LAKE OSWEGO, Ore., Jan. 27, 2012/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 $17.8 millionor $.83per diluted share for the fourth quarter of 2011 compared to net income of $1.9 millionor $.09per diluted share in the same quarter of 2010. Net income for the full year 2011 was $33.8 millionor $1.58per diluted share, up from net income of $3.2 millionor $.16per diluted share in 2010.
"Net income of $33.8 million for the year ended December 31, 2011, compared to $3.2 millionfor the same period a year ago, reflects the consistent improvement in the core operating performance of the Company over the past two years and the impact of the reversal of the deferred tax asset valuation allowance", said Robert D. Sznewajs, President and Chief Executive Officer. "The Company's return on average assets continues to improve, reaching 1.37% for the year ended December 31, 2011. The combination of record levels of capital, actions taken in 2011 relating to the restructuring of FHLB borrowings, implementation of cost reduction and revenue enhancing initiatives, and other measures, positions the Bank well for 2012."
As shown in Table 1 below, the Company incurred approximately $1.0 millionin expenses associated with its ongoing cost reduction initiatives in the quarter ended December 31, 2011. In addition, the Company prepaid $80 millionof FHLB term borrowings in the fourth quarter, incurring a $4.4 millionprepayment charge. As a result of this and the $88 millionFHLB prepayment in the third quarter of 2011, the Company estimates a net reduction in interest expense related to term borrowings of approximately $3.2 millionin 2012. The cumulative effect of all these actions is projected to improve pre-tax income by approximately $5.8 to $6.0 millionin 2012.
Table 1 | IMPACT FROM EXPENSE REDUCTION INITIATIVES AND FHLB PREPAYMENTS | ||||||
Q4 expense | Q3 expense | Full-year expense | Estimated | ||||
(Dollars in thousands) | associated with | associated with | associated with | annual pre-tax | |||
Corporate action: | initiatives | initiatives | initiatives | income benefit | |||
Branch closure and personnel reduction | $ 1,002 | $ 309 | $ 1,311 | $2.6-$2.8 million | |||
FHLB borrowings prepayment | 4,365 | 2,775 | 7,140 | $3.2 million | |||
Total | $ 5,367 | $ 3,084 | $ 8,451 | $5.8 - $6.0 million | |||
Table 2 below shows summary financial information for the quarters and years ended December 31, 2011and 2010.
Table 2 | |||||||||
SUMMARY FINANCIAL INFORMATION | |||||||||
Qtr. ended | Qtr. ended | Year-to-date | Year-to-date | ||||||
Dec. 31, | Dec. 31, | Dec. 31, | Dec. 31, | ||||||
(Dollars and shares in thousands) | 2011 | 2010 | Change | 2011 | 2010 | Change | |||
Net income | $ 17,762 | $ 1,912 | $ 15,850 | $ 33,777 | $ 3,225 | $ 30,552 | |||
Net income available to common stockholders (1) | $ 16,532 | $ 1,773 | $ 14,759 | $ 31,410 | $ 2,833 | $ 28,577 | |||
Selective quarterly performance ratios | |||||||||
Return on average assets, annualized | 2.88% | 0.31% | 2.57 | 1.37% | 0.13% | 1.24 | |||
Return on average equity, annualized | 23.68% | 2.75% | 20.93 | 11.79% | 1.21% | 10.58 | |||
Efficiency ratio | 93.02% | 77.42% | 15.60 | 80.44% | 78.14% | 2.30 | |||
Share and Per Share Figures-Actual | |||||||||
Common shares outstanding at period end | 19,298 | 19,286 | 12 | 19,298 | 19,286 | 12 | |||
Weighted average diluted shares | 21,175 | 20,817 | 358 | 21,246 | 20,350 | 896 | |||
Weighted average diluted shares-two class method (2) | 19,911 | 19,573 | 338 | 19,940 | 18,059 | 1,881 | |||
Net income per diluted share | $ 0.83 | $ 0.09 | $ 0.74 | $ 1.58 | $ 0.16 | $ 1.42 | |||
Book value per common share | $ 15.20 | $ 13.04 | $ 2.16 | $ 15.20 | $ 13.04 | $ 2.16 | |||
Balance Sheet Overview
Fourth quarter 2011 average total loan balances of $1.49 billiondeclined 1% from the third quarter of 2011. The Company's new loan commitment originations in 2011 were approximately $300 million, a 50% increase from 2010 levels. Due to higher than expected loan payoffs and a greater resolution of nonaccrual loans than anticipated, total average loans in the fourth quarter of 2011 declined $59 millionor 4% from the same quarter a year ago. A modest growth in commercial real estate loans was offset by reductions in all other categories. The reduction was particularly significant in the construction loan category, which contracted $26 millionor 48%, reflecting the continued weak market conditions. Real estate mortgage and commercial loan categories declined at more modest rates.
Yield on total loans continued to decline as existing higher yielding loans paid off and new loan originations were at lower yields reflecting low market interest rates.
Table 3 | |||||||||||
AVERAGE LOANS FOR THE QUARTER | |||||||||||
(Dollars in thousands) | December 31, | % of | December 31, | % of | Change | September 30, | % of | ||||
2011 | Total | 2010 | total | Amount | % | 2011 | Total | ||||
Commercial loans | $ 293,583 | 20% | $ 312,652 | 20% | $ (19,069) | -6% | $ 297,354 | 20% | |||
Commercial real estate construction | 14,730 | 1% | 24,540 | 2% | (9,810) | -40% | 15,764 | 1% | |||
Residential real estate construction | 13,613 | 1% | 29,993 | 2% | (16,380) | -55% | 15,146 | 1% | |||
Total real estate construction loans | 28,343 | 2% | 54,533 | 4% | (26,190) | -48% | 30,910 | 2% | |||
Mortgage | 58,346 | 4% | 67,393 | 4% | (9,047) | -13% | 60,123 | 4% | |||
Nonstandard mortgage | 9,233 | 1% | 14,188 | 1% | (4,955) | -35% | 10,020 | 1% | |||
Home equity | 260,849 | 17% | 273,119 | 18% | (12,270) | -4% | 263,873 | 17% | |||
Total real estate mortgage | 328,428 | 22% | 354,700 | 23% | (26,272) | -7% | 334,016 | 22% | |||
Commercial real estate loans | 834,362 | 55% | 819,709 | 52% | 14,653 | 2% | 838,887 | 55% | |||
Installment and other consumer loans | 13,721 | 1% | 15,381 | 1% | (1,660) | -11% | 13,924 | 1% | |||
Total loans | $ 1,498,437 | $ 1,556,975 | $ (58,538) | -4% | $ 1,515,091 | ||||||
While the collective balance of cash equivalents and investment securities declined $111 millionfrom September 30, 2011, the Company's year-end 2011 liquidity position remained strong. Combined cash equivalents and investment securities balance totaled $762 millionor 34% of earning assets. As part of its efforts to support its net interest income and margin, the Company reduced its cash equivalents balance by $103 millionwhile increasing its investment securities portfolio by $84 millionsince year end 2010. Over this period, the Company increased its investments in U.S. government agency, government guaranteed mortgage-backed, and municipal securities. The purchases consisted 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. The expected duration of the investment portfolio was 2.5 years at year end 2011, compared to 2.7 years at year end 2010.
The fourth quarter yield on the collective cash equivalents and investment securities balance contracted slightly from the third quarter of 2011, reflecting investment securities purchases at yields lower than existing portfolio yields as well as accelerated premium amortization on mortgage-backed securities during the most recent quarter.
Table 4 | |||||||||||
PERIOD END CASH EQUIVALENTS AND INVESTMENT SECURITIES | |||||||||||
(Dollars in thousands) | December 31, | December 31, | Change | September 30, | |||||||
2011 | 2010 | Amount | % | 2011 | |||||||
Cash equivalents: | |||||||||||
Federal funds sold | $ 4,758 | $ 3,367 | $ 1,391 | 41% | $ 2,102 | ||||||
Interest-bearing deposits in other banks | 27,514 | 131,952 | (104,438) | -79% | 47,734 | ||||||
Total cash equivalents | 32,272 | 135,319 | (103,047) | -76% | 49,836 | ||||||
Investment securities: | |||||||||||
U.S. Treasury securities | 203 | 14,392 | (14,189) | -99% | 205 | ||||||
U.S. Government Agency securities | 219,631 | 194,230 | 25,401 | 13% | 277,669 | ||||||
Corporate securities | 8,507 | 9,392 | (885) | -9% | 8,858 | ||||||
Mortgage-backed securities | 428,725 | 363,618 | 65,107 | 18% | 460,927 | ||||||
Obligations of state and political sub. | 60,732 | 52,645 | 8,087 | 15% | 63,761 | ||||||
Equity investments and other securities | 12,046 | 11,835 | 211 | 2% | 12,038 | ||||||
Total investment securities | 729,844 | 646,112 | 83,732 | 13% | 823,458 | ||||||
Total cash equivalents and investment securities | $ 762,116 | $ 781,431 | $ (19,315) | -2% | $ 873,294 | ||||||
Tax equivalent yield on cash equivalents and investment securities | 2.24% | 2.21% | 0.03 | 2.35% | |||||||
Fourth quarter 2011 average total deposits of $1.94 billiondeclined 2% or $37 millionfrom the same quarter in 2010. With excess balance sheet liquidity, the Company continued to reduce higher cost time deposit balances, which declined $102 millionor 36% from the fourth quarter of 2010. Time deposits represented 9% of the Company's average total deposits in the most recent quarter compared to 14% during the corresponding quarter of 2010.
Table 5 | |||||||||||
QUARTERLY AVERAGE DEPOSITS BY CATEGORY | |||||||||||
(Dollars in thousands) | Q4 | % of | Q4 | % of | Change | Q3 | % of | ||||
2011 | Total | 2010 | Total | Amount | % | 2011 | Total | ||||
Demand deposits | $ 622,741 | 33% | $ 566,998 | 29% | $ 55,743 | 10% | $ 615,956 | 31% | |||
Interest bearing demand | 375,922 | 19% | 349,071 | 18% | 26,851 | 8% | 363,554 | 19% | |||
Total checking deposits | 998,663 | 52% | 916,069 | 47% | 82,594 | 9% | 979,510 | 50% | |||
Savings | 117,619 | 6% | 105,114 | 5% | 12,505 | 12% | 114,779 | 6% | |||
Money market | 640,247 | 33% | 670,580 | 34% | (30,333) | -5% | 661,871 | 34% | |||
Total non-time deposits | 1,756,529 | 91% | 1,691,763 | 86% | 64,766 | 4% | 1,756,160 | 90% | |||
Time deposits | 179,288 | 9% | 281,009 | 14% | (101,721) | -36% | 196,807 | 10% | |||
Total deposits | $ 1,935,817 | 100% | $ 1,972,772 | 100% | $ (36,955) | -2% | $ 1,952,967 | 100% | |||
Average rate on total deposits | 0.14% | 0.40% | (0.26) | 0.20% | |||||||
Fourth quarter average total checking balances of $999 milliongrew $83 millionor 9% year-over-year and represented 52% 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 contributed to the reduction in the average rate paid on total deposits to .14% in the most recent quarter, a decline of 26 basis points from .40% in the fourth quarter last year and down 6 basis points on a sequential quarter basis.
As noted above, the Company prepaid $80 millionin term FHLB borrowings in the most recent quarter. In addition, the Company elected to enter into $70 millionin new term borrowings with the FHLB in order to maintain its interest rate sensitivity position. The rate on the new term borrowings is 1.19%, a reduction from 3.21% on the amount prepaid. The duration of the new term borrowings was approximately three and a half years, an increase from approximately two years for the $80 millionthat was prepaid.
Capital Position
The Company continued to improve its capital position as a result of its profitability, and aided by the reversal of the DTA valuation allowance in the most recent quarter. As shown in Table 6 below, at year end 2011, the Company's tier 1 and total risk-based capital ratios measured 19.36% and 20.62%, respectively, while its leverage ratio was 14.61%.
Table 6 | ||||||||
CAPITAL RATIOS | ||||||||
December 31, | December 31, | September 30, | ||||||
2011 | 2010 | Change | 2011 | Change | ||||
West Coast Bancorp | ||||||||
Tier 1 risk-based capital ratio | 19.36% | 17.47% | 1.89 | 18.43% | 0.93 | |||
Total risk-based capital ratio | 20.62% | 18.74% | 1.88 | 19.69% | 0.93 | |||
Leverage ratio | 14.61% | 13.02% | 1.59 | 13.72% | 0.89 | |||
West Coast Bank | ||||||||
Tier 1 risk-based capital ratio | 18.66% | 16.79% | 1.87 | 17.74% | 0.92 | |||
Total risk-based capital ratio | 19.92% | 18.05% | 1.87 | 19.00% | 0.92 | |||
Leverage ratio | 14.09% | 12.51% | 1.58 | 13.20% | 0.89 | |||
Operating Results
As shown in Table 7 below, fourth quarter 2011 net income of $17.8 millionincreased $15.9 millioncompared to net income of $1.9 millionin the corresponding quarter of 2010. The Company recorded a benefit for income taxes of $17.6 millionin the most recent quarter, primarily as a result of a full reversal of the deferred tax asset valuation allowance, as compared to a provision for income taxes of $3.5 millionin the same quarter last year. Fourth quarter 2011 income before income taxes was $.1 million, a decline from $5.5 millionin the same quarter of 2010. Excluding the $4.4 millionFHLB prepayment charge and $1.0 millionin expenses associated with cost reduction initiatives in the most recent quarter, income before income taxes was substantially unchanged from the fourth quarter of 2010. Table 7 also shows reconciliation to GAAP income before income taxes.
Table 7 | ||||||||||
SUMMARY INCOME STATEMENT | ||||||||||
(Dollars in thousands) | Q4 | Q4 | Change | Q3 | Change | |||||
2011 | 2010 | $ | % | 2011 | $ | % | ||||
Net interest income | $ 17,940 | $ 21,889 | $ (3,949) | -18% | $ 19,341 | $ (1,401) | -7% | |||
Provision for credit losses | 1,499 | 1,693 | (194) | -11% | 1,132 | 367 | 32% | |||
Noninterest income | 6,419 | 8,595 | (2,176) | -25% | 8,414 | (1,995) | -24% | |||
Noninterest expense | 22,744 | 23,330 | (586) | -3% | 22,620 | 124 | 1% | |||
Income before income taxes | 116 | 5,461 | (5,345) | -98% | 4,003 | (3,887) | -97% | |||
Provision (benefit) for income taxes | (17,646) | 3,549 | (21,195) | -597% | (2,273) | (15,373) | 676% | |||
Net income | $ 17,762 | $ 1,912 | $ 15,850 | 829% | $ 6,276 | $ 11,486 | 183% | |||
Reconciliation of income before income taxes adjusted for FHLB prepayment charge | ||||||||||
Income before income taxes | $ 116 | $ 5,461 | $ (5,345) | -98% | $ 4,003 | $ (3,887) | -3351% | |||
Less FHLB prepayment charge (1) | 4,365 | - | 4,365 | 0% | 2,775 | 1,590 | 36% | |||
Less branch closure and personnel reduction-related expense (1) | 1,002 | - | 1,002 | 0% | 309 | 693 | 69% | |||
Income before income taxes excluding FHLB prepayment charge and branch closure and personnel reduction-related expense (2) | $ 5,483 | $ 5,461 | $ 22 | 0% | $ 7,087 | (1,604) | -23% | |||
(1) Excludes the impact of any tax-related benefits. | ||||||||||
(2) Management uses this non-GAAP information internally and has disclosed it to investors based on its belief that the information provides | ||||||||||
additional, valuable information relating to its operating performance as compared to prior periods. | ||||||||||
Fourth quarter 2011 net interest income of $17.9 milliondecreased $3.9 millionfrom the same quarter in 2010, mainly as a result of the $4.4 millionprepayment charge incurred in conjunction with prepayment of FHLB borrowings during the quarter. Compared to the third quarter of 2011, net interest income declined $1.4 million, which was primarily due to a $1.6 millionhigher prepayment charge in the most recent quarter compared to that in the third quarter. As shown in Table 8 below, adjusting for the prepayment charge, the fourth quarter 2011 net interest margin of 3.88% increased 14 basis points from the same quarter last year. This was due to the combined effect of cash equivalents being deployed in investment securities, the favorable impact from FHLB prepayments in third and fourth quarter 2011, and the lower rates on interest-bearing deposits more than offsetting the impact from lower loan balances and yields on total earning assets. The reduced interest rate on FHLB borrowings, resulting from the prepayments in late third quarter and early fourth quarter, caused the 10 basis points increase in the net interest margin over third quarter 2011.
Table 8 | ||||||||
NET INTEREST SPREAD AND MARGIN | ||||||||
(Annualized, tax-equivalent basis) | Q4 | Q4 | Q3 | |||||
2011 | 2010 | Change | 2011 | Change | ||||
Yield on average interest-earning assets | 4.16% | 4.35% | (0.19) | 4.22% | (0.06) | |||
Rate on average interest-bearing liabilities (1) | 1.58% | 0.88% | 0.70 | 1.37% | 0.21 | |||
Net interest spread | 2.58% | 3.47% | (0.89) | 2.85% | (0.27) | |||
Net interest margin | 3.13% | 3.74% | (0.61) | 3.31% | (0.18) | |||
As shown in Table 9 below, fourth quarter 2011 total noninterest income of $6.4 milliondeclined $2.2 millionfrom the same quarter last year. Fourth quarter deposit service charges declined $.7 millionor 20% from the same quarter in 2010 primarily as a consequence of implementing the Federal Deposit Insurance Corporation's ("FDIC") guidance on overdraft protection programs in the second quarter of 2011. Compared to the third quarter of 2011, deposit service charges decreased $.1 millionor 4% in the fourth quarter 2011.
Fourth quarter payment systems-related revenues remained essentially unchanged from both the same quarter in 2010 and the prior quarter. The net loss on OREO increased to $2.0 millionin the most recent quarter from a $1.2 millionnet loss in the fourth quarter 2010 and an immaterial loss in the third quarter of 2011. Excluding the total net loss on OREO, the Company's noninterest income decreased $1.4 millionfrom the same quarter in 2010 and was substantially unchanged over sequential quarters. Gains on sales of investment securities declined $.4 millionyear-over-year in the fourth quarter. There was no other-than-temporary-impairment ("OTTI") charge on trust preferred securities held in the investment portfolio in the fourth quarter 2011.
Table 9 | ||||||||||
NONINTEREST INCOME | ||||||||||
(Dollars in thousands) | Q4 | Q4 | Change | Q3 | Change | |||||
2011 | 2010 | $ | % | 2011 | $ | % | ||||
Noninterest income | ||||||||||
Service charges on deposit accounts | $ 3,005 | $ 3,736 | $ (731) | -20% | $ 3,129 | $ (124) | -4% | |||
Payment systems-related revenue | 3,081 | 2,984 | 97 | 3% | 3,201 | (120) | -4% | |||
Trust and investment services revenues | 1,114 | 1,143 | (29) | -3% | 1,033 | 81 | 8% | |||
Gains on sales of loans | 300 | 568 | (268) | -47% | 222 | 78 | 35% | |||
Gains (losses) on sales of securities | 192 | 617 | (425) | -69% | 124 | 68 | 55% | |||
Other | 708 | 733 | (25) | -3% | 716 | (8) | -1% | |||
Total | 8,400 | 9,781 | (1,381) | -14% | 8,425 | (25) | 0% | |||
OREO gains (losses) on sale | (57) | 336 | (393) | -117% | 685 | (742) | -108% | |||
OREO valuation adjustments | (1,924) | (1,522) | (402) | -26% | (696) | (1,228) | -176% | |||
Total net loss on OREO | (1,981) | (1,186) | (795) | -67% | (11) | (1,970) | -17909% | |||
Total noninterest income | $ 6,419 | $ 8,595 | $ (2,176) | -25% | $ 8,414 | $ (1,995) | -24% | |||
As shown in Table 10 below, fourth quarter 2011 total noninterest expense of $22.7 milliondeclined $.6 millionfrom the same quarter in 2010. Other noninterest expense category declined $1.8 millionyear-over-year fourth quarter, which more than offset increases in employee benefits and professional expenses. Excluding expenses associated with cost reduction initiatives of $1.0 millionin the fourth quarter, total noninterest expense declined $.8 millionor 4% from the third of 2011 as the Company began to experience benefits from such efforts.
Table 10 | ||||||||||
NONINTEREST EXPENSE | ||||||||||
(Dollars in thousands) | Q4 | Q4 | Change | Q3 | Change | |||||
2011 | 2010 | $ | % | 2011 | $ | % | ||||
Noninterest expense | ||||||||||
Salaries and employee benefits | $ 12,614 | $ 11,521 | $ 1,093 | 9% | $ 11,977 | $ 637 | 5% | |||
Equipment | 1,560 | 1,540 | 20 | 1% | 1,461 | 99 | 7% | |||
Occupancy | 2,162 | 2,245 | (83) | -4% | 2,115 | 47 | 2% | |||
Payment systems-related expense | 1,265 | 1,297 | (32) | -2% | 1,279 | (14) | -1% | |||
Professional fees | 1,122 | 822 | 300 | 36% | 1,038 | 84 | 8% | |||
Postage, printing and office supplies | 821 | 816 | 5 | 1% | 772 | 49 | 6% | |||
Marketing | 659 | 800 | (141) | -18% | 862 | (203) | -24% | |||
Communications | 395 | 388 | 7 | 2% | 387 | 8 | 2% | |||
Other noninterest expense | 2,146 | 3,901 | (1,755) | -45% | 2,729 | (583) | -21% | |||
Total noninterest expense | $ 22,744 | $ 23,330 | $ (586) | -3% | $ 22,620 | $ 124 | 1% | |||
Income Taxes and Reversal of Deferred Tax Asset Valuation Allowance
Fourth quarter 2011 benefit for income taxes was $17.6 million, compared to a provision for income taxes of $3.5 millionin the same quarter of 2010. The benefit for income taxes in the most recent quarter was primarily the result of fully reversing the Company's deferred tax asset valuation allowance. Based on a number of factors, including the Company's return to profitability over consecutive quarters, no deferred tax asset valuation allowance was deemed necessary as of December 31, 2011.
Table 11 | ||||||||
INCOME TAXES | ||||||||
(Dollars in thousands) | Q4 | Q4 | Full year | Full year | ||||
2011 | 2010 | Change | 2011 | 2010 | ||||
Provision for income taxes net of reversal | ||||||||
of deferred tax asset valuation allowance | $ 5,818 | $ - | $ 5,818 | $ 3,252 | $ - | |||
Benefit for income taxes from deferred | ||||||||
tax asset valuation allowance: | ||||||||
Reversal of deferred tax asset valuation allowance | (23,464) | - | (23,464) | (23,464) | - | |||
From estimated change in gross gain on securities | - | 2,077 | (2,077) | (1,197) | ||||
Change in deferred tax assets-tax return adjustments | - | 1,472 | (1,472) | - | 4,987 | |||
Total provision (benefit) for income taxes | $ (17,646) | $ 3,549 | $ (21,195) | $ (20,212) | $ 3,790 | |||
Credit Quality
Full year 2011 net charge-offs of $13.2 milliondeclined by $3.8 millionfrom $17.0 millionin 2010. Net charge-offs increased in home equity and commercial real estate categories in 2011, but were more than offset by declines in commercial, construction real estate, mortgage, and nonstandard mortgage categories. 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.
Table 12 | |||||||
FULL YEAR ALLOWANCE FOR CREDIT LOSSES AND NET CHARGEOFFS | |||||||
Charge offs as a | Charge offs as a | ||||||
(Dollars in thousands) | Full year | % of average | Full year | % of average | Full year | ||
2011 | loan balance | 2010 | loan balance | change | |||
Allowance for credit losses, beginning of period | $ 41,067 | $ 39,418 | $ 1,649 | ||||
Total provision for credit losses | 8,133 | 18,652 | (10,519) | ||||
Loan net charge-offs: | |||||||
Commercial | 2,057 | 0.69% | 4,156 | 1.26% | (2,099) | ||
Commercial real estate construction | 1,233 | 7.39% | 811 | 1.57% | 422 | ||
Residential real estate construction | 577 | 3.35% | 2,068 | 9.20% | (1,491) | ||
Total real estate construction | 1,810 | 5.34% | 2,879 | 3.88% | (1,069) | ||
Mortgage | 683 | 1.10% | 2,183 | 3.01% | (1,500) | ||
Nonstandard mortgage | 482 | 4.59% | 2,219 | 13.60% | (1,737) | ||
Home equity | 4,383 | 1.66% | 2,679 | 0.98% | 1,704 | ||
Total real estate mortgage | 5,548 | 1.65% | 7,081 | 1.95% | (1,533) | ||
Commercial real estate | 2,478 | 0.30% | 1,293 | 0.15% | 1,185 | ||
Installment and consumer | 478 | 3.67% | 614 | 4.12% | (136) | ||
Overdraft | 846 | - | 980 | - | (134) | ||
Total loan net charge-offs | 13,217 | 0.87% | 17,003 | 1.05% | (3,786) | ||
Total allowance for credit losses | $ 35,983 | $ 41,067 | $ (5,084) | ||||
Components of allowance for credit losses: | |||||||
Allowance for loan losses | $ 35,212 | $ 40,217 | $ (5,005) | ||||
Reserve for unfunded commitments | 771 | 850 | (79) | ||||
Total allowance for credit losses | $ 35,983 | $ 41,067 | $ (5,084) | ||||
Net loan charge-offs to average loans | 0.87% | 1.05% | -0.18% | ||||
Allowance for loan losses to total loans | 2.35% | 2.62% | -0.27% | ||||
Allowance for credit losses to total loans | 2.40% | 2.67% | -0.27% | ||||
Allowance for loan losses to nonperforming loans | 87% | 66% | 21% | ||||
Allowance for credit losses to nonperforming loans | 89% | 67% | 22% | ||||
The Company recorded a fourth quarter 2011 provision for credit losses of $1.5 million, a decline from $1.7 millionin the same quarter of 2010 and up from $1.1 millionin the third quarter of 2011. The fourth quarter 2011 net charge-offs of $2.5 million, or .67% of average loans on an annualized basis, declined from the corresponding quarter in 2010 and on a linked quarters basis, primarily due to declining commercial net charge-offs. The net-charge off activity in fourth quarter 2011 represented the lowest level of charge-offs experienced in the most recent eight quarters.
Table 13 | |||||||
ALLOWANCE FOR CREDIT LOSSES AND NET CHARGEOFFS | |||||||
(Dollars in thousands) | Q4 | Q3 | Q2 | Q1 | Q4 | ||
2011 | 2011 | 2011 | 2011 | 2010 | |||
Allowance for credit losses, beginning of period | $ 37,016 | $ 39,231 | $ 40,429 | $ 41,067 | $ 42,618 | ||
Total provision for credit losses | 1,499 | 1,132 | 3,426 | 2,076 | 1,693 | ||
Loan net charge-offs: | |||||||
Commercial | 292 | 1,181 | 321 | 263 | 1,109 | ||
Commercial real estate construction | 48 | 472 | 648 | 65 | 76 | ||
Residential real estate construction | 140 | (87) | 213 | 311 | 89 | ||
Total real estate construction | 188 | 385 | 861 | 376 | 165 | ||
Mortgage | 154 | 185 | 139 | 205 | 347 | ||
Nonstandard mortgage | 23 | 61 | 83 | 315 | 76 | ||
Home equity | 723 | 516 | 2,291 | 853 | 570 | ||
Total real estate mortgage | 900 | 762 | 2,513 | 1,373 | 993 | ||
Commercial real estate | 812 | 779 | 561 | 326 | 584 | ||
Installment and consumer | 119 | 6 | 185 | 168 | 59 | ||
Overdraft | 221 | 234 | 183 | 208 | 334 | ||
Total loan net charge-offs | 2,532 | 3,347 | 4,624 | 2,714 | 3,244 | ||
Total allowance for credit losses | $ 35,983 | $ 37,016 | $ 39,231 | $ 40,429 | $ 41,067 | ||
Components of allowance for credit losses: | |||||||
Allowance for loan losses | $ 35,212 | $ 36,314 | $ 38,422 | $ 39,692 | $ 40,217 | ||
Reserve for unfunded commitments | 771 | 702 | 809 | 737 | 850 | ||
Total allowance for credit losses | $ 35,983 | $ 37,016 | $ 39,231 | $ 40,429 | $ 41,067 | ||
Net loan charge-offs to average loans (annualized) | 0.67% | 0.88% | 1.22% | 0.72% | 0.83% | ||
Allowance for loan losses to total loans | 2.35% | 2.42% | 2.53% | 2.58% | 2.62% | ||
Allowance for credit losses to total loans | 2.40% | 2.46% | 2.58% | 2.63% | 2.67% | ||
Allowance for loan losses to nonperforming loans | 87% | 69% | 76% | 74% |
The allowance for credit losses was $36.0 millionor 2.40% of total loans at December 31, 2011, compared to an allowance for credit losses of $41.1 millionor 2.67% of total loans a year ago and $37.0 millionor 2.46% of total loans at September 30, 2011. The lower allowance for credit losses relative to total loans reflected the improving trend in the overall risk profile of the loan portfolio. The allowance for credit losses declined largely due to additional impaired loans moving from being included in the general valuation allowance to being individually measured for impairment during the quarter, a reduction in the unallocated reserve, and slightly lower overall loan balances. The allowance for credit losses relative to nonperforming loans increased from 67% a year ago to 89% at December 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 $71.4 millionor 2.9% of total assets as of December 31, 2011, compared to $100.7 millionand 4.1% of total assets a year ago and $83.1 millionand 3.3% at the end of the third quarter.
Table 14 | |||||||
NONPERFORMING ASSETS | |||||||
(Dollars in thousands) | Dec. 31, | Sept. 30, | June 30, | Mar. 31, | Dec. 31, | ||
2011 | 2011 | 2011 | 2011 | 2010 | |||
Loans on nonaccrual status: | |||||||
Commercial | $ 7,750 | $ 9,987 | $ 9,280 | $ 12,803 | $ 13,377 | ||
Real estate construction: | |||||||
Commercial real estate construction | 3,750 | 3,886 | 4,357 | 4,032 | 4,077 | ||
Residential real estate construction | 2,073 | 3,311 | 3,439 | 4,093 | 6,615 | ||
Total real estate construction | 5,823 | 7,197 | 7,796 | 8,125 | 10,692 | ||
Real estate mortgage: | |||||||
Mortgage | 6,161 | 5,876 | 5,734 | 5,714 | 9,318 | ||
Nonstandard mortgage | 3,463 | 5,001 | 5,793 | 6,451 | 5,223 | ||
Home equity | 2,325 | 3,285 | 2,755 | 1,426 | 950 | ||
Total real estate mortgage | 11,949 | 14,162 | 14,282 | 13,591 | 15,491 | ||
Commercial real estate | 15,070 | 21,513 | 19,263 | 19,424 | 21,671 | ||
Installment and consumer | 5 | 6 | 1 | - | - | ||
Total nonaccrual loans | 40,597 | 52,865 | 50,622 | 53,943 | 61,231 | ||
90 days past due not on nonaccrual | - | - | - | - | - | ||
Total nonperforming loans | 40,597 | 52,865 | 50,622 | 53,943 | 61,231 | ||
Other real estate owned | 30,823 | 30,234 | 35,374 | 39,329 | 39,459 | ||
Total nonperforming assets | $ 71,420 | $ 83,099 | $ 85,996 | $ 93,272 | $ 100,690 | ||
Nonperforming loans to total loans | 2.70% | 3.52% | 3.33% | 3.51% | 3.99% | ||
Nonperforming assets to total assets | 2.94% | 3.30% | 3.49% | 3.80% | 4.09% | ||
During 2011, total nonaccrual loans declined $20.6 millionor 34% to $40.6 millionat year end, with declines across all major loan categories except for home equity loans. As evidenced by the 23% reduction in nonaccrual balances during the most recent quarter, the Company made particularly good progress moving problem credits toward resolution during the quarter, with only a nominal increase in OREO balances over the same period.
As indicated in Table 15 below, the Company's OREO property disposition activities continued in the fourth quarter of 2011. During the quarter, the Company disposed of 59 OREO properties with a book value of $6.7 millionwhile acquiring 15 properties with a book value of $9.2 millionand recording OREO valuation adjustments totaling $1.9 million. The combination of these actions resulted in a $.6 millionincrease in total OREO in the quarter. At year end 2011, the OREO portfolio, which declined $8.6 millionover the past year, consisted of 264 properties with a book value of $30.8 million. The OREO balance reflected write-downs totaling 53% from original loan principal, essentially unchanged from a year ago. The largest balances in the OREO portfolio at December 31, 2011, were attributable to income-producing properties followed by homes and land, all of which are located within the Company's footprint.
Table 15 | ||||||||||||
OTHER REAL ESTATE OWNED ACTIVITY | ||||||||||||
(Dollars in thousands) | Q4 2011 | Q3 2011 | Q2 2011 | Q1 2011 | Q4 2010 | |||||||
Amount | # | Amount | # | Amount | # | Amount | # | Amount | # | |||
Beginning balance | $ 30,234 | 308 | $ 35,374 | 366 | $ 39,329 | 399 | $ 39,459 | 402 | $ 35,814 | 448 | ||
Additions to OREO | 9,241 | 15 | 1,672 | 16 | 4,270 | 18 | 6,479 | 25 | 11,053 | 35 | ||
Dispositions of OREO | (6,728) | (59) | (6,116) | (74) | (6,670) | (51) | (5,952) | (28) | (5,886) | (81) | ||
OREO valuation adj. | (1,924) | (696) | - | (1,555) | - | (657) | - | (1,522) | - | |||
Ending balance | $ 30,823 | 264 | $ 30,234 | 308 | $ 35,374 | 366 | $ 39,329 | 399 | $ 39,459 | 402 | ||
Table 16 | ||||||||
OTHER REAL ESTATE OWNED BY PROPERTY TYPE | ||||||||
(Dollars in thousands) | Dec. 31, | # of | Dec. 31, | # of | Sept. 30, | # of | ||
2011 | properties | 2010 | properties | 2011 | properties | |||
Income producing properties | $ 10,282 | 15 | $ 5,162 | 7 | $ 8,139 | 14 | ||
Homes | 6,008 | 17 | 17,297 | 69 | 6,329 | 27 | ||
Land | 5,049 | 16 | 5,135 | 12 | 3,762 | 10 | ||
Residential site developments | 3,506 | 146 | 7,340 | 245 | 4,877 | 176 | ||
Lots | 2,932 | 51 | 3,700 | 56 | 3,175 | 54 | ||
Condominiums | 2,252 | 9 | 128 | 2 | 3,131 | 17 | ||
Multifamily | 428 | 4 | 697 | 11 | 455 | 4 | ||
Commercial site developments | 366 | 6 | - | - | 366 | 6 | ||
Total | $ 30,823 | 264 | $ 39,459 | 402 | $ 30,234 | 308 | ||
Other
The Company will hold a Webcast conference call Friday, January 27, 2012, at 11:00 a.m. Pacific Time, during which the Company will discuss fourth quarter 2011 results and key activities. To access the conference call via a live Webcast, go to and click on Investor Relations and the "4th Quarter 2011 Earnings Conference Call" tab. The conference call may also be accessed by dialing (877) 247-4281 Conference ID#: 38463500 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 and following the same instructions.
West Coast Bancorp is a publicly held, Northwest bank holding company headquartered in Oregonwith $2.4 billionin assets, and the parent company of West Coast Bank and West Coast Trust Company, Inc. West Coast Bank operates 60 branches in Oregonand 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 .
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.
Table 17 | ||||||||||
INCOME STATEMENT | ||||||||||
(Dollars in thousands) | Q4 | Q4 | Change | Q3 | Year-to-date | Year-to-date | ||||
2011 | 2010 | $ | % | 2011 | 2011 | 2010 | ||||
Net interest income | ||||||||||
Interest and fees on loans | $ 19,647 | $ 21,350 | $ (1,703) | -8% | $ 20,060 | $ 80,237 | $ 88,409 | |||
Interest on investment securities | 4,266 | 4,064 | 202 | 5% | 4,626 | 18,251 | 16,668 | |||
Other interest income | 19 | 95 | (76) | -80% | 35 | 187 | 499 | |||
Total interest income | 23,932 | 25,509 | (1,577) | -6% | 24,721 | 98,675 | 105,576 | |||
Interest expense on deposit accounts | 702 | 2,009 | (1,307) | -65% | 986 | 4,973 | 12,130 | |||
Interest on borrowings and subordinated debentures | 925 | 1,611 | (686) | -43% | 1,619 | 5,808 | 7,813 | |||
Borrowings prepayment charge | 4,365 | - | 4,365 | 100% | 2,775 | 7,140 | 2,326 | |||
Total interest expense | 5,992 | 3,620 | 2,372 | 66% | 5,380 | 17,921 | 22,269 | |||
Net interest income | 17,940 | 21,889 | (3,949) | -18% | 19,341 | 80,754 | 83,307 | |||
Provision for credit losses | 1,499 | 1,693 | (194) | -11% | 1,132 | 8,133 | 18,652 | |||
Noninterest income | ||||||||||
Service charges on deposit accounts | 3,005 | 3,736 | (731) | -20% | 3,129 | 13,353 | 15,690 | |||
Payment systems-related revenue | 3,081 | 2,984 | 97 | 3% | 3,201 | 12,381 | 11,393 | |||
Trust and investment services revenues | 1,114 | 1,143 | (29) | -3% | 1,033 | 4,503 | 4,267 | |||
Gains on sales of loans | 300 | 568 | (268) | -47% | 222 | 1,335 | 1,197 | |||
Net OREO valuation adjustments | ||||||||||
and gains (losses) on sales | (1,981) | (1,186) | (795) | -67% | (11) | (3,236) | (4,415) | |||
Other-than-temporary impairment losses | - | - | - | - | - | (179) | - | |||
Gain on sales of securities | 192 | 617 | (425) | -69% | 124 | 713 | 1,562 | |||
Other | 708 | 733 | (25) | -3% | 716 | 2,949 | 3,003 | |||
Total noninterest income | 6,419 | 8,595 | (2,176) | -25% | 8,414 | 31,819 | 32,697 | |||
Noninterest expense | ||||||||||
Salaries and employee benefits | 12,614 | 11,521 | 1,093 | 9% | 11,977 | 48,587 | 45,854 | |||
Equipment | 1,560 | 1,540 | 20 | 1% | 1,461 | 6,113 | 6,247 | |||
Occupancy | 2,162 | 2,245 | (83) | -4% | 2,115 | 8,674 | 8,894 | |||
Payment systems-related expense | 1,265 | 1,297 | (32) | -2% | 1,279 | 5,141 | 4,727 | |||
Professional fees | 1,122 | 822 | 300 | 36% | 1,038 | 4,118 | 3,991 | |||
Postage, printing and office supplies | 821 | 816 | 5 | 1% | 772 | 3,265 | 3,148 | |||
Marketing | 659 | 800 | (141) | -18% | 862 | 3,003 | 3,086 | |||
Communications | 395 | 388 | 7 | 2% | 387 | 1,549 | 1,525 | |||
Other noninterest expense | 2,146 | 3,901 | (1,755) | -45% | 2,729 | 10,425 | 12,865 | |||
Total noninterest expense | 22,744 | 23,330 | (586) | -3% | 22,620 | 90,875 | 90,337 | |||
Income before income taxes | 116 | 5,461 | (5,345) | -98% | 4,003 | 13,565 | 7,015 | |||
Provision (benefit) for income taxes | (17,646) | 3,549 | (21,195) | -597% | (2,273) | (20,212) | 3,790 | |||
Net income | $ 17,762 | $ 1,912 | $ 15,850 | 829% | $ 6,276 | $ 33,777 | $ 3,225 | |||
Net income per share: | ||||||||||
Basic | $ 0.87 | $ 0.09 | $ 0.78 | $ 0.31 | $ 1.65 | $ 0.16 | ||||
Diluted | $ 0.83 | $ 0.09 | $ 0.74 | $ 0.29 | $ 1.58 | $ 0.16 | ||||
Weighted average common shares | 19,032 | 18,958 | 74 | 19,029 | 19,007 | 17,460 | ||||
Weighted average diluted shares | 19,911 | 19,573 | 338 | 19,880 | 19,940 | 18,059 | ||||
Tax equivalent net interest income | $ 18,223 | $ 22,156 | $ (3,933) | $ 19,628 | $ 81,870 | $ 84,478 | ||||
Table 18 | |||||||
BALANCE SHEETS | |||||||
(Dollars in thousands) | Dec. 31, | Dec. 31, | Change | Sept. 30, | |||
2011 | 2010 | $ | % | 2011 | |||
Assets: | |||||||
Cash and due from banks | $ 59,955 | $ 42,672 | $ 17,283 | 41% | $ 57,442 | ||
Federal funds sold | 4,758 | 3,367 | 1,391 | 41% | 2,102 | ||
Interest-bearing deposits in other banks | 27,514 | 131,952 | (104,438) | -79% | 47,734 | ||
Total cash and cash equivalents | 92,227 | 177,991 | (85,764) | -48% | 107,278 | ||
Investment securities | 729,844 | 646,112 | 83,732 | 13% | 823,458 | ||
Loans | 1,501,301 | 1,536,270 | (34,969) | -2% | 1,503,624 | ||
Allowance for loan losses |
Table 19 | |||||||||||
PERIOD END LOANS | |||||||||||
(Dollars in thousands) | Dec. 31, | % of | Dec. 31, | % of | Change | September 30, | % of | ||||
2011 | Total | 2010 | total | Amount | % | 2011 | Total | ||||
Commercial loans | $ 299,766 | 20% | $ 309,327 | 20% | $ (9,561) | -3% | $ 296,335 | 20% | |||
Commercial real estate construction | 17,438 | 1% | 19,760 | 1% | (2,322) | -12% | 12,859 | 1% | |||
Residential real estate construction | 12,724 | 1% | 24,325 | 2% | (11,601) | -48% | 13,167 | 1% | |||
Total real estate construction loans | 30,162 | 2% | 44,085 | 3% | (13,923) | -32% | 26,026 | 2% | |||
Mortgage | 58,099 | 4% | 67,525 | 4% | (9,426) | -14% | 59,388 | 4% | |||
Nonstandard mortgage | 8,511 | 1% | 12,523 | 1% | (4,012) | -32% | 9,945 | 1% | |||
Home equity | 258,384 | 17% | 268,968 | 18% | (10,584) | -4% | 261,457 | 17% | |||
Total real estate mortgage | 324,994 | 22% | 349,016 | 23% | (24,022) | -7% | 330,790 | 22% | |||
Commercial real estate loans | 832,767 | 55% | 818,577 | 53% | 14,190 | 2% | 836,752 | 56% | |||
Installment and other consumer loans | 13,612 | 1% | 15,265 | 1% | (1,653) | -11% | 13,721 | 1% | |||
Total loans | $ 1,501,301 | $ 1,536,270 | $ (34,969) | -2% | $ 1,503,624 | ||||||
Table 20 | |||||||
AVERAGE BALANCE SHEETS | |||||||
(Dollars in thousands) | Q4 | Q4 | Q3 | Year to date | Year to date | ||
2011 | 2010 | 2011 | 2011 | 2010 | |||
Cash and due from banks | $ 53,829 | $ 51,044 | $ 54,156 | $ 52,258 | $ 48,976 | ||
Federal funds sold | 3,184 | 3,996 | 3,275 | 3,796 | 6,194 | ||
Interest-bearing deposits in other banks | 20,530 | 142,398 | 49,918 | 67,332 | 188,925 | ||
Total cash and cash equivalents | 77,543 | 197,438 | 107,349 | 123,386 | 244,095 | ||
Investment securities | 783,948 | 646,776 | 782,324 | 734,893 | 606,099 | ||
Total loans | 1,498,437 | 1,556,975 | 1,515,091 | 1,516,409 | 1,622,445 | ||
Allowance for loan losses | (36,101) | (42,208) | (38,529) | (38,456) | (42,003) | ||
Loans, net | 1,462,336 | 1,514,767 | 1,476,562 | 1,477,953 | 1,580,442 | ||
Total interest-earning assets | 2,309,396 | 2,351,927 | 2,351,828 | 2,324,016 | 2,425,073 | ||
Other assets |
The following table presents information about the Company's total performing delinquent loans.
Table 21 | |||||
DELINQUENT LOANS 30-89 DAYS PAST DUE AS A % OF LOAN CATEGORY | |||||
(Dollars in thousands) | December 31, | December 31, | September 30, | ||
2011 | 2010 | 2011 | |||
Commercial loans | 0.23% | 0.02% | 0.21% | ||
Real estate construction loans | 0.00% | 0.00% | 0.00% | ||
Real estate mortgage loans | 0.74% | 0.59% | 0.20% | ||
Commercial real estate loans | 0.14% | 0.07% | 0.50% | ||
Installment and other consumer loans | 0.41% | 0.34% | 0.64% | ||
Total delinquent loans 30-89 days past due | $ 4,273 | $ 2,721 | $ 5,556 | ||
Delinquent loans to total loans | 0.28% | 0.18% | 0.37% | ||
The following table presents information regarding common shares outstanding at December 31, 2011on an actual and diluted basis.
Table 22 | ||||||
COMMON SHARE AND DILUTIVE SHARE INFORMATION | ||||||
(Shares in thousands, restated for reverse stock split) | ||||||
Number | ||||||
of shares | ||||||
Common shares outstanding at December 31, 2011 | 19,298 | |||||
Common shares issuable on conversion of series B preferred stock (1) | 1,213 | |||||
Dilutive impact of warrants (2) (3) | 860 | |||||
Dilutive impact of stock options and restricted stock (3) | 69 | |||||
Total potential dilutive shares (4) | 21,440 | |||||
(1) 121,328 shares of series B preferred stock outstanding at December 31, 2011. | ||||||
(2) Warrants to purchase 240,000 common shares at a price of $100 per series B preferred share outstanding at December 31, 2011. | ||||||
(3) The estimated dilutive impact of warrants, options, and restricted stock is shown. These figures are calculated | ||||||
under the treasury method utilizing an average stock price of $15.59 for the period and do not reflect the number | ||||||
of common shares that would be issued if securities were exercised in full. | ||||||
(4) Potential dilutive shares is a non-GAAP figure and not the weighted average diluted shares calculated in | ||||||
accordance with GAAP. | ||||||
SOURCE West Coast Bancorp
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