WCBO West Coast Bancorp (MM)

LAKE OSWEGO, Ore., April 26 /PRNewswire-FirstCall/ -- West Coast Bancorp (Nasdaq: WCBO) ("Bancorp" or "Company") today announced a net loss of $.9 million or $.01 per diluted share for the first quarter of 2010 compared to a net loss for first quarter 2009 of $23.6 million or $1.51 per diluted share. The improved year-over-year first quarter result was due to significantly lower credit costs, including a $15.5 million decrease in the provision for credit losses and a $2.7 million decline in OREO valuation adjustments and losses upon dispositions, coupled with the effect in first quarter 2009 of a goodwill impairment charge of $13.1 million. The Company's tax benefit in the quarter ended March 31, 2010 declined to $.8 million from $10.4 million in the same quarter last year due primarily to continued requirement for a valuation allowance against the majority of our deferred tax assets.

"The operating results of the first quarter of 2010 continued several favorable trends that began last year. These trends include the ongoing reduction in the Company's exposure to real estate construction loans to the current 5% of total loans, a steady decline in nonperforming assets, the allowance for credit losses increasing to 48% of nonperforming loans, and further improvement in our key capital ratios," said Robert D. Sznewajs, President and CEO. "In addition, the Company had its best quarter in growing new consumer and business checking accounts in several years. Our net interest margin expanded 33 basis points from the fourth quarter of 2009 to 3.38% as our nonperforming assets declined and we continued to reduce higher cost deposits. Also, operating expenses in the quarter were well controlled. I am pleased with our progress in all of these areas, but there is still much to do as the economy, while appearing to be stabilizing, is still challenged by high unemployment and lower real estate values."

Capital Raising Activities Significantly Bolstered Regulatory Capital Ratios

During first quarter 2010, the Company completed a successful, oversubscribed rights offering in which it sold 5.0 million common shares for gross proceeds of $10.0 million to existing shareholders as of record on January 19, 2010. The net proceeds from the rights offering of $9.3 million were contributed to West Coast Bank.

Also during the first quarter, mandatorily convertible Series A preferred stock issued in the Company's October 2009 private capital raise converted into 71.4 million common shares following receipt of shareholder approvals relating to the transactions.  For information regarding outstanding common shares at March 31, 2010, on an actual and diluted basis, please see table 20.

Table 1 below shows regulatory capital ratios for Bancorp and the Bank at March 31, 2009 and 2010, and at December 31, 2009, illustrating significant improvement as a result of the private capital raise, rights offering, and material reduction in risk-weighted assets.

Balance Sheet Overview

Over the past year the Company's loan portfolio contracted significantly and total equity increased considerably. These changes caused interest bearing deposits in other banks and investment securities balances to expand rapidly and collectively represented 33% of total earning assets at March 31, 2010, up from 12% twelve months earlier, evidencing a very strong liquidity position.

As shown in table 2 below, total loan balances declined $331.5 million or 17% from March 31, 2009 to $1.67 billion at March 31, 2010. The contraction reflected the lingering economic downturn, which reduced loan demand, as well as capital management strategies in place during 2009. Additionally, the Company improved its loan portfolio risk profile over the past twelve months. The real estate construction loan portfolio contracted $160.2 million or 65% over this period and measured a modest 5% of total loans at quarter end, down from its peak of 24% at year end 2007. The Company also successfully exited a number of higher risk rated loans in the most recent quarter, which particularly affected commercial loan balances which declined $120.1 million or 26% from March 31, 2009. A decline in borrower commitment utilization and loan demand also contributed to the reduction in commercial loan balances.

Over the past twelve months the Company's interest bearing deposits in other banks and investment securities portfolio collectively grew $554.6 million to $814.1 million at March 31, 2010. In addition to increasing interest-bearing deposits in other banks, the Company invested cash from loan payments and capital raising activities primarily in mortgage-backed securities and U.S. Government Agency securities. These securities were purchased to manage the Company's interest rate sensitivity position while providing sufficient cash flows for future loan growth. The expected duration of the investment securities portfolio, excluding Federal Home Loan Bank of Seattle ("FHLB") stock, was relatively modest at 2.7 years at quarter end.

First quarter 2010 average total deposits of $2.09 billion increased 5% or $107.1 million from the same quarter in 2009. Most important, however, as a result of targeted marketing efforts and aided by government programs providing unlimited deposit insurance on certain deposit accounts, low cost core demand, savings and money market deposit categories grew $169.5 million or 12%. With significant balance sheet liquidity, we elected to reduce higher cost time deposit balances, which resulted in a $62 million reduction in that category over the same period. The decline in time deposit balances was attributable to public time deposit balances contracting $103.6 million. Our actions further improved the Company's deposit mix and, combined with deposit pricing strategies, reduced the average rate paid on total deposits to .83% representing a decline of 48 basis points from 1.31% in first quarter 2009.

The number of core transaction deposit accounts, which are often the foundation from which to build broader client relationships and future revenue opportunities, continued to expand at a consistent pace during the first quarter of 2010.

Operating Results Improved in First Quarter 2010

As shown in table 6 below, the first quarter 2010 pretax loss decreased $32.3 million to $1.7 million from $34.0 million in the same quarter of 2009. This was mainly due to the $15.5 million decline in the provision for credit losses and the first quarter 2009 $13.1 million goodwill impairment charge. Compared to first quarter 2009, the Company's tax benefit declined $9.6 million and the net loss contracted $22.7 million.

The first quarter 2010 net interest margin compressed 29 basis points from first quarter 2009 to 3.38% but increased 33 basis points from 3.05% in the final quarter of 2009. The year-over-year first quarter decline in the net interest margin was principally caused by the considerable shift in the earning asset mix from higher yielding loan balances to interest bearing deposits in other banks and investment securities balances which collectively earned 310 basis points less than the loan portfolio during the most recent quarter. Other factors contributing to the decrease in net interest margin were the lengthening of the Company's FHLB borrowings in the second quarter of 2009 and the diminished benefit from non-interest bearing demand deposit balances in the current low interest rate environment. Reflecting a positive operational trend, the year-over-year first quarter 2010 spread between yield earned on loans and rate paid on deposits increased a solid 89 basis points. Despite the net interest margin contraction, first quarter 2010 net interest income of $20.6 million grew $.5 million from the same quarter in 2009 due to a higher average earning asset balance and lower nonaccrual loan balances in the most recent quarter.

The rebound in the net interest margin from the fourth quarter 2009 was principally due to a 22 basis points rate decline on interest bearing deposits coupled with a 22 basis points increase in loan yield.

As shown in table 8 below, first quarter 2010 total non-interest income was $6.4 million, an increase of $2.1 million from the same quarter last year. The increase was primarily due to a $2.7 million decline in OREO valuation adjustments and losses associated with OREO dispositions. Excluding OREO valuation adjustments and losses on OREO dispositions and a non-recurring $1.2 million received on settlement of an insurance claim in first quarter 2009, the Company's non-interest income increased $.5 million.

The year-over-year first quarter $.2 million decline in both deposit service charges and gains on sales of loans was offset by total payment system revenues increasing $.4 million or 19% over the same period. Payment system revenues benefited from an increase in number of deposit transaction accounts and associated card products as well as from higher transaction volumes. The lower gains on sales of loans from first quarter 2009 were caused by a decline in originations and sales of residential mortgage loans. The Company recorded minimal gains on sales of Small Business Administration loans during the most recent quarter. The Company recognized gains on sales of securities of $.5 million during the first quarter 2010  up from $.2 million in the first quarter a year ago.

As presented in table 9 below, first quarter 2010 total non-interest expense of $21.1 million decreased $14.3 million from the same quarter in 2009. Excluding the impact from the $13.1 million goodwill impairment charge in the first quarter last year, total non-interest expense declined $1.2 million or 5% as a result of lower salary, equipment, occupancy and other non-interest expenses.

Income Taxes and Deferred Tax Asset Valuation Allowance

The Company maintained a valuation allowance of $21.8 million against the deferred tax asset balance of $24.8 million as of March 31, 2010, for a net deferred tax asset of $3.0 million, which represented a $.8 million increase from the year end 2009 deferred tax asset balance of $2.2 million.  The change in the net deferred tax asset was recognized as an income tax benefit and was due to an increase in gross unrealized gain in the Company's investment portfolio during the quarter. Looking forward, management will continue to review the deferred tax asset valuation allowance on a quarterly basis. Any future reversals of the deferred tax asset valuation allowance would decrease the Company's income tax expense and increase its after tax net income in the periods of reversals. The Company's future deferred tax asset valuation allowance will be impacted by the effect of changes in market interest rates on the gross unrealized gain on the Company's investment portfolio.

Credit Quality

The Company recorded a first quarter 2010 provision for credit losses of $7.6 million, a decline from $23.1 million in the same quarter of 2009. The latest quarter marked both a reduction in loan net charge-offs and a slowing in the unfavorable loan risk rating migration when compared to first quarter a year ago. The Company's future provisioning will be heavily dependent on the local real estate market, the level of interest rates, and general economic conditions nationally and in the areas in which we do business.

Total loan net charge-offs were $5.8 million in the most recent quarter, a decrease from $14.6 million in first quarter 2009, and at the lowest level since fourth quarter 2007. The reduction in net charge-offs from the same period in 2009 was primarily attributable to a $7.4 million decline in real estate construction loan net charge-offs.

The March 31, 2010 allowance for credit losses of $41.3 million or 2.48% of total outstanding loan balances increased from $38.5 million or 1.92%, respectively, a year ago. The combination of higher general valuation allowances in the March 31, 2010 allowance model and an unfavorable loan risk rating migration over the past twelve months increased the level of the allowance for credit losses relative to total loan balances from March 31, 2009. The unallocated portion of the allowance for loan losses amounted to $5.8 million and 14.1% of the total allowance for credit losses at March 31, 2010, relatively unchanged from twelve months earlier. The Company's estimate of appropriate reserve amounts will continue to be primarily dependent on the loan portfolio's credit quality performance trends, including net charge-offs, which will be heavily dependent on local economic conditions.

Total non-performing assets of $130.7 million or 4.9% of total assets as of March 31, 2010 have declined for four consecutive quarters and were down 39% or $84.8 million from their peak at $215.5 million and 8.6% at March 31, 2009. The balance of total nonperforming assets at quarter end reflected write-downs totaling over $77 million or 38% from the original principal loan balance compared to write-downs of 24% twelve months ago. Total nonperforming assets fell $22.2 million or 14% during the most recent quarter. The disposition of $21.8 million in nonaccrual loans and OREO properties, $5.8 million in loan net charge-offs, $3.6 million in nonaccrual loan payoffs, and $2.4 million in OREO valuation adjustments during the quarter more than offset the $12.8 million inflow of new nonaccrual loans. Two-step nonperforming assets were $20.1 million at March 31, 2010, down from $97.0 million twelve months earlier.

At March 31, 2010, total delinquent loans 30-89 days past due was $5.6 million or .33% of total loans, a reduction from $9.6 million and .48% a year ago. For further details see table 18.

Over the past year total nonaccrual loans declined $42.8 million or 33% to $84.5 million at March 31, 2010. The reduction was largely due to the Company taking ownership of additional residential site development and construction properties related to loans which previously were on nonaccrual status, nonaccrual loan payoffs, the disposition of two nonaccrual commercial loans totaling $10.8 million in the most recent quarter, and a slowing inflow of new nonaccrual loan balances. At March 31, 2010, the total nonaccrual loan portfolio had been written down 29% from the original principal balance compared to 19% as of March 31, 2009.

As indicated in table 13 below, the Company's OREO property disposition activities continued at a solid pace during first quarter despite the seasonal slow-down in our local real estate markets during this period. The Company disposed of 91 OREO properties with a book value of $11.0 million in the quarter. At March 31, 2010, the OREO portfolio consisted of 596 properties valued at $45.2 million. The OREO balance reflected write-downs totaling 50% from the original loan principal compared to 24% at the end of first quarter 2009. The majority of the OREO properties and balances at March 31, 2010 were residential site development projects and completed homes. The site development projects are primarily located in Seattle, Maple Valley, Vancouver, Washougal, and Puyallup in the state of Washington and in Beaverton and Salem, Oregon.

Future financial results will be impacted by the Company's ability to dispose of its OREO properties at prices that are in line with current valuation expectations.

Other:

The Company will hold a Webcast conference call Monday, April 26, 2010, at 11:00 a.m. Pacific Time, during which the Company will discuss first quarter 2010 results and key activities. To access the conference call via a live Webcast, go to www.wcb.com and click on Investor Relations and the "1st Quarter 2010 Earnings Conference Call" tab. The conference call may also be accessed by dialing (877) 247-4281 Conference ID#: 62527840 a few minutes prior to 11:00 a.m. Pacific Time. The call will be available for replay by accessing the Company's website at www.wcb.com and following the same instructions.

West Coast Bancorp is a Northwest bank holding company with $2.7 billion in assets and 65 offices in Oregon and Washington.  The Company combines the sophisticated products and expertise of larger banks with the local decision making, market knowledge and customer service of a community bank.  For more information, visit the Company's web site at www.wcb.com.

Forward Looking Statements:

Statements in this release regarding future events, performance or results are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA") and are made pursuant to the safe harbors of the PSLRA.  These statements can often be identified by words such as "expects," "believes," or "will," or other words of similar meaning  Actual results could be quite different from those expressed or implied by the forward-looking statements, which give our current expectations about the future and are not guarantees.  Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them to reflect changes that occur after that date.

A number of factors could cause results to differ significantly from our expectations, including, among others, the effects of (i) market conditions in our service areas on our efforts to continue to reduce our levels of nonperforming assets and increase loan originations, (ii) the possible expiration of the U.S. government transaction account guaranty program on our deposit balances, as well as (iii) all risk factors identified in our Annual Report on Form 10-K for the year ended December 31, 2009, including under the headings "Forward Looking Statement Disclosure" and in the section "Risk Factors."