Key Highlights

  • WCCB reported third-quarter net income of $16.7 million, up 38.8% from $12.1 million a year earlier, or $1.59 per diluted share ($1.50 adjusted).
  • Net interest margin was 5.18%, up from 4.90% in the second quarter, and the efficiency ratio was 42.31%.
  • Total loans reached $2.34 billion, up 9.9% year over year, and deposits were $2.56 billion.
  • The provision for loan losses fell to $275,000, with net recoveries of $1.2 million.
  • The quarterly dividend rose $0.04 to $0.29 per share, and book value per share was $38.25.

West Coast Community Bancorp Earnings: What Drove a 38.8% Jump in Net Income?

West Coast Community Bancorp (NASDAQ:WCCB) reported third-quarter results on Tuesday, October 27, with net income of $16.7 million, up 38.8% from $12.1 million a year earlier and 37.7% from $12.2 million in the second quarter. GAAP diluted earnings were $1.59 per share, and adjusted diluted earnings were $1.50 per share. The earnings screen showed $1.50 against $1.35 expected, as screened.

The GAAP figure included a $920,000 income tax benefit from buying renewable energy tax credits at a discount, worth about $0.09 per share. The second quarter had included $1.8 million of accelerated accretion, worth about $0.12 per share, tied to redeeming subordinated debentures.

The Santa Cruz, California holding company runs West Coast Community Bank across the Central Coast and Silicon Valley. The chief executive called the quarter a record for earnings.

Net Interest Margin: Why Did It Rebound to 5.18%?

Net interest income was $37.1 million, up 7.2% from a year earlier. The GAAP margin was 5.18%, compared with 4.90% in the second quarter and 5.26% a year ago. The adjusted taxable-equivalent margin was 5.20%.

Cost of funds fell to 1.31% from 1.59% in the second quarter.

Noninterest expense was $16.3 million versus $15.5 million, with professional fees rising to $779,000 from $439,000 as the company became an SEC registrant and joined Nasdaq. The efficiency ratio improved to 42.31% from 43.13% a year earlier. Return on average equity was 16.44%.

Loans, Deposits and Credit: Is Growth Coming With Clean Underwriting?

Total loans rose $65.6 million, or 2.9%, in the quarter to $2.34 billion. Growth was led by revolving commercial lines, up 30.7% to $282.7 million and concentrated in agriculture-related credits.

Deposits were $2.56 billion, with noninterest-bearing balances at $996.6 million, or 39.0% of the total, down from 43.5% a year earlier. The gross loan-to-deposit ratio was 91.46%.

The provision for loan losses was $275,000 versus $3.5 million a year earlier, and the quarter recorded $1.2 million of net recoveries. The allowance was 1.57% of loans. Nonaccrual loans were $11.9 million, or 0.51% of loans.

Capital and Dividend: What Does the $0.29 Payout Signal?

The board declared a quarterly dividend of $0.29 per share, up $0.04, payable on or about November 6 to holders of record on November 2. Common equity Tier 1 capital was 13.33%, and the Tier 1 leverage ratio was 12.07%. Tangible book value per share was $32.46.

Net unrealized securities losses grew to $23.8 million from $9.0 million in June. Net available liquidity of $1.63 billion covered about 120% of uninsured, uncollateralized deposits.

What to Watch Next: Can the Margin Hold Near 5.20%?

The release gave no numeric earnings guidance. The items to follow are whether the adjusted margin holds near 5.20%, how the Silicon Valley and private banking expansion adds to loans and deposits, and how the shift away from noninterest-bearing deposits affects funding costs.