributing to the reduction in noninterest expense is a decrease in loan expense attributable to mortgage operations and a decrease in professional services driven by a significant reduction in legal fees.  The Company's efficiency ratio improved to 67.8% for the third quarter 2017, as compared to 80.1% for the second quarter 2017.

Selected Consolidated Balance Sheet Data

In thousands Ending Balance
    9/30/17     6/30/17     3/31/17     12/31/16     9/30/16  
Portfolio loans:                    
Originated loans $ 205,423   $ 200,863   $ 175,862   $ 170,112   $ 173,871  
Acquired loans   145,321     -     -     -     -  
Allowance for loan and lease losses   (2,841)     (2,580)     (2,537)     (2,318)     (2,168)  
Portfolio loans, net   347,903     198,283     173,325     167,794     171,703  
Loans held for sale   21,023     30,166     45,266     58,923     41,165  
Investment securities and deposits   64,970     25,953     26,807     28,399     22,210  
Total interest-earning assets   433,896     254,402     245,398     255,116     235,078  
Loan servicing rights   5,568     5,721     5,624     5,569     5,354  
Goodwill   7,399     -     -     -     -  
Other intangible assets, net   2,450     -     -     -     -  
Total assets   487,904     283,628     275,343     280,158     259,300  
                     
Deposits                    
Noninterest bearing deposits   70,984     24,141     22,926     20,820     14,544  
Interest-bearing deposits   317,714     201,072     201,179     195,999     184,665  
Total deposits   388,698     225,213     224,105     216,819     199,209  
Borrowings   19,309     22,599     16,000     30,000     30,000  
Total interest-bearing liabilities   408,007     247,812     240,105     246,819     229,209  
                     
Shareholders' equity:                    
Preferred equity   7,570     500     500     -     -  
Common equity   64,578     29,370     28,796     27,915     26,568  
Accumulated other comprehensive income   28     50     42     40     61  
Total shareholders' equity   72,176     29,920     29,338     27,955     26,629  
                               

Total assets were $487,904,000, an increase of 72% as compared to total assets of $283,628,000 at June 30, 2017.  Total net portfolio loans were $347,903,000 at September 30, 2017, an increase of 75% as compared to $198,283,000 at June 30, 2017. The increases in total assets and portfolio loans are primarily attributable to the Sound Banking Company acquisition.  

Total deposits were $388,698,000 at September 30, 2017, an increase of $163,485,000 or 73% as compared to total deposits of $225,213,000 at June 30, 2017.  Increases in deposits are primarily attributable to the Sound Banking Company acquisition. 

Total shareholders' equity was $72,176,000 at September 30, 2017, an increase of $42,256,000 or 141% as compared to $29,920,000 at June 30, 2017.  The increase is attributable to the new capital raised totaling $17,500,000 (prior to fees and expenses) and the $24,902,000 resulting from the Sound Banking Company acquisition.  At September 30, 2017 both bank's capital ratios exceed the minimum thresholds established for a well-capitalized bank by regulatory measures:

  "Well Capitalized"
Minimums
 

West Town
Bank & Trust
 
Sound Bank
Tier 1 common equity ratio 6.5% 14.73% 13.23%
Tier 1 risk based capital ratio 8.0% 14.73% 13.23%
Total risk based capital ratio 10.0% 15.94% 13.23%
Tier 1 leverage ratio 5.0% 12.65% 9.71%


Acquired Loan Summary

 

In thousands
  Ending
Balance
 
    9/30/17  
   
Performing acquired loans $ 142,087  
Less:  remaining FMV adjustments   (1,783)  
Performing acquired loans, net $ 140,304  
FMV adjustment %   1.3%  
   
Purchase credit impaired loans (PCI) $ 6,369  
Less:  remaining FMV adjustments   (1,352)  
PCI loans, net $ 5,017  
FMV adjustment %   21.2%  
   
Total acquired performing loans   140,304  
Total acquired PCI loans   5,017  
Total acquired loans   145,321  
FMV adjustment % all acquired loans   2.2%  
       

Asset Quality

The Company's nonperforming assets to total assets ratio decreased 87 basis points during the third quarter of 2017 from 2.55% at June 30, 2017 to 1.68% at September 30, 2017.  Excluding acquired loans during the quarter, the nonperforming assets to total assets declined 24 basis points from 3.60% at June 30, 2017 to 3.36% at September 30, 2017.  The reduction is related to the sale of OREO property and a decline in nonaccrual balances. 

The Company recorded a $491,000 provision for loan losses during the third quarter of 2017, as compared to a provision of $281,000 in the second quarter 2017.  This provision expense is reflective of the organic growth in portfolio loans (primarily government guaranteed lending) and the $230,000 in net charge-offs recorded during the quarter.  Excluding acquired loans, the ratio of allowance for loan and lease losses as a percentage of total portfolio loans increased from 1.28% at June 30, 2017 to 1.40% at September 30, 2017.

In thousands Ending Balance 
    9/30/17     6/30/17     3/31/17     12/31/16     9/30/16
 
                     
Nonaccrual loans – non-acquired $ 6,803   $ 6,967   $ 3,717   $ 3,447   $ 2,396  
Nonaccrual loans – acquired   0     0     0     0     0  
OREO – non-acquired   0     270     270     873     873  
OREO – acquired   0     0     0     0     0  
90 days past due – non-acquired   0     0     0     0     0  
90 days past due – acquired   1,396     0     0     0     0  
Total nonperforming assets   8,199     7,237     3,987     4,320     3,269  
                     
Total nonperforming assets – non-acquired   6,803     7,237     3,986     4,320     3,269  
                     
Net charge-offs, QTD $ 230   $ 238   $ 58   $ 420   $ 28  
Annualized net charge-offs to total average portfolio loans   0.34%     0.43%     0.10%     0.74%     0.05%  
                     
Ratio of total nonperforming assets to total assets   1.68%     2.55%     1.45%     1.54%     1.26%  
Ratio of total nonperforming loans to total portfolio loans   2.36%     3.51%     2.14%     2.05%     1.40%  
Ratio of total allowance for loan losses to total portfolio loans   0.81%     1.28%     1.44%     1.36%     1.25%  
                     
Excluding acquired                    
Ratio of nonperforming assets to loans and OREO   3.31%     3.60%     2.26%     2.53%     1.87%  
Ratio of nonperforming loans to loans   3.31%     3.47%     2.11%     2.03%     1.38%  
Ratio of allowance for loan losses to loans   1.38%     1.28%     1.44%     1.36%     1.25%  
                               

Net Interest Income and Margin
(Includes Sound Bank as of 9/1/2017)

In thousands   Three Months Ended
  Nine Months Ended
    9/30/17     6/30/17     3/31/17     12/31/16     9/30/16       9/30/17     9/30/16  
Quarterly average balances:                              
Loans $ 273,225   $ 222,099   $ 226,218   $ 226,624   $ 205,484     $ 240,686   $ 192,661  
Investment securities   6,944     4,778     4,954     5,178     5,407       5,566     5,780  
Interest-bearing balances and other   27,171     16,482     15,384     11,627     14,477       19,722     12,964  
Total interest-earning assets   307,340     243,359     246,556     243,429     225,368       265,974     211,405  
Noninterest deposits   40,028     21,089     22,576     19,339     14,912       27,961     13,447  
Interest-bearing liabilities:                              
Interest bearing deposits   239,475     201,027     199,399     191,852     170,106       213,447     164,263  
Borrowed funds   13,748     15,680     16,249     23,784     34,760       15,217     27,710  
Total interest-bearing liabilities   253,223     216,707     215,648     215,636     204,866       228,664     191,973  
Total assets   343,328     274,137     272,015     266,066     248,913       296,754     233,589  
Common shareholders' equity   40,848     29,629     28,334     27,264     26,207       32,983     25,216  
Tangible common equity   37,617     29,629     28,334     27,264     26,207       31,894     25,216  
                               
Interest Income/Expense:                              
Loans $ 4,223   $ 3,288   $ 3,373   $ 3,311   $ 3,111     $ 10,884   $ 8,584  
Investment securities, tax   47     29     29     28     22       105     73  
Interest-bearing balances and other   95     49     44     27     36       188     80  
Total interest income   4,365     3,366     3,446     3,366     3,169       11,177     8,737  
Deposits   712     684     677     674     594       2,073     1,679  
Borrowings   102     92     56     38     39       250     80  
Total interest expense   814     776     733     712     633       2,323     1,759  
Net interest income $ 3,551   $ 2,590   $ 2,713   $ 2,654   $ 2,533     $ 8,854   $ 6,978  
                               
Average Yields and Costs:                              
Loans   6.13%     5.94%     6.05%     5.80%     6.01%       6.05%     5,96%  
Investment securities   2.71%     2.43%     2.34%     2.16%     1.63%       2.52%     1.68%  
Interest-bearing balances and other   1.39%     1.19%     1.16%     0.92%     0.99%       1.27%     0.83%  
Total interest-earning assets   5.63%     5.55%     5.67%     5.49%     5.58%       5.62%     5.53%  
Total interest-bearing deposits   1.18%     1.36%     1.38%     1.39%     1.39%       1.30%     1.37%  
Borrowed funds   2.94%     2.35%     1.40%     0.63%     0.45%       2.20%     0.39%  
Total interest-bearing liabilities   1.28%     1.44%     1.38%     1.31%     1.23%       1.36%     1.23%  
Cost of funds   1.10%     1.31%     1.25%     1.20%     1.14%       1.21%     1.14%  
Net interest margin   4.58%     4.27%     4.46%     4.33%     4.47%       4.45%     4.41%  
                                             

Net interest income for the third quarter of 2017 was $3,551,000, an increase from $2,591,000 for the second quarter of 2017. 

  • West Town Bank & Trust contributed $2,980,000 for the third quarter of 2017 as compared to $2,662,000 for the second quarter of 2017.
  • Sound Bank contributed $656,000 for the third quarter of 2017.  Note this reflects only one full month of earnings for Sound Bank.  Accretion earned on the acquired loan portfolio was $111,000 for the third quarter. 
  • The holding company recorded ($86,000) for the third quarter of 2017 as compared to ($70,000) for the second quarter of 2017. 

Net interest margin was 4.58% for the third quarter of 2017 as compared to 4.27% for the second quarter of 2017.

  • West Town Bank & Trust net interest margin was 4.71% for the third quarter 2017.
  • Sound Bank net interest margin was 4.46% for the third quarter 2017.  Excluding accretion, the Sound Bank net interest margin was 3.67% for the third quarter 2017.

Average interest-earning assets for the third quarter of 2017 were $307,340,000, an increase from $243,359,000 for the second quarter of 2017.  Average interest-bearing liabilities were $253,223,000, an increase from $216,707,000 for the second quarter of 2017.  The increases were primarily due to the Sound Banking Company acquisition.
             

About West Town Bancorp, Inc.
West Town Bancorp, Inc. is the multi-bank 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 and North Carolina, 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 residential mortgage, commercial, and installment loans. Additionally, both banks engage in mortgage banking activities and, as such, originates and sells one-to-four family residential mortgage loans in multiple states. 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 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" and "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 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 Sound Banking Company acquisition; 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.                   

Contact: Eric Bergevin, 252-482-4400

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