WCBO West Coast Bancorp (MM)

LAKE OSWEGO, Ore., Jan. 28, 2011 /PRNewswire/ -- West Coast Bancorp (Nasdaq: WCBO) ("Bancorp" or "Company"), the parent company of West Coast Bank ("Bank") and West Coast Trust Company, Inc., today announced net income of $1.9 million or $.02 per diluted share for fourth quarter 2010 compared to a net loss for fourth quarter 2009 of $48.9 million or $3.13 per diluted share. For the full year 2010, the Company reported net income of $3.2 million or $.03 per diluted share, compared to a net loss of $91.2 million or $5.83 per diluted share in 2009.

"The results for the year 2010 reflecting a profit of $ 3.2 million represent a major improvement for the Company from prior years as virtually all of the key financial metrics of the Company continued their trend of improvement," said Robert D. Sznewajs, President and Chief Executive Officer. "The Company began to see growth in loan demand in the last half of 2010, which is expected to continue into 2011 as the economy improves in some sectors. We also anticipate that our operating results in future periods will reflect the improving economy. The Company's accomplishments in 2010 are the direct result of our dedicated people and their outstanding service to each of our customers on a daily basis," said Sznewajs.

Capital

Table 1 below shows regulatory capital ratios for Bancorp and the Bank at December 31, 2010 and 2009, and at September 30, 2010, indicating significant improvements as a result of the Company's capital raising activities and continued reductions in risk-weighted assets over the past twelve months.

Balance Sheet Overview

Total loan balances declined $189 million or 11% from December 31, 2009 to $1.54 billion at December 31, 2010. The decline primarily reflected soft loan demand and thus lower loan origination volume, particularly in the first half of 2010, as well as the Company's continuing strategy to reduce risk exposure in selective loan segments. The two loan categories with the most meaningful decline during 2010 were residential real estate construction loans, which declined $45 million or 65%, and commercial loans, which declined $61 million or 16%. At year end 2010, total residential real estate construction loans represented 2% of total loans compared to 4% a year ago. During the second half of 2010, the Company experienced growth in commercial and commercial real estate loan origination volume compared to the same period in 2009 and first half of 2010.

The Company's total cash equivalents and investment securities balance was $781 million at December 31, 2010, or a substantial 34% of earning assets at year end 2010, and reflects the Company's continued strong liquidity position. To support its net interest income and margin, the Company reduced the cash equivalents component by $120 million or nearly 50% during 2010, in part by increasing its investment portfolio by 15% or $84 million over the same time period. The majority of the growth occurred in U.S. Government Agency securities and mortgage-backed securities.

Fourth quarter 2010 average total deposits of $1.97 billion declined 8% or $174 million from the same quarter in 2009. With excess balance sheet liquidity, in large part caused by declining loan balances, we elected to reduce higher cost time deposit balances. Average time deposit balances declined $273 million or 49% year-over-year fourth quarter, and represented just 14% of the Company's average total deposits in the most recent quarter compared to 26% in fourth quarter 2009.

Led by growth in checking account balances, year-over-year fourth quarter average total non-time deposits increased $98 million or 6%. The combination of the Company's favorable deposit mix and deposit pricing strategies implemented during 2010 helped reduce the average rate paid on total deposits to .40% in fourth quarter 2010, a decline of 59 basis points from .99% same quarter in 2009.

The number of checking accounts increased by over 6,300 accounts or 6% in 2010.

Operating Results Improved Significantly from Fourth Quarter 2009

As shown in Table 6 below, fourth quarter 2010 net income of $1.9 million increased $50.8 million compared to a net loss of $48.9 million in the same quarter of 2009. The improved year-over-year fourth quarter was primarily due to significantly lower credit costs; the provision for credit losses declined $33.5 million and Other Real Estate Owned ("OREO") valuation adjustments and losses resulting from OREO dispositions declined $13.3 million.

Fourth quarter 2010 net interest income of $21.9 million increased $2.7 million or 14% from the same quarter in 2009. This increase was largely attributable to a reduction in interest expense on deposits and borrowings as well as lower interest reversals on nonaccrual loans, which more than offset a decline in interest income on loans due to lower loan balances and a continued shift in average earning assets from higher yielding loan balances to investment securities balances. Collectively, cash equivalents and investment securities earned 322 basis points less than the loan portfolio during the most recent quarter.

The net interest margin of 3.74% in the most recent quarter expanded 69 basis points from 3.05% in fourth quarter 2009. The year-over-year fourth quarter unfavorable earning assets mix shift from loan to investment balances was more than offset by a 100 basis points improvement in spread between yield earned on loans and rate paid on interest bearing deposits.

As shown in Table 8 below, fourth quarter 2010 total noninterest income of $8.6 million increased $14.7 million from the same quarter last year. Excluding net loss on OREO of $1.2 million in the most recent quarter and $14.5 million in the fourth quarter last year, the Company's noninterest income increased $1.5 million or 18% over fourth quarter 2009. The increase was a result of $.6 million and $.4 million growth in payment system revenue and gains on sales of loans in the fourth quarter 2010, respectively, along with a $.6 million gain on sales of securities compared to none in the fourth quarter last year. Total service charges on deposit accounts were unchanged.

As presented in Table 9 below, fourth quarter 2010 total noninterest expense of $23.3 million decreased $.9 million from the fourth quarter in 2009. Year-over-year fourth quarter equipment and occupancy expenses collectively declined $1.5 million, primarily due to expenses incurred in the final quarter of 2009 associated with a review and disposal of fixed assets. The increase in payment system expense was directly associated with higher transaction volumes.

Income Taxes and Deferred Tax Asset Valuation Allowance

Fourth quarter 2010 provision for income taxes was $3.5 million compared to a provision for income taxes in the same quarter of 2009 of $2.5 million. The provision for income taxes in the most recent quarter was the result of a $2.1 million impact on tax expense from a decrease in gross unrealized gains on investment securities during the quarter, and an adjustment of $1.4 million to the Company's tax estimate in its 2009 income tax return which increased its deferred tax asset valuation allowance.

At year end 2010, the Company maintained a valuation allowance of $23.5 million against the deferred tax asset balance of $29.3 million for a net deferred tax asset of $5.8 million.

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, including a reduction for the effect of pretax income, would decrease the Company's income tax expense and increase net income. While the Company maintains a deferred tax asset valuation allowance, changes in the gross unrealized gain on the Company's investment portfolio will also, either favorably or unfavorably, impact the Company's future deferred tax valuation allowance and provision for income taxes.

Credit Quality

The Company recorded a fourth quarter 2010 provision for credit losses of $1.7 million, a decline from $35.2 million in the same quarter of 2009. Consistent with the first three quarters of 2010, the latest quarter marked a significant reduction in net charge-offs compared to the corresponding quarter a year ago. Fourth quarter 2010 net charge-offs of $3.2 million, or .83% of average loans on an annualized basis, declined $32.7 million from $35.9 million in the fourth quarter of 2009, and was at the lowest quarterly level in over two years. Net charge-offs declined significantly in all major loan categories when compared to prior year fourth quarter. The Company's future provisioning will continue to be heavily dependent on the local real estate market, level of market interest rates, and general economic conditions nationally and in the areas in which the Company does business.

The December 31, 2010 allowance for credit losses of $41.1 million or 2.67% of total loan balances increased from $39.4 million or 2.29% of total loan balances a year ago. The increase in the allowance for credit losses relative to total loan balances over the past twelve months was due to higher general valuation allowances in our reserve model and a larger unallocated allowance at December 31, 2010. At December 31, 2010, the unallocated portion of the allowance for loan losses amounted to $6.2 million or 15% of the total allowance for credit losses, an increase from $5.0 million or 13%, respectively, at year end 2009. As shown in Table 18, in 2010 the provision for credit losses exceeded net charge-offs by $1.6 million. During the fourth quarter 2010, however, the net charge-offs exceeded the provision for credit losses by $1.6 million. The fourth quarter provision reflected continued slowdown in the unfavorable risk rating migration within the loan portfolio and the release of reserves as certain loans moved from being included in the general valuation allowance to being individually measured for impairment. The most significant increase in the level of impaired loans was an increase in loans qualifying as troubled debt restructures ("TDRs"). Loans that qualify as TDRs are considered impaired regardless of whether we expect them to perform to the terms of the loan agreement. The increase had the effect of reducing the allowance and thus provision for credit losses approximately $.8 million in the quarter. These changes caused the December 31, 2010 allowance for credit losses as a percentage of total loans to decline slightly from September 30, 2010. 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 nonperforming assets were $100.7 million or 4.1% of total assets as of December 31, 2010, compared to $152.9 million and 5.6%, respectively, a year ago. The decline in total nonperforming assets from $104.4 million at September 30, 2010, represented the seventh consecutive quarterly decline. The allowance for credit losses represented 67% of nonperforming loans at December 31, 2010, an increase from 40% a year ago.