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Equity Research Coverage of Integrated Financial Holdings, Inc. – Q2 2020

Integrated Financial Holdings, Inc. (IFHI – OTC Pink) (Formerly West Town Bancorp, Inc.)

Background Integrated Financial Holdings, Inc. (“Integrated Financial”) is the Raleigh, NC based holding company for West Town Bank & Trust, a North Riverside, IL based state-chartered bank. (The name was recently changed to reflect the fact that its scope of services is much broader than a typical bank’s.) The Company is also the parent company of several subsidiaries, two of which are Windsor Advantage, LLC, (“Windsor”) 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…

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Equity Research Coverage of West Town Bancorp, Inc. – Q1 2020

West Town Bancorp, Inc. (WTWB – OTC Pink)

Background West Town Bancorp, Inc. (“West Town”) is the Raleigh, NC based holding company for West Town Bank & Trust, a North Riverside, IL based state-chartered bank. The Company is also the parent company of several subsidiaries, two of which are Windsor Advantage, LLC, (“Windsor”) a loan servicing company, and West Town Insurance Agency, Inc., an insurance agency. (We will discuss more about the other subsidiaries in our next report.) 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….

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West Town Bancorp, Inc. Announces First Quarter 2020 Financial Results

RALEIGH, N.C., May 08, 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”), announced today its financial results for the three months ended March 31, 2020, reflecting a $3.3 million year-over-year increase in the provision for loan losses which was impacted by the global spread of the coronavirus (“COVID-19”) and its effects on the economic environment.  Highlights include the following:

  • First quarter net loss of $832,000 or $0.37 per diluted share, compared to net income of $1.1 million or $0.34 per diluted share for the first quarter of 2019.
  • Provision for loan losses of $3.5 million for the first quarter of 2020 compared to $173,000 for the first quarter of 2019.
  • Return on average assets of -1.08%, compared to 0.74% for the first quarter of 2019.
  • Return on average common equity of -4.93%, compared to 5.43% for the first quarter of 2019.
  • Return on average tangible common equity (a non-GAAP financial measure) of -7.09%, compared to 8.73% for the first quarter of 2019.
  • Windsor Advantage, LLC (“Windsor”) processing and servicing revenue of $1.7 million as compared to $1.5 million for the same period last year.
  • Mortgage origination and sales revenue of $1.4 million as compared to $435,000 for the same period last year.

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 financial results for the first quarter of 2020 do not include any operating impact from Sound Bank whereas the financial results for the first quarter of 2019 are impacted by the performance of Sound Bank.    

“The COVID-19 pandemic has created never-before-seen challenges for our nation, our communities and the businesses West Town Bank & Trust serves.  In late March, we built a technology centric framework that enabled our organization to accept and seamlessly process Paycheck Protection Program (PPP) loan applications in accordance with the U.S. Small Business Administration’s guidelines and the related CARES Act signed into law on March 27, 2020.  As of May 5, 2020, WTBT closed and funded 200 loan applications in excess of $21.5 million.  I want to thank our dedicated staff members for their commitment to provide the expertise needed to help our small business clients navigate these difficult times,” said Eric Bergevin, President and CEO of West Town Bancorp, Inc.  “The way our partners at Windsor Advantage, LLC and SBA Loan Documentation Services, LLC responded to the situation was nothing short of incredible. During this same period, Windsor’s team of 35 full-time employees helped authorize over 10,600 applications totaling more than $2.0 billion for approximately 40 of its institutional lender clients, helping create and preserve jobs for roughly 350,000 employees across the U.S.  In addition, the team at SBA Loan Documentation Services helped to document and review over 580 PPP loan closing packages on behalf of its numerous bank clients to ensure that PPP loan closings complied with the CARES Act and the SBA’s guidelines. My extreme gratitude goes out to all of those employees within our family of companies that made it possible for small businesses and their employees, most in need of funds, to gain access to the PPP program and obtain funds needed to sustain their viability.”

Balance Sheet

At March 31, 2020, the Company’s total assets were $312.2 million, net loans held for investment were $211.5 million, loans held for sale were $11.8 million, total deposits were $221.4 million and total shareholders’ equity was $67.0 million.  Compared with December 31, 2019, total assets decreased $1.9 million or 1%, net loans held for investment decreased $8.1 million or 4%, loans held for sale decreased $729,000 or 6%, total deposits increased $977,000 or 0.4%, and total shareholders’ equity decreased $715,000 or 1%.  The decreases in assets and loans are reflective of an overall slowdown in the economy as a result of the COVID-19 pandemic.  The decrease in total shareholders’ equity was primarily a result of the loss posted for the quarter. 

During the first quarter of 2020, the Company issued 40,217 shares associated with various stock-based compensation program and repurchased 25,000 shares of its voting common stock. 

Capital Levels

At March 31, 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”
Basel III Fully
West Town
Bank & Trust
Tier 1 common equity ratio6.50%7.00%14.47%
Tier 1 risk-based capital ratio8.00%8.50%14.47%
Total risk-based capital ratio10.00%10.50%15.73%
Tier 1 leverage ratio5.00%4.00%12.18%

The Company’s book value per common share increased from $25.70 at March 31, 2019 to $30.25 at March 31, 2020.  The Company’s tangible book value per common share (a non-GAAP financial measure) increased from $16.17 at March 31, 2019 to $20.88 at March 31, 2020 primarily due to the gain on deconsolidation of Sound Bank and the subsequent removal of the intangible assets associated with Sound Bank from the consolidated financial statements. 

Asset Quality

The Company’s nonperforming assets to total assets ratio increased from 3.99% at December 31, 2019 to 4.16% at March 31, 2020, primarily due to the Company’s efforts to address credit concerns surrounding the potential economic impact of COVID-19 and the widespread societal responses to the pandemic. Nonaccrual loans decreased $1.5 million as of March 31, 2020 as compared to the prior year end while foreclosed assets increased $1.9 million from December 31, 2019 to March 31, 2020. During the fourth quarter of 2019, the Company formed Patriarch, LLC as a subsidiary to expedite the liquidation and recovery of certain Bank assets and as of March 31, 2020, Patriarch held $3.8 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.

The Company recorded a $3.5 million provision for loan losses during the first quarter of 2020 as compared to a provision of $173,000 in first quarter 2019 in response to the increasing nonperforming asset ratios, increased levels of charge-offs and forecasted credit weaknesses due to deteriorating economic conditions driven by the current COVID-19 pandemic.  Expected loss estimates consider the impacts of decreased economic activity and higher unemployment and the mitigating benefits of government stimulus and industry wide loan modification efforts. The Company recorded $2.4 million in net charge-offs during the first quarter 2020. Most of the charge-offs were in the hospitality industry. 

  (Dollars in thousands)3/31/2012/31/199/30/196/30/193/31/19
Nonaccrual loans – originated$7,732 $9,200 $4,813 $3,290 $4,666 
Nonaccrual loans – acquired         262 
Foreclosed assets 5,243  3,370  2,028  2,069  2,493 
90 days past due and still accruing – originated         407 
90 days past due and still accruing – acquired         421 
Total nonperforming assets 12,975  12,570  6,841  5,359  8,249 
Total nonperforming assets – originated 12,975  12,570  6,841  5,359  7,566 
Net charge-offs$2,390 $779 $138 $200 $58 
Annualized net charge-offs to total average portfolio loans 4.39% 1.36% 0.25% 0.27% 0.05%
Ratio of total nonperforming assets to total assets 4.16% 3.99% 2.21% 1.77% 1.40%
Ratio of total nonperforming loans to total loans 3.66% 4.19% 2.31% 1.57% 1.38%
Ratio of total allowance for loan losses to total loans 2.27% 1.72% 1.64% 1.62% 0.98%

Net Interest Income and Margin

Net interest income for the three months ended March 31, 2020 decreased $2.1 million or 36% in comparison to the first quarter 2019, primarily due to the deconsolidation of Sound Bank from the consolidated financial statements as of May 6, 2019. The net interest margin increased from 4.61% for the first quarter 2019 to 5.72% for the first quarter 2020.  The margin improvement is largely related to the increase in loan yield from 6.56% to 8.16%, due in part to a change in the makeup of the loan portfolio as the percentage of consumer-related loans decreased while higher yielding commercially-focused loans associated with the Government Guaranteed Lending (“GGL”) department became a larger portion of the portfolio with the deconsolidation of Sound Bank loans.  In addition, the annualized impact of several large loan pay-offs in the first quarter of 2020 which had associated loan discounts that were brought into income during the period helped to increase loan yield.   

 Three Months Ended
  (Dollars in thousands)3/31/2012/31/199/30/196/30/193/31/19
Average balances:     
Investment securities 23,861 21,572 21,111 20,960 21,119
Interest-bearing balances and other 17,046 16,259 16,801 47,025 54,690
Total interest-earning assets 267,590 267,772 258,851 365,486 511,392
Noninterest deposits 56,329 52,456 47,199 75,643 112,836
Interest-bearing liabilities:     
Interest-bearing deposits 166,567 179,195 170,390 234,603 338,682
Borrowed funds 16,475 6,129 6,452 17,204 37,852
Total interest-bearing liabilities 183,042 185,324 176,842 251,807 376,534
Total assets 313,476 311,312 300,011 416,840 576,640
Common shareholders’ equity 68,445 67,172 68,448 82,090 78,698
Tangible common equity (1) 47,570 46,448 47,636 57,825 48,918
Interest income/expense:     
Investment securities 95 82 76 100 167
Interest-bearing balances and other 76 83 105 241 356
Total interest income 4,730 4,304 4,496 5,559 7,645
Deposits 845 979 942 1,104 1,432
Borrowings 109 56 72 172 330
Total interest expense 954 1,035 1,014 1,276 1,762
Net interest income$3,776$3,269$3,482$4,283$5,883
  (1) Non-GAAP financial measure. Tangible common equity is calculated by subtracting intangible assets from common shareholders’ equity
 Three Months Ended 
Average yields and costs:     
Investment securities1.59%1.52%1.44%1.91%3.16%
Interest-bearing balances and other1.81%2.03%2.48%2.06%2.61%
Total interest-earning assets7.17%6.38%6.89%6.10%6.00%
Interest-bearing deposits2.06%2.17%2.19%1.89%1.70%
Borrowed funds2.68%3.62%4.43%4.01%3.50%
Total interest-bearing liabilities2.11%2.22%2.27%2.03%1.88%
Cost of funds1.62%1.73%1.80%1.56%1.44%
Net interest margin5.72%4.84%5.34%4.70%4.61%

Noninterest Income

Noninterest income for the three months ended March 31, 2020 was $4.6 million, an increase of $1.4 million or 45% as compared to the same prior year period.  Specific items to note include:

  • Windsor, a subsidiary of the Company which offers a SBA and USDA loan servicing platform, had processing and servicing revenue totaling $1.7 million, an increase of $226,000, or 15% as compared to the $1.5 million in income earned from the investment in Windsor during the same prior year period.  The increase is directly attributable to the continued growth in the volume in the servicing portfolio as Windsor brings in new customers. 
  • GGL revenue of $775,000 was decreased by $125,000 or 14% in comparison to the first quarter of 2019.  GGL volume was impacted by the restrictions put in place throughout the country as Shelter-In-Place orders in the states in which the Company operates, and reduced economic activity slowed deal flows for the Company.
  • Mortgage revenue totaled $1.4 million, an increase of $983,000 or 226% as compared to the first quarter 2019.  Mortgage loans originated for secondary market sale increased from $10.4 million in the first quarter 2019 to $20.9 million in the first quarter 2020.

Noninterest Expense

Noninterest expense for the first quarter 2020 was $6.0 million, a decrease of $1.4 million or 19%, from $7.5 million for the first quarter 2019.  The decreases in all noninterest expense categories, including compensation, occupancy, data processing, communications and other operating expenses are primarily related to the deconsolidation of Sound Bank from the consolidated financial statements as of May 6, 2019.  

About West Town Bancorp, Inc.

West Town Bancorp, Inc. is a financial holding company based in Raleigh, NC.  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

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)3/31/2012/31/199/30/196/30/193/31/19
Cash and due from banks$5,928 $5,021 $4,085 $2,665 $5,433 
Interest-bearing deposits 8,518  9,849  16,068  14,450  69,636 
Total cash and cash equivalents 14,446  14,870  20,153  17,115  75,069 
Interest-bearing time deposits 2,746  2,746  2,746  2,746  2,746 
Securities, at fair value 24,946  21,087  21,804  20,716  21,031 
Loans held for sale 11,839  12,568  13,965  14,902  11,037 
Loans held for investment:     
Originated loans 216,423  223,470  211,647  209,492  336,505 
Acquired loans, net         81,978 
Allowance for loan and lease losses (4,907) (3,837) (3,462) (3,400) (4,115)
Loans held for investment, net 211,516  219,633  208,185  206,092  414,368 
Premises and equipment, net 4,740  4,761  4,795  4,832  12,099 
Foreclosed assets 5,243  3,370  2,028  2,069  2,493 
Loan servicing assets 3,528  3,358  3,053  3,220  3,619 
Bank owned life insurance 5,048  5,021  4,993  4,964  9,090 
Accrued interest receivable 1,067  1,116  1,079  1,196  1,637 
Goodwill 13,161  13,150  12,721  12,721  19,737 
Other intangible assets, net 7,596  7,782  7,968  8,154  9,827 
Other assets 6,370  4,729  5,779  4,638  8,066 
Total assets$312,246 $314,191 $309,269 $303,365 $590,819 
Liabilities and Shareholders’ Equity     
Noninterest-bearing$59,360 $49,573 $54,380 $46,068 $128,435 
Interest-bearing 162,059  170,869  177,472  164,619  345,581 
Total deposits 221,419  220,442  231,852  210,687  474,016 
Borrowings 17,649  19,295  2,382  5,868  26,294 
Accrued interest payable 433  429  424  433  927 
Other liabilities 5,735  6,300  8,092  7,562  9,860 
Total liabilities 245,236  246,466  242,750  224,550  511,097 
Shareholders’ equity:     
Common stock, voting 2,193  2,166  2,206  2,674  2,749 
Common stock, non-voting 22  22  22  129  329 
Additional paid in capital 24,162  24,245  24,771  38,557  45,287 
Retained earnings 40,371  41,203  39,446  37,375  31,273 
Accumulated other comprehensive income 262  89  74  80  84 
Total shareholders’ equity 67,010  67,725  66,519  78,815  79,722 
Total liabilities and shareholders’ equity$312,246 $314,191 $309,269 $303,365 $590,819 
Financial Performance (Consolidated)
  (Dollars in thousands except shareThree Months Ended
  and per share data; unaudited)3/31/2012/31/199/30/196/30/193/31/19
Interest income     
Loans$4,559 $4,139$4,315 $5,218$7,122
Investment securities and deposits 171  165 181  341 523
Total interest income 4,730  4,304 4,496  5,559 7,645
Interest expense     
Interest on deposits 845  979 942  1,104 1,432
Interest on borrowed funds 109  56 72  172 330
Total interest expense 954  1,035 1,014  1,276 1,762
Net interest income 3,776  3,269 3,482  4,283 5,883
Provision for loan losses 3,460  1,155 200  477 173
Noninterest income     
Windsor processing and servicing revenue 1,713  2,256 1,774  1,970 1,487
Government lending 755  2,288 983  1,754 880
Mortgage 1,418  716 975  1,113 435
Bank-owned life insurance 27  28 29  44 56
Service charge 19  29 23  99 226
Gain on deconsolidation of Sound Bank      6,425 
Other noninterest 709  98 153  92 122
Total noninterest income 4,641  5,415 3,937  11,497 3,206
Noninterest expense     
Compensation 3,753  3,750 3,199  3,385 4,261
Occupancy and equipment 256  221 343  338 506
Loan and special asset expenses 242  318 (523) 510 179
Professional services 490  359 432  569 582
Data processing 148  109 161  198 345
Software 249  172 160  199 226
Communications 89  80 33  110 226
Advertising 55  86 51  109 112
Transaction-related 17  16 1  916 43
Amortization of intangibles 186  186 186  233 330
Other operating expenses 545  464 335  643 644
Total noninterest expense 6,030  5,761 4,378  7,210 7,454
Income (loss) before income taxes (1,073) 1,768 2,841  8,093 1,462
Income tax expense (benefit) (241) 37 687  2,174 397
Net income (loss)$(832)$1,731$2,154 $5,919$1,065
Basic earnings (loss) per common share$(0.38)$0.79$0.93 $1.97$0.35
Diluted earnings (loss) per common share$(0.37)$0.78$0.91 $1.94$0.34
Weighted average common shares outstanding 2,193  2,196 2,328  2,997 3,054
Diluted average common shares outstanding 2,232  2,234 2,369  3,045 3,115
Performance Ratios
 Three Months Ended
Basic earnings (loss) per common share$(0.38)$0.79 $0.93 $1.97 $0.35 
Diluted earnings (loss) per common share$(0.37)$0.77 $0.91 $1.94 $0.34 
Book value per common share$30.25 $30.78 $29.86 $28.12 $25.70 
Tangible book value per common share$20.88 $21.27 $20.57 $20.67 $16.17 
Return on average assets -1.08% 2.21% 2.85% 5.70% 0.74%
Return on average common shareholders’ equity -4.93% 10.22% 12.49% 28.92% 5.43%
Return on average tangible common equity -7.09% 14.79% 17.94% 41.06% 8.73%
Net interest margin 5.72% 4.84% 5.34% 4.70% 4.61%
Efficiency ratio (1) 71.4% 66.2% 59.0% 67.3% 81.5%

Contact: Eric Bergevin, 252-482-4400