West Coast Bancorp Reports Net Income of $6.3 Million in Third Quarter 2011 and $16.0 Million for Nine Months Ending September 30, 2011

LAKE OSWEGO, Ore., Oct. 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 $6.3 million or $.29 per diluted share for the third quarter of 2011 compared to net income for the third quarter of 2010 of $6.1 million or $.29 per diluted share. Net income for the nine months ending September 30, 2011 was $16.0 million or $.75 per diluted share, up from net income of $1.3 million or $.06 per diluted share in the same period of 2010.

"Net income was $16.0 million for the nine months ended September 30, 2011 compared to $1.3 million for the same period a year ago, continuing the favorable trends in the operating performance of the Company over the past eighteen months", said Robert D. Sznewajs, President and Chief Executive Officer. "The Company's return on average assets continues to improve, reaching 1.00% in the third quarter of 2011 and .87% for the nine months ended September 30, 2011. In addition, we have taken steps in the third quarter to reduce our operating costs, including the closure of certain branches in the fourth quarter, and the prepayment of a portion of our term debt with the FHLB in the third quarter. These actions, combined with others, are expected to improve the Company's pre-tax income in future periods."

As shown in Table 1 below, the Company incurred approximately $3.1 million in expenses associated with our ongoing cost reduction initiatives in the quarter ended September 30, 2011. These actions, all else remaining constant, are projected to improve pre-tax income by $4.1 to $4.3 million on an annualized basis.

Table 2 below shows summary financial information for the quarters ended September 30, 2011 and 2010, and year-to-date ended September 30, 2011 and 2010.

Balance Sheet Overview

Third quarter 2011 average total loan balances of $1.52 billion were virtually unchanged from the second quarter of 2011. This was mainly attributable to growth in new loan originations in 2011 and lower loan balances moving from nonaccrual status to other real estate owned ("OREO"). The third quarter average loan balances declined $72 million or 5% from the same quarter of 2010. The reduction in average loan balances year-over-year third quarter was primarily in residential real estate construction, real estate mortgage, and commercial loan categories. Third quarter average total real estate construction loan balances contracted $38 million or 55% from the same period in 2010 due to the continued soft market for new development and uncertain economic conditions.

The Company's liquidity position remains strong as evidenced by combined cash equivalents and investment securities balance of $873 million or 37% of earning assets at September 30, 2011, an increase from $758 million and 32%, respectively, twelve months earlier. In an effort to support its net interest income and margin, the Company reduced its cash equivalents balance by $68 million while increasing its investment securities portfolio by $183 million since September 30, 2010. Over the past year, the Company increased its U.S. government agency and government guaranteed mortgage-backed securities portfolios by $56 million and $136 million, respectively. 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 2.3 years at September 30, 2011, compared to 1.7 years a year earlier and 3.0 years at June 30, 2011.

Third quarter 2011 average total deposits of $1.95 billion declined 2% or $46 million from the same quarter in 2010. With excess balance sheet liquidity, the Company continued to reduce higher cost time deposit balances. As a result, average time deposit balances declined $140 million or 42% year-over-year in the third quarter. Time deposits represented less than 10% of the Company's average total deposits in the most recent quarter compared to 17% during third quarter last year.

Third quarter average checking account balances of $980 million grew $92 million or 10% year-over-year and represented 50% of the Company's average total deposits in the quarter. The continuing shift in the mix of deposit balances from time deposits to non-time deposits together with the Company's deposit pricing strategies, contributed in the reduction in the average rate paid on total deposits to .20% in the most recent quarter, a decline of 31 basis points from .51% in the third quarter last year and down 11 basis points on a sequential quarter basis.

Concurrently with its prepayment of $88 million in term FHLB borrowings, the Company elected to enter into $50 million in new term borrowings with the FHLB in order to maintain its balance sheet interest rate sensitivity position. The rate on the new term borrowings is .85%, a reduction from 3.14% on the amount prepaid. The duration of the new term borrowings is approximately two years, an increase from approximately one year for the $88 million paid off. As a result of these actions, the net reduction in interest expense is estimated to be approximately $1.5 million in 2012 and approximately $.6 million in the fourth quarter of 2011.

Capital Position

The Company's profitability over the past four quarters continued to boost its capital position. As shown in Table 6 below, at September 30, 2011, the Company's tier 1 and total risk-based capital ratios measured 18.43% and 19.69%, respectively, while its leverage ratio was 13.72%.

Operating Results Improved from the Third Quarter of 2010

As shown in Table 7 below, third quarter 2011 net income of $6.3 million increased $.2 million compared to net income of $6.1 million in the corresponding quarter of 2010. The Company recorded a benefit for income taxes of $2.3 million in the most recent quarter, an increase of $1.6 million compared to the benefit of $.7 million in the same quarter last year. Third quarter 2011 pre-tax income was $4.0 million, a decline from $5.4 million in third quarter of 2010. Excluding the $2.8 million FHLB prepayment charge in the most recent quarter, pre-tax income increased $1.4 million or 26% from third quarter of 2010. See Table 7 for reconciliation to GAAP figures. This improvement resulted from an increase in net interest income (excluding the prepayment charge) and noninterest income, as well as lower provision for credit losses and noninterest expenses.

Third quarter 2011 net interest income of $19.3 million decreased $2.5 million from the same quarter in 2010, primarily as a result of the $2.8 million prepayment charge incurred in conjunction with the $88 million prepayment of FHLB borrowings. As shown in Table 8 below, adjusting for this prepayment charge, the third quarter 2011 net interest margin of 3.78% increased 7 basis points from the same quarter last year as the rate on interest bearing deposits declined more than the yield on earning assets. However, as a result of earning assets yield pressures caused by the sustained low market interest rates, the net interest margin contracted 7 basis points from the second quarter of 2011.

As shown in Table 9 below, third quarter 2011 total noninterest income of $8.4 million increased $.3 million from both the same quarter last year and the second quarter of 2011. As a result of implementing the Federal Deposit Insurance Corporation's ("FDIC") guidance on overdraft payment programs late in the second quarter and early in the third quarter of 2011, the third quarter deposit service charges declined $1.0 million or 25% from the same quarter in 2010, and $.4 million linked quarters. On October 18, 2011, the Bank received an order from the FDIC relating to its overdraft practices. As part of the order, the Bank agreed to implement certain procedural improvements relating to compliance and its overdraft program. The procedural improvements required by the order have been completed or are under way. In addition, the Bank has paid a civil money penalty of $390,000, and will make restitution payments to certain customers in an amount, while yet to be finalized, we do not believe will be material. The Company established a reserve in prior periods to cover estimated restitution costs and civil money penalty.

While essentially unchanged from the prior quarter, payment systems-related revenues increased 7% or $.2 million over the third quarter in 2010 due to higher transaction volumes. The total net loss on OREO was minor in the third quarter of 2011, compared to a $.9 million loss in the third quarter of last year and $.9 million in the second quarter of 2011. Excluding the total net loss on OREO, the Company's noninterest income decreased $.6 million from both year-over-year third quarter and the prior quarter. There was no other-than-temporary-impairment ("OTTI") charge on our trust preferred securities held in the investment portfolio in the third quarter 2011, compared to a $.2 million such charge in the second quarter of 2011.

As shown in Table 10 below, third quarter 2011 total noninterest expense of $22.6 million declined slightly from both the same quarter in 2010 and the immediately preceding quarter. Noninterest expenses declined modestly across most areas on a linked quarter basis. As a result of the cost reduction initiatives underway, we expect total noninterest expense to be favorably impacted by at least $2.6 million in 2012, everything else being equal.

Income Taxes and Deferred Tax Asset Valuation Allowance

Third quarter 2011 benefit for income taxes was $2.3 million, compared to a benefit for income taxes of $.7 million in the same quarter of 2010. The benefit for income taxes in the most recent quarter was mainly the result of an increase in the estimated gross unrealized gain on the investment securities portfolio for the full year. While to a less extent, the income tax benefit in the third quarter of 2010, was also primarily the result of an increase in the full year estimated gross unrealized gain on our investment securities.

At September 30, 2011, the Company maintained a valuation allowance of $17.0 million against its deferred tax asset balance of $26.3 million for a net deferred tax asset of $9.3 million. Under certain assumptions regarding performance for the balance of this year and next, we continue to believe the deferred tax asset valuation allowance will be fully reversed in the fourth quarter 2011. The reversal of the deferred tax asset valuation allowance would decrease the Company's income tax expense and increase net income in the period of such reversal.

Credit Quality

The Company recorded a third quarter 2011 provision for credit losses of $1.1 million, a decline from $1.6 million in the same quarter of 2010 and $3.4 million in the prior quarter. The third quarter 2011 net charge-offs of $3.3 million or .88% of average loans on an annualized basis were substantially unchanged from the corresponding quarter a year ago, but a decline from $4.6 million and 1.22%, respectively, in the second quarter of 2011. Sequential quarters, declines in real estate construction and home equity net charge-offs more than offset increases in commercial and commercial real estate loan net charge-offs. 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 $37.0 million or 2.46% of total loans at September 30, 2011, compared to an allowance for credit losses of $42.6 million or 2.71% of total loans a year ago and $39.2 million or 2.58% of total loans at June 30, 2011. The lower allowance for credit losses relative to total loans reflected an improvement in the overall risk profile of the loan portfolio over both the past year and the previous quarter. Also, the allowance for credit losses relative to nonperforming loans increased from 62% a year ago to 70% at September 30, 2011, while declining from 78% at June 30, 2011. The decrease in the allowance for credit losses over the past twelve months was mostly due to a reduction in higher risk-rated loans outstanding, a lower volume of loans migrating to higher risk classifications, lower overall loan balances, and more impaired loans moving from being included in the general valuation allowance to being individually measured for impairment during the quarter. 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 $83.1 million or 3.3% of total assets as of September 30, 2011, compared to $104.4 million and 4.2% of total assets a year ago and 3.5% of total assets at the end of the second quarter. The decline in total nonperforming assets of $2.9 million during the third quarter of 2011 represented the tenth consecutive quarterly reduction in nonperforming assets.

Over the past year, total nonaccrual loans declined $15.7 million or 23% to $52.9 million at September 30, 2011. During the most recent quarter nonaccrual loans increased $2.2 million as a result of modest increases in nonaccrual commercial and commercial real estate loan categories. Two loans largely accounted for the increase in the nonaccrual commercial real estate category, one of which in the amount of $1.2 million was paid off in early October.

As indicated in Table 14 below, the Company's OREO property disposition activities continued at a steady pace in the third quarter of 2011, while the level of additional real estate properties taken into the OREO portfolio declined significantly from prior periods. During the third quarter 2011, the Company disposed of 74 OREO properties with a book value of $6.1 million while acquiring 16 properties with a book value of $1.7 million and recorded OREO valuation adjustments totaling $.7 million. The combination of these actions resulted in a $5.1 million decline in total OREO in the quarter. At September 30, 2011, the OREO portfolio consisted of 308 properties with a book value of $30.2 million. The OREO balance at September 30, 2011, reflected write-downs totaling 52% from original loan principal which was similar to a year ago. The largest balances in the OREO portfolio at third quarter end were attributable to income-producing properties followed by homes and residential site development projects, all of which are located within our footprint.

Other

The Company will hold a Webcast conference call Friday, October 28, 2011, at 11:00 a.m. Pacific Time, during which the Company will discuss third 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 "3rd Quarter 2011 Earnings Conference Call" tab. The conference call may also be accessed by dialing (877) 247-4281 Conference ID#: 15209345 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 publicly held, Northwest bank holding company headquartered in Oregon with $2.5 billion in assets, and the parent company of West Coast Bank and West Coast Trust Company, Inc. West Coast Bank operates 65 branches in Oregon and Washington. The Company serves clients who seek the resources, sophisticated products and expertise of larger financial institutions, along with the local decision-making, market knowledge, and customer service orientation of a community bank. The Company offers a broad range of banking, investment, fiduciary and trust services.  For more information, please visit the Company 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," "projects," "anticipates," or "will," or other words of similar meaning, and specifically include in this release all statements regarding the expected future benefits of our ongoing cost-cutting initiatives. 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) cost reduction initiatives, as well as (iii) 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 September 30, 2011 on an actual and diluted basis.

SOURCE West Coast Bancorp