WEST COAST BANCORP 
By 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 million or $.83 per diluted share for the fourth quarter of 2011 compared to net income of $1.9 million or $.09 per diluted share in the same quarter of 2010. Net income for the full year 2011 was $33.8 million or $1.58 per diluted share, up from net income of $3.2 million or $.16 per diluted share in 2010.
"Net income of $33.8 million for the year ended December 31, 2011, compared to $3.2 million for 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 million in expenses associated with its ongoing cost reduction initiatives in the quarter ended December 31, 2011. In addition, the Company prepaid $80 million of FHLB term borrowings in the fourth quarter, incurring a $4.4 million prepayment charge. As a result of this and the $88 million FHLB prepayment in the third quarter of 2011, the Company estimates a net reduction in interest expense related to term borrowings of approximately $3.2 million in 2012. The cumulative effect of all these actions is projected to improve pre-tax income by approximately $5.8 to $6.0 million in 2012.
IMPACT FROM
EXPENSE
REDUCTION
INITIATIVES AND
Table 1 FHLB PREPAYMENTS
Q4 expense Q3 expense Full-year expense Estimated
annual pre-
(Dollars in thousands) associated with associated with associated with tax
income
Corporate action: initiatives initiatives initiatives 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, 2011 and 2010.
Table 2
SUMMARY FINANCIAL INFORMATION
Qtr. Qtr. Year-to- Year-to-
ended ended date 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
(1) Adjusted for the impact of allocating net income to participating
instruments, restricted stock and preferred Series B stock.
(2) Adjusted for the impact of calculating earnings per share under the
two-class method.
Please see Table 22 for additional information regarding outstanding shares
and the possible dilutive effects of presently outstanding securities.
Balance Sheet Overview
Fourth quarter 2011 average total loan balances of $1.49 billion declined 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 million or 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 million or 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 December December September
thousands) 31, % of 31, % of Change 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
========== ========== ======== ==========
Yield on
loans 5.19% 5.43% (0.24) 5.25%
While the collective balance of cash equivalents and investment securities declined $111 million from September 30, 2011, the Company's year-end 2011 liquidity position remained strong. Combined cash equivalents and investment securities balance totaled $762 million or 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 million while increasing its investment securities portfolio by $84 million since 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 December December September
thousands) 31, 31, Change 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 billion declined 2% or $37 million from the same quarter in 2010. With excess balance sheet liquidity, the Company continued to reduce higher cost time deposit balances, which declined $102 million or 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 million grew $83 million or 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 million in term FHLB borrowings in the most recent quarter. In addition, the Company elected to enter into $70 million in 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 million that 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
September
December 31, December 31, 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 million increased $15.9 million compared to net income of $1.9 million in the corresponding quarter of 2010. The Company recorded a benefit for income taxes of $17.6 million in 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 million in the same quarter last year. Fourth quarter 2011 income before income taxes was $.1 million, a decline from $5.5 million in the same quarter of 2010. Excluding the $4.4 million FHLB prepayment charge and $1.0 million in 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 million decreased $3.9 million from the same quarter in 2010, mainly as a result of the $4.4 million prepayment 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 million higher 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)
Impact of FHLB prepayment
premium in 2011 -0.75% 0.00% (0.75) -0.47% (0.28)
Net interest margin
excluding FHLB prepayment
premium 3.88% 3.74% 0.14 3.78% 0.10
(1) Third and fourth quarter 2011 rate on average interest-bearing liabilities
includes 47 and 75 basis points respectively, of expense
associated with the prepayment of
FHLB borrowings.
As shown in Table 9 below, fourth quarter 2011 total noninterest income of $6.4 million declined $2.2 million from the same quarter last year. Fourth quarter deposit service charges declined $.7 million or 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 million or 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 million in the most recent quarter from a $1.2 million net 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 million from the same quarter in 2010 and was substantially unchanged over sequential quarters. Gains on sales of investment securities declined $.4 million year-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 million declined $.6 million from the same quarter in 2010. Other noninterest expense category declined $1.8 million year-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 million in the fourth quarter, total noninterest expense declined $.8 million or 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 million in 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 million declined by $3.8 million from $17.0 million in 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 Charge offs
as a 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 million in the same quarter of 2010 and up from $1.1 million in 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% 66%
Allowance
for
credit
losses
to
nonperforming
loans 89% 70% 78% 75% 67%
The allowance for credit losses was $36.0 million or 2.40% of total loans at December 31, 2011, compared to an allowance for credit losses of $41.1 million or 2.67% of total loans a year ago and $37.0 million or 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 million or 2.9% of total assets as of December 31, 2011, compared to $100.7 million and 4.1% of total assets a year ago and $83.1 million and 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 million or 34% to $40.6 million at 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 million while acquiring 15 properties with a book value of $9.2 million and recording OREO valuation adjustments totaling $1.9 million. The combination of these actions resulted in a $.6 million increase in total OREO in the quarter. At year end 2011, the OREO portfolio, which declined $8.6 million over 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 www.wcb.com 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 www.wcb.com and following the same instructions.
West Coast Bancorp is a publicly held, Northwest bank holding company headquartered in Oregon with $2.4 billion in assets, and the parent company of West Coast Bank and West Coast Trust Company, Inc. West Coast Bank operates 60 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.
Table 17
INCOME STATEMENT
Year-to- Year-to-
(Dollars in thousands) Q4 Q4 Change Q3 date 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 (35,212) (40,217) 5,005 12% (36,314)
------- ------- ----- --- -------
Loans,
net 1,466,089 1,496,053 (29,964) -2% 1,467,310
Total
interest-
earning
assets 2,267,446 2,321,611 (54,165) -2% 2,379,614
OREO,
net 30,823 39,459 (8,636) -22% 30,234
Other
assets 110,904 101,444 9,460 9% 92,967
------- ------- ----- --- ------
Total
assets $2,429,887 $2,461,059 $(31,172) -1% $2,521,247
========== ========== ======== === ==========
Liabilities
and
Stockholders'
Equity:
Demand $621,962 $555,766 $66,196 12% $649,326
Savings
and
interest-
bearing
demand 495,117 445,878 49,239 11% 502,586
Money
market 625,373 663,467 (38,094) -6% 651,904
Time
deposits 173,117 275,411 (102,294) -37% 186,962
------- ------- -------- --- -------
Total
deposits 1,915,569 1,940,522 (24,953) -1% 1,990,778
Borrowings
and
subordinated
debentures 171,000 219,599 (48,599) -22% 209,099
Reserve
for
unfunded
commitments 771 850 (79) -9% 702
Other
liabilities 28,068 27,528 540 2% 23,801
------ ------ --- --- ------
Total
liabilities 2,115,408 2,188,499 (73,091) -3% 2,224,380
Stockholders'
equity 314,479 272,560 41,919 15% 296,867
---
Total
liabilities
and
stockholders'
equity $2,429,887 $2,461,059 $(31,172) -1% $2,521,247
========== ========== ======== === ==========
Table 19
PERIOD END LOANS
(Dollars in September
thousands) Dec. 31, % of Dec. 31, % of Change 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 Year to
thousands) Q4 Q4 Q3 Year to date 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 122,493 126,179 120,972 124,562 145,235
------- ------- ------- ------- -------
Total
assets $2,446,320 $2,485,160 $2,487,207 $2,460,794 $2,575,871
========== ========== ========== ========== ==========
Demand $622,741 $566,998 $615,956 $592,630 $540,280
Savings
and
interest-
bearing
demand 493,541 454,185 478,333 474,719 438,665
Money
market 640,247 670,580 661,871 654,329 659,542
Time
deposits 179,288 281,009 196,807 217,149 388,500
------- ------- ------- ------- -------
Total
deposits 1,935,817 1,972,772 1,952,967 1,938,827 2,026,987
Borrowings
and
subordinated
debentures 189,635 217,256 220,354 212,237 264,589
------- ------- ------- ------- -------
Total
interest-
bearing
liabilities 1,502,711 1,623,030 1,557,365 1,558,434 1,751,296
Other
liabilities 23,245 18,858 22,779 23,332 18,486
Stockholders'
equity 297,623 276,274 291,107 286,398 265,809
------- ------- ------- ------- -------
Total
liabilities
and
stockholders'
equity $2,446,320 $2,485,160 $2,487,207 $2,460,794 $2,575,871
========== ========== ========== ========== ==========
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, 2011 on 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
