WCBO West Coast Bancorp (MM)

LAKE OSWEGO, Ore., April 25, 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 $5.1 million or $.05 per diluted share for first quarter 2011 compared to a net loss for first quarter 2010 of $.9 million or $.01 per diluted share. The Company also reported an annualized return on average assets of .84% in the most recent quarter, compared to an operating loss in the first quarter of 2010. The year-over-year first quarter improvement was primarily reflective of positive trends in both provision for credit losses and Other Real Estate Owned ("OREO") valuation adjustments.

"The results for the first quarter of 2011, reflecting a profit of $5.1 million and an annualized return on average assets of .84%, represent continuous progress for the Company from prior periods 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 continued growth in loan origination volume is beginning to impact total loan balances. Combined with further declines in the credit costs, growth in the loan portfolio will, over time, improve our operating leverage and further enhance our overall operating results," said Sznewajs.

Table 1 below shows summary financial information for the quarters ended March 31, 2011 and 2010, and December 31, 2010.

Capital Strength

As indicated in Table 1 above, the combination of a return to profitability and a reduction in risk weighted assets continued to strengthen the Company's capital position. At March 31, 2011, the Company's Tier 1 and Total risk based capital ratios measured 17.72% and 18.98%, respectively, while its leverage ratio was 13.40%.

Balance Sheet Overview

Total loan balances declined $131 million or 8% from March 31, 2010 to $1.54 billion at March 31, 2011, but remained essentially unchanged from year end 2010. While loan balances contracted year-over-year, the Company has experienced a steady increase in quarterly loan origination volumes during this period as evidenced by total loan balances stabilizing during the most recent quarter. Total real estate construction loan balances declined $47 million or 55% over the past twelve months. This decline is directly a result of minimal new loan originations in this loan category during that time period.  The commercial loan portfolio contracted $36 million or 10% from March 31, 2010, with a reduction in commercial nonaccrual balances representing a portion of this decline. At March 31, 2011, total residential real estate construction loans represented just 1% of total loans compared to 4% a year ago.

Reflecting the Company's strong liquidity position, the Company's total cash equivalents and investment securities balance was $768 million or 33% of earning assets at March 31, 2011. Since March 31, 2010, the Company reduced its cash equivalents by $118 million while increasing its investment portfolio $72 million, with growth in mortgage-backed securities of $74.9 million. The expected duration of the investment portfolio was 3.1 years at March 31, 2011, compared to 2.7 years at March 31, 2010.

First quarter 2011 average total deposits of $1.93 billion declined 7% or $157 million from the same quarter in 2010. With excess balance sheet liquidity, in large part caused by the year-over-year decline in loan balances, we elected to reduce higher cost time deposit balances. Consequently, average time deposit balances declined $239 million or 47% year-over-year first quarter, and time deposits represented just 14% of the Company's average total deposits in the most recent quarter compared to 24% during first quarter 2010.

The number of checking accounts increased by over 6,000 accounts or 7% over the past 12 months and first quarter average checking account balances grew $56 million or 7% year-over-year. The continuing shift in the mix of deposit balances from time deposits to non-time deposits together with our deposit pricing strategies, helped reduce the rate paid on total deposits to .38% in first quarter 2011, a decline of 45 basis points from .83% same quarter last year. The rate paid on total deposits remained virtually unchanged from the fourth quarter of 2010.

Operating Results Improved from First Quarter 2010

As shown in Table 6 below, first quarter 2011 net income of $5.1 million increased $6.0 million compared to a net loss of $.9 million in the same quarter of 2010, and an increase of $3.2 million from $1.9 million in fourth quarter of 2010. The improved year-over-year first quarter results were primarily due to a $5.6 million decline in provision for credit losses and a $1.7 million reduction in Other Real Estate Owned ("OREO") valuation adjustments and losses resulting from OREO dispositions.

First quarter 2011 net interest income of $21.5 million grew $.9 million or 4% from the same quarter in 2010. This increase was attributable to a reduction in interest expense on deposits and borrowings 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.

As shown in Table 7 below, the net interest margin of 3.81% in the most recent quarter expanded 43 basis points from 3.38% in first quarter 2010. A 39 basis points year-over-year first quarter expansion in the spread between yield and fees earned on loans and the rate paid on interest bearing deposits more than offset an unfavorable earning assets mix shift from loans to investment securities over the same period.

As shown in Table 8 below, first quarter 2011 total noninterest income of $8.9 million increased $2.5 million from the same quarter last year. Excluding net loss on OREO of $.3 million in the most recent quarter and $2.1 million in the first quarter last year, the Company's noninterest income increased $.8 million or 9%. This increase was a result of $.4 million growth in both payment system revenue and gains on sales of loans over the first quarter in 2010. The Company recorded gains on sales of investment securities of $.3 million in the quarter ended March 31, 2011, down $.2 million compared to first quarter 2010.

As shown in Table 9 below, first quarter 2011 total noninterest expense of $22.6 million increased $1.5 million or 7% from the first quarter 2010. Salaries and employee benefits expense grew $.7 million in the first quarter 2011 when compared to the same quarter a year ago, primarily reflecting higher variable performance based compensation and expense related to the restricted stock granted to employees in 2010. The continued increase in payment system expense was related to higher customer transaction volumes and expenses associated with the discontinuance of our debit card reward program in the most recent quarter. Due to a reversal of an over-accrual  relating to Federal Deposit Insurance Corporation ("FDIC") insurance premium expense in the first quarter in 2010, which did not repeat itself in the most recent quarter, first quarter other noninterest expense increased $.5 million year-over-year.

Income Taxes and Deferred Tax Asset Valuation Allowance

First quarter 2011 provision for income taxes was $.7 million compared to a benefit for income taxes in the same quarter of 2010 of $.8 million.  The provision for income taxes (expense) in the most recent quarter was the result of a $1.8 million decline in gross unrealized gains on the investment securities portfolio during the quarter.

At March 31, 2011, the Company maintained a valuation allowance of $21.5 million against the deferred tax asset balance of $28.4 million for a net deferred tax asset of $6.9 million.

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 continue to affect the Company's future deferred tax valuation allowance and provision for income taxes.

Credit Quality

The Company recorded a first quarter 2011 provision for credit losses of $2.1 million, a decline from $7.6 million in the same quarter of 2010. During the first quarter of 2011 we continued to have significant reduction in net charge-offs compared to the corresponding quarter a year ago. First quarter 2011 net charge-offs of $2.7 million, or .72% of average loans on an annualized basis, declined $3.1 million from $5.8 million or 1.37% of average loans annualized in the first quarter of 2010. The largest decline occurred in the real estate mortgage category where net charge-offs fell $1.9 million. 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 areas where the Company does business.

The March 31, 2011, allowance for credit losses of $40.4 million or 2.63% of total loan balances was a decrease in the allowance for credit losses from $41.3 million a year ago but an increase from 2.48% as a percentage of total loan balances over the same period. The increase in the allowance for credit losses as a percentage of total loan balances over the past twelve months was mostly due to higher general valuation allowances in our reserve model and negative risk rating migration. During first quarter 2011, net charge-offs exceeded the provision for credit losses by $.6 million. This was due to a lower amount of provision for credit losses being required as a result of a reduction in unallocated reserves and the release of reserves as certain loans moved from being included in the general valuation allowance to being individually measured for impairment. These changes caused the March 31, 2011 allowance for credit losses at 2.63% of total loans to decline slightly from 2.67% at year end 2010. The Company's estimate of appropriate reserve amounts will continue to be closely related to the loan portfolio's credit quality performance trends and the region's economic conditions.

Total nonperforming assets were $93.3 million or 3.8% of total assets as of March 31, 2011, compared to $130.7 million and 4.9%, respectively, a year ago. The decline in total nonperforming assets from $100.7 million at December 31, 2010, represents the eighth consecutive quarterly decline. The allowance for credit losses represented 75% of nonperforming loans at March 31, 2011, an increase from 48% a year ago.

Over the past year total nonaccrual loans declined $31.5 million or 37% to $53.9 million at March 31, 2011. This reduction reflected nonaccrual loans migrating through steps leading to resolutions, including nonaccrual loan payoffs, problem loans managed to lower outstanding balances, and advancing nonaccrual loans to OREO. Non-accrual loans declined in all loan categories except commercial real estate. At March 31, 2011, the total nonaccrual loan portfolio had been written down 21% from the original principal balance compared to 29% at the end of 2010 as the severity of impairments on nonaccrual loans eased.

As indicated in Table 13 below, the Company's OREO property disposition activities continue. During the first quarter 2011, the Company disposed of 28 OREO properties with a book value of $5.9 million while acquiring 25 properties with a book value of $6.5 million. The Company continued to take ownership of additional real property related to loans which previously were on nonaccrual status, and this offset the Company's OREO sales activities in the most recent quarter. At March 31, 2011, the OREO portfolio consisted of 399 properties with a book value of $39.3 million. The year-end OREO balance reflected write-downs totaling 48% from original loan principal compared to 50% twelve months earlier. The largest balances in the OREO portfolio at March 31, 2011, were attributable to homes followed by residential site development projects and income producing properties, all of which are located within our footprint.