LONGVIEW, Wash., July 29 /PRNewswire-FirstCall/ --
Flash Results Cowlitz Bancorporation (Numbers in Thousands, Except Per Share Data) Three Months Ending Six Months Ending June 30, March 31, June 30, June 30, 2008 2007 2008 2008 2007 Net Interest Income $5,735 $5,540 $5,402 $11,137 $11,292 Provision for Credit Losses $13,002 $0 $593 $13,595 $275 Net Income (Loss) ($8,091) $673 $902 ($7,189) $1,951 Diluted EPS ($1.60) $0.13 $0.18 ($1.42) $0.38 Total Period End Loans $428,187 $382,711 Total Period End Deposits $465,372 $418,010
Cowlitz Bancorporation and its wholly-owned subsidiary Cowlitz Bank announced today that the Company's net loss for the quarter ended June 30, 2008 was $8.1 million, or ($1.60) per diluted share, compared with net income of $673,000, or $0.13 per diluted share, during the same period of 2007. For the first six months of 2008, the Company's net loss was $7.2 million, compared with net income of $2.0 million in the first half of 2007.
"The Company's second quarter 2008 results reflected the unfavorable conditions in the residential real estate market that have resulted in declining real estate valuations and have affected home builders and developers of residential real estate properties ability to repay loans. Our non-performing assets today remain concentrated in a few problem loans related to residential real estate development. We have taken aggressive and timely actions to best position the Bank to manage effectively through this economic cycle," stated Mr. Fitzpatrick.
"Cowlitz Bank continues to have excellent liquidity with a solid deposit base, approximately $100 million of borrowing capacity with the FHLB and capital ratios in excess of regulatory levels required to be 'well-capitalized,'" he added. The table below illustrates the capital ratios for Cowlitz Bancorporation consolidated and Cowlitz Bank.
Adequately To Be Well- Actual Capitalized Capitalized (dollars in thousands) Amount Ratio Amount Ratio Amount Ratio June 30, 2008 Total risk-based capital: Consolidated $59,439 12.22% $38,920 >/=8.00% N/A N/A Bank $57,247 11.79% $42,366 >8.00% $48,557 >10.00% Tier 1 risk-based capital: Consolidated $53,257 10.95% $19,460 >/=4.00% N/A N/A Bank $51,075 10.52% $19,423 >/=4.00% $29,134 >/=6.00% Tier 1 (leverage) capital: Consolidated $53,257 10.06% $21,183 >4.00% N/A N/A Bank $51,075 9.63% $21,215 >/=4.00% $26,519 >/=5.00%
The provision for credit losses was $13.0 million in the second quarter of 2008. There was no provision in the second quarter of 2007 and $593,000 in the first quarter of 2008. Net loan charge-offs were $5.2 million in the second quarter of 2008. Consistent with regulatory guidelines and industry trends, the Company has accelerated the charge off of impairment reserves to the period when estimated collateral values are less than the loan balance for collateral dependent loans. Previously, the Company would recognize the charge-off on certain loans when the loan was resolved, sold or foreclosed on. As of June 30, 2008, the Company's non-accrual loans are carried at management's estimate of net realizable value.
"We have extensively reviewed our loan portfolio and believe that we are appropriately reserved at this time," stated Ernie D. Ballou, Vice President and Chief Credit Administrator. "We are actively working with a relatively small number of customers and our bank-owned properties to resolve these issues as quickly as possible; however, given the current state of the real estate markets, it is prudent to expect a potentially lengthy time to resolution. Our single family residential portfolio continues to have minimal delinquencies."
The allowance for loan losses increased to 161% of non-performing loans at June 30, 2008, compared with 30% of non-performing loans at June 30, 2007 and 78% at March 31, 2008. The increase in the allowance for loan losses is primarily the result of an increasing risk profile in the Bank's land acquisition and development portfolio, as builder/developers are experiencing reduced cash flows due to sluggish sales and collateral values have fallen sharply. The allowance for loan losses increased to 3.28% of loans outstanding at June 30, 2008, compared with 1.27% in the same quarter last year and 1.50% at March 31, 2008.
Total non-performing assets were $12.9 million at June 30, 2008, down from $16.9 million at June 30, 2007 and $14.0 million at March 31, 2008. As a percentage of total assets, non-performing assets were 2.44% at June 30, 2008, compared with 3.45% at June 30, 2007 and 2.56% at March 31, 2008.
Non-accrual loans at June 30, 2008 consisted of four relationships totaling $8.6 million. All of these relationships related to land acquisition and development loans in Oregon and Washington. During the second quarter of 2008, the Company charged off to the allowance for loan losses two smaller relationships totaling $720,000 and recorded charge-offs on two other real estate related relationships totaling approximately $3.2 million. Two new real estate related relationships were placed on nonaccrual in the quarter, totaling approximately $4.5 million.
Other real estate owned (OREO) totaled $3.9 million at June 30, 2008, down $2.1 million from $6.0 million at March 31, 2008. The decrease was primarily due to asset write-downs in the quarter totaling approximately $2.0 million to reflect recent appraisals and management's assessment of amounts ultimately collectible on disposition of the properties. OREO at June 30, 2008 consisted primarily of one residential real estate development project and one parcel of land in the Portland, Oregon area.
Total loans increased 12% to $428.2 million, up from $382.7 million at June 30, 2007, with loans growing at an annualized rate of 12% in the second quarter of 2008. The Company's loan mix continues to reflect a business banking focus. As land development and construction loan maturities occur, the Company intends to shift its loan mix to increase commercial and industrial loans. Total deposits increased 11% to $465.4 million at June 30, 2008 from $418.0 million at June 30, 2007.
Net interest margin as a percentage was 4.87% for the second quarter of 2008, compared with 5.09% in the second quarter of 2007 and 4.65% in the first quarter of 2008. Net interest income was $5.7 million in the second quarter of 2008, compared with $5.5 million in the same quarter last year and $5.4 million in the first quarter of 2008. The second quarter 2008 net interest margin was affected by several factors, including rate cuts by the Federal Reserve of approximately 300 basis points between September 2007 and May 2008, continued competitive market pricing on both sides of the balance sheet, the level of nonperforming loans and a lower level of noninterest-bearing demand deposit accounts year-over-year.
"Deposit rates are generally slow to fall relative to the rate of decline in the Federal Reserve's target federal funds rate. The Bank is beginning to see the effect of declining rates on overall deposit costs as the average rate on interest-bearing liabilities fell to 3.36% in the second quarter of 2008 from 4.02% in the first quarter and 4.26% in the second quarter a year ago. This reduction, combined with our hedging strategy, improved our margin this quarter," said Mr. Fitzpatrick. The net settlement from interest rate contracts contributed $820,100 to net interest income in the second quarter of 2008, compared with $431,200 in the first quarter of 2008 and payments to counterparties of $57,000 in the second quarter of 2007.
The 2008 net interest margins were also affected by the Company's election to redeem $45.1 million in callable certificates of deposit, with $21.5 million settling in March of 2008 and the balance in the second quarter of 2008. The new certificates of deposit have an approximately 140 basis point lower average cost and a slightly longer duration. In connection with the redemptions, the Company wrote off all unamortized premiums associated with those deposits. The deposit premium write-off increased the average cost of interest-bearing liabilities and decreased the net interest margin by approximately 6 basis points in the second quarter of 2008, and increased the average cost of interest-bearing liabilities by 13 basis points and decreased the margin by 10 basis points in the first quarter of 2008. The margin in the second quarter of 2007 was lower by approximately 25 basis points as the result of interest reversals on non-accrual loans in that quarter.
Non-interest income in the second quarter of 2008 included securities losses of $432,000. Of this loss, $200,000 was related to the sale of four mortgage-backed securities. The balance of $232,000 was due to the recognition of an other-than-temporary impairment charge on one FNMA investment grade perpetual callable preferred security, reflecting the extraordinarily unsettled equity market for government-sponsored enterprises. Excluding securities losses, non-interest income was $879,000 for the second quarter of 2008 compared with $909,000 in the same quarter of last year.
Non-interest expenses in the second quarter of 2008 were $6.9 million, up $1.4 million from the second quarter of 2007. The increase was primarily due to higher foreclosed asset expenses of $1.6 million related to the OREO write-downs in the second quarter of 2008, offset partially by a $417,000 reduction in the non-cash charge for the ineffective portion of the Company's cash flow hedges.
On a year-to-date basis, net occupancy and equipment expenses in the first half of 2008 were higher than the first half of 2007 primarily due to higher levels of depreciation related to branch remodeling and related asset acquisitions in mid-2007. Professional services were down significantly in the first half of 2008 compared with the first half of 2007. The Company has experienced a higher level of legal costs related to nonperforming loans in the first half of 2008, while costs associated with Sarbanes-Oxley compliance efforts were significantly lower. Included in other expenses were deposit premium assessments of $187,000 in the first half of 2008, compared with $24,000 in the first half of 2007.
The Company's effective tax rate for the first six months of 2008 was 43%, compared with 26% for the first six months of 2007. When the Company incurs a pre-tax loss, its effective tax rate is higher than the Federal statutory rate of 35% primarily due to tax-exempt income related to the municipal securities portfolio and investments in bank-owned life insurance. The Company's effective tax rate for interim periods is based on projections of taxable income for the full year and is affected by the relative amounts of taxable and non-taxable income and the amount of available tax credits.
Cowlitz Bancorporation is the holding company of Cowlitz Bank, which was established in 1977. In addition to its four branches in Cowlitz County Washington, Cowlitz Bank's divisions include Bay Bank located in Bellevue, Seattle, and Vancouver, Washington; Portland and Wilsonville, Oregon; and Bay Mortgage in southwest Washington. Cowlitz specializes in commercial and international banking services for Northwest businesses, professionals, and retail customers, and offers trust services in southwest Washington and Portland, Oregon.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the "Safe-Harbor" provisions of the Private Securities Litigation Reform Act of 1995, which management believes are a benefit to shareholders. You should not place undue reliance on forward-looking statements and we undertake no obligation to update any such statements. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements. Forward-looking statements are subject to risks and uncertainties. Actual results could differ materially from those discussed in this press release as a result of risk factors identified in the Company's Form 10-K for the year ended December 31, 2007, and other filings with the SEC. We make forward-looking statements in this release related to the Company's ability to manage through the current economic cycle.
INCOME STATEMENT Quarter Ending Six Months Ending June 30, June 30, March 31, June 30, June 30, 2008 2007 2008 2008 2007 Interest income $8,932 $9,024 $9,147 $18,079 $17,792 Interest expense 3,197 3,484 3,745 6,942 6,500 Net interest income 5,735 5,540 5,402 11,137 11,292 Provision for credit losses 13,002 - 593 13,595 275 Net interest income after provision for credit losses (7,267) 5,540 4,809 (2,458) 11,017 Non-interest income Service charges on deposit accounts 179 171 164 343 337 Fiduciary income 163 174 173 336 364 International trade fees 135 133 200 335 279 Increase in cash surrender value of bank owned life insurance 154 137 152 306 273 Securities losses (432) - - (432) - Other income 248 294 273 521 562 Total non-interest income 447 909 962 1,409 1,815 Non-interest expense Salaries and employee benefits 2,500 2,419 2,507 5,007 4,915 Net occupancy and equipment expense 630 553 617 1,247 1,092 Data processing and communication 231 210 215 446 470 Professional fees 208 384 263 471 771 Foreclosed asset expense (income) 2,036 422 (162) 1,874 422 Equity in limited partnerships losses 61 36 31 92 85 Interest rate contracts valuation adjustment 89 506 228 317 633 Other expenses 1,169 1,014 911 2,080 1,798 Total non-interest expense 6,924 5,544 4,610 11,534 10,186 Income (loss) before provision for income taxes (13,744) 905 1,161 (12,583) 2,646 Provision (benefit) for income taxes (5,653) 232 259 (5,394) 695 Net income (loss) $(8,091) $673 $902 $(7,189) $1,951 Earnings (loss) per share: Basic $(1.60) $0.14 $0.18 $(1.42) $0.40 Diluted $(1.60) $0.13 $0.18 $(1.42) $0.38 Weighted average shares outstanding: Basic 5,055,621 4,944,457 5,054,473 5,055,047 4,922,595 Diluted 5,055,621 5,191,600 5,093,039 5,055,047 5,185,684 Shares outstanding at period end 5,067,379 4,950,975 5,054,507 5,067,379 4,950,975 Efficiency ratio (1) 112.0% 86.0% 72.4% 91.9% 77.7% Number of full-time equivalent employees 129 142 (1) Non-interest expense divided by net interest income plus non-interest income. Quarter Ending Six Months Ending June 30, June 30, March 31, June 30, June 30, SELECTED AVERAGES 2008 2007 2008 2008 2007 Average loans $425,731 $382,440 $412,907 $419,319 $369,672 Average interest-earning assets 485,386 442,845 479,510 482,449 431,455 Total average assets 534,410 485,801 526,697 530,553 473,109 Average deposits 457,367 412,573 452,587 454,976 401,183 Average interest-bearing liabilities 382,367 327,728 374,677 378,521 315,185 Average equity 57,152 53,201 56,252 56,702 52,227 June 30, June 30, March 31, SELECTED BALANCE SHEET ACCOUNTS 2008 2007 2008 Total assets $530,310 $489,954 $548,450 Securities available for sale 43,538 53,454 50,669 Loans (bank regulatory classification): Real estate secured: One to four family residential 37,130 41,680 37,255 Multifamily 3,937 8,137 6,035 Construction 125,254 99,051 114,025 Commercial real estate 165,308 149,357 161,524 Total real estate 331,629 298,225 318,839 Commercial and industrial 93,130 81,454 94,120 Consumer and other 4,547 3,838 3,677 429,306 383,517 416,636 Deferred loan fees (1,119) (806) (1,162) Loans, net of deferred loan fees 428,187 382,711 415,474 Goodwill and other intangibles 1,798 1,885 1,807 Deposits: Non-interest-bearing demand 86,984 100,084 87,501 Savings and interest-bearing demand 30,783 31,856 33,337 Money market 78,839 69,516 93,345 Certificates of deposits 268,766 216,554 258,126 Total deposits 465,372 418,010 472,309 Borrowings 563 1,051 1,081 Junior subordinated debentures 12,372 12,372 12,372 Stockholders' equity 48,235 52,601 59,196 Book value per share $9.52 $10.62 $11.71 Tangible book value per share $9.16 $10.24 $11.35 Quarter Ending Six Months Ending June 30, June 30, March 31, June 30, June 30, RATIOS ANNUALIZED 2008 2007 2008 2008 2007 Return on average assets -6.09% 0.56% 0.69% -2.72% 0.83% Return on average equity -56.94% 5.07% 6.45% -25.50% 7.53% Return on average tangible equity -58.79% 5.26% 6.67% -26.33% 7.83% Average equity/average assets 10.69% 10.95% 10.68% 10.69% 11.04% Yield on interest-earning assets (TE) 7.52% 8.25% 7.79% 7.66% 8.39% Rate on interest-bearing liabilities 3.36% 4.26% 4.02% 3.69% 4.16% Net interest spread (TE) 4.16% 3.99% 3.77% 3.97% 4.23% Net interest margin (TE) 4.87% 5.09% 4.65% 4.76% 5.36% TE -- Tax exempt interest income has been adjusted to a taxable equivalent basis using a 34% tax rate. Quarter Ending Six Months Ending June 30, June 30, June 30, June 30, ALLOWANCE FOR CREDIT LOSSES 2008 2007 2008 2007 Balance at beginning of period $6,425 $5,098 $5,990 $4,825 Provision for credit losses 13,002 - 13,595 275 Recoveries 15 148 27 172 Charge-offs (5,195) (61) (5,365) (87) Balance at end of period $14,247 $5,185 $14,247 $5,185 Components Allowance for loan losses $14,033 $4,875 Liability for unfunded credit commitments 214 310 Total allowance for credit losses $14,247 $5,185 Allowance for loan losses/total loans 3.28% 1.27% Allowance for credit losses/total loans 3.33% 1.35% Allowance for loan losses/non- performing loans 161% 30% Allowance for credit losses/non- performing loans 163% 32% June 30, June 30, March 31, NON-PERFORMING ASSETS 2008 2007 2008 Loans on non-accrual status $8,635 $16,278 $7,985 Loans past due greater than 90 days and accruing 98 - - Other real estate owned 3,925 - 6,046 Other foreclosed assets 285 618 9 Total non-performing assets $12,943 $16,896 $14,040 Total non-performing loans to total loans 2.04% 4.25% 1.92% Total non-performing assets/total assets 2.44% 3.45% 2.56%
