West Coast Bancorp Net Income of $4.6 Million in Second Quarter 2011 - A Significant Increase From Same Quarter in 2010

LAKE OSWEGO, Ore., July 29, 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 $4.6 million or $.22 per diluted share for the second quarter of 2011 compared to a net loss for the second quarter of 2010 of $3.8 million or $.20 per diluted share. The Company also reported an annualized return on average assets of .76% in the most recent quarter.

Net income for the first six months of 2011 was $9.7 million or $.45 per diluted share compared to a net loss of $4.7 million or $.30 per diluted share in the same period of 2010.

"The net income of $9.7 million for the first half of 2011, representing an annualized return on average assets of .80% compared to a net loss of $ 4.7 million for the same period in 2010, is indicative of the significant improvement of the operating results of the Company from the same period a year ago," said Robert D. Sznewajs, President and Chief Executive Officer. "While the economic environment continues to be very difficult, growth in new loan originations is beginning to stabilize total average loan balances outstanding."

Table 1 below shows summary financial information for the quarters ended June 30, 2011 and 2010, and year to date ended June 30, 2011 and 2010.

Balance Sheet Overview

Second quarter 2011 average total loan balances of $1.52 billion declined $122 million or 7% from the same quarter last year. The reduction in loan balances over the past year was centered in residential real estate construction, real estate mortgage, and commercial loan categories. Second quarter average total real estate construction loan balances contracted $43 million or 55% from the same period in 2010 due to current market and economic conditions. At June 30, 2011, total residential real estate construction loans represented $15 million or 1% of total loans compared to 3% a year ago. Also affected by market conditions, the second quarter 2011 average commercial loan and real estate mortgage portfolios contracted $33 million and $27 million, respectively, from the second quarter 2010.

However, average total loan balances were virtually unchanged from the first quarter of 2011. This is attributed to the growing volume of new loan originations in the first half of 2011 and fewer loans moving from nonaccrual status to other real estate owned ("OREO").

Reflecting the Company's strong liquidity position, the Company's combined cash equivalents and investment securities balance was $797 million or 34% of earning assets at June 30, 2011. In an effort to support its net interest income and margin in an environment of declining loan balances, the Company reduced its cash equivalents balance by $88 million while increasing its investment securities portfolio by $117 million during the second quarter of 2011. The U.S. government agency and government guaranteed mortgage-backed securities portfolios expanded by $69 million and $48 million, respectively, during the most recent quarter. The purchases were primarily of U.S. government agency securities with 3 to 5 year maturities and 10 and 15 year fully amortizing U.S. agency mortgage-backed securities, for which we expect to have limited extension risk. The expected duration of the investment portfolio was 3.0 years at June 30, 2011, compared to 1.8 years at June 30, 2010, and 3.1 years at March 31, 2011.

Second quarter 2011 average total deposits of $1.93 billion declined 6% or $115 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 continue to reduce higher cost time deposit balances. As a result, average time deposit balances declined $207 million or 48% year-over-year in the second quarter. Time deposits represented a modest 12% of the Company's average total deposits in the most recent quarter compared to 21% during second quarter 2010.

Second quarter average checking account balances of $944 million grew $88 million or 10% 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 .31% in the most recent quarter, a decline of 33 basis points from .64% in the second quarter last year and down 7 basis points on a linked quarter basis.

Capital Position

The combination of a return to profitability and a reduction in total assets continued to strengthen the Company's capital position. As shown in Table 5 below, at June 30, 2011, the Company's tier 1 and total risk-based capital ratios measured 17.99% and 19.25%, respectively, while its leverage ratio was 13.55%.

Operating Results Improved from the Second Quarter of 2010

As shown in Table 6 below, second quarter 2011 net income of $4.6 million increased $8.4 million compared to a net loss of $3.8 million in the same quarter of 2010. The year-over-year second quarter improvement in results was primarily reflective of a $4.3 million decline in provision for credit losses, a 3.1 million increase in net interest income, and a benefit for income taxes of $1.0 million compared to a tax provision of $1.7 million in the same quarter last year.

Second quarter 2011 net interest income of $22.0 million increased $3.1 million from the same quarter in 2010, and grew $.8 million or 3% adjusting for the $2.3 million FHLB prepayment expense in second quarter last year. As shown in Table 7 below, the net interest margin of 3.85% in the most recent quarter expanded 74 basis points from 3.11% in the second quarter 2010. Adjusting for the above-mentioned FHLB prepayment penalty, the net interest margin increased 37 basis points over the same period. The growth in both net interest income and net interest margin were attributable to a reduction in interest expense on deposits and borrowings, which more than offset a continued unfavorable earning assets mix shift from loans to investment securities and a reduced value of noninterest-bearing deposits compared to the second quarter 2010.

As shown in Table 8 below, second quarter 2011 total noninterest income of $8.1 million decreased $1.5 million from the same quarter last year. Net loss on OREO was $.9 million in the most recent quarter and up from $.2 million in the second quarter of last year. Excluding the net loss on OREO, the Company's noninterest income decreased $.9 million or 9%. This decrease was primarily a result of a $.6 million or 15% decline in service charges on deposit accounts, a $.4 million decline in gains on sales of investment securities, and a $.2 million credit related to an other-than-temporary-impairment ("OTTI") loss on a trust preferred security in the investment portfolio. The year-over-year second quarter decline in deposit service charges was due to phasing in the Federal Deposit Insurance Corporation's ("FDIC") new guidance on overdraft programs, which became effective July 1, 2011. The final phase of our initiatives to comply with the new overdraft guidance will be implemented in the third quarter of 2011. Payment systems-related revenues increased $.3 million over the second quarter in 2010 as a result of higher transaction volumes.

As shown in Table 9 below, second quarter 2011 total noninterest expense of $23.0 million remained virtually unchanged from the second quarter of 2010. Salaries and employee benefits expense grew $.8 million in the second quarter of 2011 when compared to the same quarter a year ago. The continued increase in payment system expense was related to continued growth in customer transaction volumes. These increases were substantially offset by the $.9 million decline in other noninterest expenses, which was primarily due to a reduction in the Company's FDIC insurance premium expense from the second quarter 2010.

Income Taxes and Deferred Tax Asset Valuation Allowance

Second quarter 2011 benefit for income taxes was $1.0 million, compared to a provision for income taxes in the same quarter of 2010 of $1.7 million. The benefit for income taxes in the most recent quarter was the result of an increase in the estimated gross unrealized gains on the investment securities portfolio for the full year. The provision for income taxes for the second quarter 2010 was primarily the result of adjustments made to the Company's 2009 tax estimates in conjunction with finalizing its 2009 income tax return, which increased the deferred tax asset valuation allowance by $3.5 million, partly offset by the effect of the change in gross unrealized gain on its investment security portfolio during that quarter.

At June 30, 2011, the Company maintained a valuation allowance of $18.0 million against the deferred tax asset balance of $24.1 million for a net deferred tax asset of $6.1 million. A future reversal of the deferred tax asset valuation allowance would decrease the Company's income tax expense and increase net income.

Credit Quality

The Company recorded a second quarter 2011 provision for credit losses of $3.4 million, a decline from $7.8 million in the same quarter of 2010. The second quarter 2011 net charge-offs of $4.6 million or 1.22% of average loans on an annualized basis were relatively unchanged from net charge-offs of $4.7 million or 1.15% of average loans in the corresponding quarter a year ago, but higher than $2.7 million and .72%, respectively, in the first quarter of 2011. The $1.4 million year-over-year second quarter decline in commercial loan net charge-offs and a $.6 million reduction in nonstandard mortgage loan net charge-offs was offset by a $1.7 million increase in home equity net charge-offs and more moderate increases in commercial real estate construction and term loans. 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 allowance for credit losses was $39.2 million or 2.58% of total loans at June 30, 2011, compared to an allowance for credit losses of $44.3 million or 2.77% of total loans a year ago as the overall risk in the loan portfolio has decreased over the past year. Also, the allowance for credit losses relative to nonperforming loans increased from 56% a year ago to 78% at June 30, 2011, and increased modestly from March 31, 2011, as well. The decrease in the required allowance for credit losses over the past twelve months was mostly due to a reduction in higher risk-rated outstanding loans, lower loan volume migrating to higher risk classifications, and more impaired loans moved from being included in the general valuation allowance to being individually measured for impairment during the quarter. The unallocated portion of the reserve was also reduced as a result of the declining overall risk profile of the loan portfolio. During second quarter 2011, net charge-offs exceeded the provision for credit losses by $1.2 million. A lower provision amount relative to net charge-offs in the most recent quarter was largely due to the same factors resulting in the reduction in the required allowance from a year ago. The June 30, 2011, allowance for credit losses at 2.58% of total loans declined from 2.63% at March 31, 2011. The Company's estimate of an appropriate allowance for credit losses 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 $86.0 million or 3.5% of total assets as of June 30, 2011, compared to $116.2 million and 4.6% of total assets a year ago and 3.8% of total assets at March 31, 2011. The decline in total nonperforming assets from $93.3 million at March 31, 2011, represents the ninth consecutive quarterly decline.

Over the past year, total nonaccrual loans declined $28.0 million or 36% to $50.6 million at June 30, 2011. Nonaccrual loans declined significantly in the commercial, residential real estate construction, and mortgage loan categories, while increasing modestly in commercial real estate construction, commercial real estate, and home equity loan categories.

As indicated in Table 13 below, the Company's OREO property disposition activities continue. During the second quarter 2011, the Company disposed of 51 OREO properties with a book value of $6.7 million while acquiring 18 properties with a book value of $4.3 million. The Company continued to take ownership of additional real property related to loans which previously were on nonaccrual status, and this partly offset the Company's OREO sales activities in the most recent quarter. At June 30, 2011, the OREO portfolio consisted of 366 properties with a book value of $35.4 million. The OREO balance at June 30, 2011, reflected write-downs totaling 50% from original loan principal compared to 52% twelve months earlier. The largest balances in the OREO portfolio at June 30, 2011, were attributable to homes followed by income-producing properties and residential site development projects, all of which are located within our footprint.

Other:    

The Company will hold a Webcast conference call Friday, July 29, 2011, at 11:00 a.m. Pacific Time, during which the Company will discuss second quarter 2011 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 "2nd Quarter 2011 Earnings Conference Call" tab. The conference call may also be accessed by dialing (877) 247-4281 Conference ID#: 77019985 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 $2.5 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," "anticipates," 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 as well as (ii) all risk factors identified in our Annual Report on Form 10-K for the year ended December 31, 2010, including under the headings "Forward Looking Statement Disclosure" and in the section "Risk Factors," and in our most recent Quarterly Report on Form 10-Q.

The following table presents information about the Company's total performing delinquent loans.

The following table presents information regarding common shares outstanding at June 30, 2011 on an actual and diluted basis.

SOURCE West Coast Bancorp