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

RALEIGH, N.C., Feb. 12, 2018 (GLOBE NEWSWIRE) -- West Town Bancorp, Inc. (OTC PINK:WTWB) (the “Company” or “West Town”), the multi-bank holding company for West Town Bank & Trust and Sound Bank, reported today fourth quarter net earnings of $552,000 or $0.20 per diluted share, compared to a net loss of $537,000, or ($0.38) per share for the fourth quarter of 2016.  The fourth quarter of 2017 included a $548,000 revaluation of the Company’s net deferred tax liability that was required in light of the December 2017 enactment of the Tax Cuts and Jobs Act.  The revaluation lowered the Company’s tax expenses for 2017.  Net earnings for the year ended December 31, 2017, totaled $2,892,000, or $1.54 per diluted share, an increase of $1,092,000, or 60.7% as compared to $1,800,000 and $1.24 per diluted share for the year ended December 31, 2016.  Return on average assets was 0.83%, and return on average shareholders’ equity was 7.27% as compared to 0.74% and 6.99% respectively for fiscal year 2016.

Eric Bergevin, President and CEO commented, “2017 was a monumental year for West Town Bancorp as we made a strategic investment in Windsor Advantage LLC (“Windsor”), which contributed significant noninterest income to the Company, completed a highly successful capital raise with gross proceeds of $17.5 million, and consummated the closing and system conversion of the Sound Banking Company acquisition.  Our governmental guaranteed lending division recorded $359 million in loan originations during the year, with $90 million of that production occurring in the fourth quarter of 2017.  As anticipated, net income was impacted in the fourth quarter 2017 by two factors: 1) new tax legislation and 2) our “originate and hold” strategy for government guaranteed loans to leverage excess capital that was embarked upon in September 2017.  This “originate-and-hold” strategy significantly contributed to our $56.2 million asset growth in the fourth quarter of 2017 and enhanced interest income.  We expect to resume selling the guaranteed portion of these loans into the secondary market during the first quarter of 2018 on a systematic “first in-first out” basis to optimize the gain on sale premium and manage liquidity and capital levels.” 

Fourth quarter 2017 highlights:

• Asset growth of $56.2 million, compared to the linked quarter ended September 30, 2017.
• Return on average assets of 0.44%, compared to (0.80%) for fourth quarter of 2016.
• Return on average common shareholders’ equity of 3.62%, compared to (7.82%) for the fourth quarter of 2016.
• Return on average tangible common shareholders’ equity of 4.31%, compared to (7.82%) for fourth quarter of 2016.
• West Town Bank & Trust earned net income totaling $560,000 for the fourth quarter of 2017, resulting in a return on average assets of 0.76% and a return on average common shareholders’ equity of 6.29%.  Included in net income is a revaluation of West Town Bank & Trust’s deferred tax liability totaling $605,000, which lowered West Town Bank & Trust’s tax expense.
• Sound Bank recorded a net loss of $21,000 for the fourth quarter of 2017, resulting in a return on average assets of (0.04%) and a return on average common equity of (0.31%).  Included in the net loss is a revaluation of Sound Bank’s deferred tax asset totaling $115,000, which resulted in a charge to earnings.

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

Performance Ratios

⁽¹⁾ Calculation of book value per common share and tangible book value per common share for September 30, 2017, includes the 698,580 common shares that were issued in October 2017 for the Sound Bank acquisition and the convertible preferred equity as if converted to 329,130 shares of common stock.  These incremental shares are not included in EPS calculations for the quarter ended September 30, 2017.         

⁽²⁾ Calculation of book value per common share and tangible book value per common share for June 30, 2017 and March 31, 2017 include the convertible preferred equity outstanding as of such dates as if converted to 21,739 shares of common stock.  These incremental shares are not included in the quarter-end EPS calculations as of such dates.

⁽³⁾ Sum of quarterly EPS may not total YTD EPS due to the 698,580 common shares issued in October 2017 as part of the Sound Bank acquisition and the 329,130 common shares issued December 1, 2017, due to the conversion of the convertible preferred stock into common stock at the preferred stock’s conversion ratio

Noninterest Income and Expense Data (Consolidated)
(Includes Sound Bank as of 9/1/2017)

Total noninterest income for the fourth quarter of 2017 was $1,547,000, a decrease of $1,466,000 or 48.6% from $3,013,000 for the third quarter of 2017.  The decrease in noninterest income was primarily attributable to the governmental lending “originate and hold” strategy implemented in the fourth quarter of 2017.  Other notable changes in the noninterest category, as compared to the linked quarter are an increase in service charge revenue derived from having a full three months included for Sound Bank for the fourth quarter of 2017, as compared to only one month of Sound Bank activity for the third quarter of 2017; a reduction in income from Windsor resulting primarily from year-end tax entries; and an increase in other noninterest income resulting from a gain recorded on the sale of fixed assets at West Town Bank & Trust. 

In comparison to the prior year, noninterest income totaled $11,526,000, a decrease of $5,043,000, or 30.4% as compared to 2016.  The reduction was driven by a $3,832,000, or 44.8% decrease in mortgage revenue and a $1,736,000, or 29.7% decrease in governmental lending revenue.  Mortgage revenue is down year over year due to the Company’s shift away from a national mortgage operation that was primarily dependent upon refinance activity, while the reduction in governmental lending revenue is due to the “originate-and-hold” strategy implemented in the fourth quarter of 2017.  These reductions were offset by increases in service charge revenue and BOLI income due to the Sound Bank acquisition and the income earned from the Company’s investment in Windsor.

Total noninterest expense was $5,898,000 for the fourth quarter of 2017, an increase of $1,444,000 from $4,454,000 for the linked quarter ended September 30, 2017.  The increases are primarily related to having a full three-months of activity for Sound Bank for the fourth quarter of 2017, as compared to only one-month of Sound Bank activity included in the Company’s consolidated results for the linked quarter. 

Total noninterest expense for the year was $19,580,000, a decrease of $2,074,000, or 9.5% as compared to the $21,654,000 reported for 2016.  Compensation is down year over year despite the Sound Bank acquisition, due primarily to the change in mortgage strategy, and professional fees are down significantly year over year due to the $1.4 million litigation settlement that was recorded during the fourth quarter of 2016.  The litigation settlement reserve that was finalized in the fourth quarter of 2017 for a total of $1,243,000.  The $297,000, or 44.5% reduction in advertising expense for 2017, as compared to 2016, is also related to the change in mortgage strategy.  Transaction-related expenses totaled $588,000, an increase of $290,000, or 97.3% as compared to the $298,000 incurred in fiscal year 2016.

Selected Consolidated Balance Sheet Data

Total assets were $544,134,000, an increase of 11.5% as compared to total assets of $487,904,000 at September 30, 2017.  Total net portfolio loans were $375,125,000 at December 31, 2017, an increase of $27,222,000, or 7.8% as compared to $347,903,000 at September 30, 2017.  Loans held for sale increased $45,683,000 or 217.3% to $66,706,000 as compared to $21,023,000 at September 30, 2017.  The increases are all primarily attributable to the “originate-and-hold” strategy implemented in the fourth quarter of 2017 to leverage the excess capital position at West Town Bank & Trust.   The Guaranteed Governmental Lending Division at West Town Bank & Trust originated $90 million in new loans during the fourth quarter of 2017, its highest quarterly volume of originations ever.  

Total deposits were $392,734,000 at December 31, 2017, an increase of $4,036,000 as compared to total deposits of $388,698,000 at September 30, 2017, while borrowings increased $59,594,000 as compared to the linked quarter.  The Company used overnight borrowings at the FHLB to fund the increased government guaranteed loan production during the quarter to essentially match fund the loans held for sale. 

Total shareholders’ equity was $65,380,000 at December 31, 2017, an increase of $602,000 or 1% as compared to $64,978,000 at September 30, 2017.  The Company’s holders of convertible preferred stock converted their shares to 329,130 shares of non-voting common stock on December 1, 2017, at the predetermined conversion ratio.  As a result of such conversions, the Company had no shares of convertible preferred stock outstanding at December 31, 2017. As part of the Windsor investment, the Company obtained a call option to acquire the remaining 56.5% of Windsor on or before December 31, 2019.  At December 31, 2017, both banks’ capital ratios exceed the minimum thresholds established for well-capitalized banks by regulatory measures.

Acquired Loan Summary

The performing acquired loan pool decreased $9,241,000 during the fourth quarter of 2017.  The reduction is due to $6,629,000 in principal payments and $2,612,000 in renewals.  The PCI loan pool decreased $271,000 during the fourth quarter due to $168,000 in principal payments and $103,000 in net charge-offs.

Asset Quality

The Company’s nonperforming assets to total assets ratio decreased 33 basis points during the fourth quarter of 2017 from 1.68% at September 30, 2017, to 1.35% at December 31, 2017.  Excluding acquired loans, nonperforming assets to total assets declined 78 basis points from 3.31% at September 30, 2017, to 2.53% at December 31, 2017.  The reduction is related to the net charge-offs during the quarter and a decline in nonaccrual balances.  In comparison to the prior year, the Company’s nonperforming assets to total assets ratio decreased 19 basis points from 1.54% at December 31, 2016, to 1.35% at December 31, 2017. 

The Company recorded a $1,129,000 provision for loan losses during the fourth quarter of 2017, as compared to a provision of $491,000 in the third quarter 2017 and $570,000 in fourth quarter 2016.  For the year, the Company recorded a $2,177,000 provision for loan losses, an increase of $858,000 from the $1,319,000 recorded in 2016.  The increased provision expense is reflective of the organic growth in portfolio loans (primarily government guaranteed lending) and the $1,069,000 in net charge-offs recorded during 2017.  Excluding acquired loans, the ratio of allowance for loan and lease losses as a percentage of total portfolio loans increased from 1.36% at December 31, 2016, to 1.41% at December 31, 2017.

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

Net interest income for the fourth quarter of 2017 was $5,234,000, an increase from $3,551,000 for the third quarter of 2017. 

• West Town Bank & Trust contributed $3,453,000 for the fourth quarter of 2017, as compared to $2,981,000 for the third quarter of 2017, an increase of $472,000 or 15.8%.
• Sound Bank contributed $1,896,000 for the fourth quarter of 2017, as compared to $692,000 for the third quarter of 2017, an increase of $1,204,000 or 174.0%.  The third quarter of 2017 only reflected one month of activity for Sound Bank.
• Interest expense at the holding company totaled $115,000 for the fourth quarter of 2017, as compared to $85,000 for the third quarter of 2017, due to the increased $4 million in borrowings taken down August 31, 2017, in conjunction with closing the Sound Bank acquisition. 

Net interest margin was 4.66% for the fourth quarter of 2017, an 8 basis point increase as compared to 4.58% for the third quarter of 2017.

• West Town Bank & Trust net interest margin was 5.03% for the fourth quarter 2017, as compared to 4.71% for the third quarter of 2017.  The driver for the increase was the growth in the average loan balances of $24,467,000, or 11%. 
• Sound Bank net interest margin was 4.35% for the fourth quarter 2017, as compared to 4.46% for the third quarter.  Excluding accretion, the Sound Bank net interest margin was 3.82% for the fourth quarter 2017, as compared to 3.67% for the third quarter of 2017.
• On a consolidated basis, the Company’s cost of funds declined 17 basis points as compared to the third quarter of 2017.  This is primarily due to a full three-month’s activity from Sound Bank in the fourth quarter.  Sound Bank’s cost of funds was 0.30%, as compared to West Town Bank & Trust cost of funds of 1.18% for the fourth quarter of 2017.

Average interest-earning assets for the fourth quarter of 2017 were $445,310,000, an increase of $137,970,000, or 44.9% as compared to $307,340,000 for the third quarter of 2017.  The increase was primarily due to the Sound Banking Company acquisition as well as the increased loan production at West Town Bank & Trust coupled with its “originate-and-hold” strategy implemented in the fourth quarter of 2017.  Likewise, average interest-bearing liabilities were $343,729,000, an increase of $90,506,000, or 35.7%, as compared to the $253,223,000 for the third quarter of 2017, due primarily 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, originate and sell 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; 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 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