West Coast Community Bancorp, Parent Company of Santa Cruz County Bank, Reports Earnings for the Quarter Ended September 30, 2024
Board Declares Increase in Quarterly Cash Dividend
SANTA CRUZ, Calif., Oct. 22, 2024 /PRNewswire/ -- West Coast Community Bancorp ((", Bancorp", , OTCQX:SCZC), the parent company of Santa Cruz County Bank (the "Bank"), announced unaudited earnings for the third quarter ended September 30, 2024. Net income for the quarter was $8.2 million, compared to $8.2 million in the prior quarter and $9.1 million in the quarter ended September 30, 2023. Year-to-date earnings for the nine-month period ended September 30, 2024 were $25.7 million, compared to $26.3 million for the same period in 2023. The decrease from prior year primarily reflects pre-tax merger related expenses totaling $772 thousand year-to-date in 2024.
President and CEO, Krista Snelling commented: "We are pleased to report continued strong financial results for the third quarter, including a net interest margin of 4.92%, efficiency ratio of 43.65% and return on average assets of 1.94% (excluding merger-related costs).
We look forward to reporting consolidated financials in the fourth quarter resulting from the successful close of our merger with 1st Capital Bank on October 1, 2024. On a pro forma basis, assets will increase to nearly $2.8 billion, allowing for more efficient delivery of advanced technology and greater lending capacity to serve a broader geographic region. We extend a warm welcome to our new team members, directors and clients throughout the Central Coast."
On October 17, 2024, the Board of Directors of Bancorp declared a quarterly cash dividend of $0.18 per common share, payable on November 12, 2024 to shareholders of record at the close of business on November 5, 2024.
"It is a pleasure to welcome new shareholders as the result of our merger and to reward all shareholders, including our incoming 1st Capital shareholders, with a quarterly cash dividend which is increased by $0.01 from the prior quarter," said Stephen Pahl, Chairman of the Board of Directors. "This declaration is supported by our liquidity, financial strength and commitment to building long-term shareholder value, which will be particularly enhanced by our new clients and team members from 1st Capital."
Financial Highlights
Performance highlights as of and for the quarter ended September 30, 2024, included the following:
Quarterly net income of $8.2 million was consistent with prior quarter despite increases in noninterest expenses resulting from merger and rebranding expenses. Net income decreased 10% from $9.1 million in the quarter ended September 30, 2023. Net income for the nine-month period ended September 30, 2024 was $25.7 million, a decrease of 2% from $26.3 million over the nine-month period of the prior year.
Basic and diluted earnings per share in the third quarter of 2024 were $0.98 and $0.96, respectively. Basic earnings per share was the same as prior quarter while diluted earnings per share was down $0.01. Basic and diluted earnings per share in the third quarter of 2024 decreased over the prior year comparative quarter by $0.11 and $0.12, respectively. Merger expenses affected third quarter 2024 diluted earnings per share by $0.04, compared to $0.03 in the second quarter of 2024. Basic and diluted earnings per share in the first nine months of 2024 decreased compared to 2023 by $0.06 and $0.07, respectively.
Total assets were $1.80 billion as of September 30, 2024, an increase of $88.9 million or 5% compared to June 30, 2024, and an increase of $27.6 million or 2% compared to September 30, 2023.
The Bank's liquidity position remains healthy according to banking industry standards. Primary liquidity ratio, defined as cash and equivalents, deposits held in other banks and unpledged available-for-sale ("AFS") securities as a percentage of total assets, was 14.5% and 11.7% at September 30 and June 30, 2024, respectively.
Deposits totaled $1.53 billion at September 30, 2024, an increase of $95.3 million or 7%, compared to June 30, 2024, and a decrease of $1.9 million compared to September 30, 2023. Brokered deposits decreased $7.0 million and relationship deposits, i.e. deposits gathered outside of wholesale channels, increased $102.3 million compared to June 30, 2024. The increase in deposits over prior quarter-end is largely the result of seasonal deposit inflows driven by tourism in our region and increases in local agency deposits, as well as $21.6 million in deposit growth attributable to new deposit client relationships established in the third quarter.
Gross loans totaled $1.39 billion at September 30, 2024, an increase of $7.5 million or 1%, compared to June 30, 2024, and an increase of $19.3 million or 1%, compared to September 30, 2023. Loan growth during the third quarter of 2024 was led by construction loans, which saw a $12.7 million increase in outstanding balances and over $21.0 million in newly originated construction commitments. Outstanding balance of asset-based lines of credit ("ABL") increased by $5.1 million, driven by the origination of $11.1 million in new asset-based commitments.
Nonaccrual loans totaled $2.4 million, or 0.17% of gross loans, as of September 30, 2024, due to a past-due commercial real estate loan that is well-secured, with no loss anticipated. No loan was on nonaccrual status as of June 30, 2024.
The allowance for credit losses ("ACL"), reflecting management's reasonable estimate of credit losses for the expected life of the loans in the portfolio, totaled $23.1 million, or 1.66% of total loans at September 30, 2024, compared to $23.0 million, or 1.66% at June 30, 2024.
The provision for credit losses, including funded and unfunded credit commitments, was $100 thousand during the third quarter of 2024, while no provision was booked in the second quarter and an $858 thousand provision was recognized in the third quarter in 2023. The provision expense in the third quarter of 2024 was due to loan growth during the quarter totaling $7.5 million
Net interest margin was 4.92% in the third quarter of 2024, compared to 4.98% in the prior quarter and 4.91% for the third quarter in 2023. The decrease from prior quarter was the result of $292 thousand of prepayment penalties and accelerated fee recognition associated with the early payoff of an asset-based line of credit and a commercial real estate loan that occurred in the second quarter. Net interest margin was 4.92% for the first nine months of 2024, compared to 4.98% for the nine months ended September 30, 2023. The decrease from the prior year was primarily driven by increased funding costs, partially offset by higher yields on interest-earning assets.
For the quarters ended September 30, 2024 and June 30, 2024, return on average assets was 1.87% and 1.93%, respectively, return on average equity was 12.95% and 13.63%, respectively, and return on average tangible equity was 14.52% and 15.37%, respectively. For the nine months ended September 30, 2024 and 2023, return on average assets was 1.98% and 2.02%, respectively, return on average equity was 14.15% and 16.90%, respectively, and return on average tangible equity was 15.94% and 19.49%, respectively. Please see "Merger with 1st Capital Bancorp" below for the impact of merger expenses.
The efficiency ratio was 45.76% for the third quarter of 2024, as compared to 45.30% in the prior quarter and 38.23% in the third quarter of 2023. The efficiency ratio was 44.62% and 39.83% for the nine months ended September 30, 2024 and 2023, respectively. Merger costs impacted our efficiency ratio by 211 basis points in the third quarter of 2024 and 120 basis points year-to-date.
All capital ratios were above regulatory requirements for a well-capitalized institution with a total risk-based capital ratio of 16.62% at September 30, 2024 compared to 16.22% at June 30, 2024. Tangible common equity to tangible asset ratio was 12.94% at September 30, 2024 compared to 13.00% at June 30, 2024.
Tangible book value per share increased to $27.20 at September 30, 2024 from $25.95 at June 30, 2024 and $22.65 at September 30, 2023.
Merger with 1st Capital Bancorp
The merger between West Coast Community Bancorp and 1st Capital Bancorp was completed on October 1, 2024. The financial condition and results of operation of the consolidated company will be reflected in the 2024 fourth quarter results. At the effective time of the closing, each share of 1st Capital Bancorp common stock was converted into the right to receive 0.36 shares of common stock of Bancorp. As a result, 2,071,483 Bancorp shares were issued as of October 1, 2024.
Expenses related to the merger totaled $455 thousand during the third quarter of 2024 and $772 thousand year-to-date, compared to $317 thousand in the second quarter of 2024. These expenses negatively impacted return on average assets by seven basis points quarter-to-date and four basis points year-to-date and return on average equity by 51 basis points quarter-to-date and 30 basis points year-to-date.
Interest Income / Interest Expense and Net Interest Margin
Net interest income of $20.5 million in the third quarter of 2024 increased $295 thousand from $20.2 million for the quarter ended June 30, 2024, due largely to one additional day of interest income. The Bank's cost of funds decreased four basis points from 1.54% in the second quarter of 2024 to 1.50% in the third quarter of 2024. The decrease in cost of funds was primarily due to the inflow of noninterest-bearing deposits in the third quarter which decreased our reliance on brokered deposits and overnight borrowings, partially offset by continued upward pressure on in-market deposits.
For the third quarter of 2024, net interest margin was 4.92%, compared to 4.98% in the second quarter of 2024 and 4.91% for the corresponding quarter in 2023. The decrease from the prior quarter was largely due to $292 thousand in prepayment fees associated with the payoff of a large asset-based line of credit and a commercial real estate loan in the second quarter. For the nine months ended September 30, 2024, net interest margin was 4.92%, compared to 4.98% for the corresponding period in 2023. The decrease from prior year reflected rising costs of funds, partially offset by the benefit from higher yields on interest-earning assets.
The following tables compare interest income, average interest-earning assets, interest expense, average interest-bearing liabilities, net interest income, net interest margin and cost of funds for each period reported.
For the Quarter Ended
September 30, 2024
June 30, 2024
(Dollars in thousands)
AverageBalance
InterestIncome/Expense
AvgYield/Cost
AverageBalance
InterestIncome/Expense
AvgYield/Cost
ASSETS
Interest-earning due from banks
$ 50,939
$ 674
5.26 %
$ 18,747
$ 204
4.38 %
Investments
217,976
892
1.63 %
224,629
959
1.72 %
Loans
1,389,123
24,498
7.02 %
1,388,657
24,614
7.13 %
Total interest-earning assets
1,658,038
26,064
6.25 %
1,632,033
25,777
6.35 %
Noninterest-earning assets
81,886
82,547
Total assets
$ 1,739,924
$ 1,714,580
LIABILITIES
Interest checking deposits
$ 192,209
540
1.12 %
$ 201,446
500
1.00 %
Money market deposits
446,309
3,312
2.95 %
417,622
2,887
2.78 %
Savings deposits
89,006
142
0.63 %
94,086
133
0.57 %
Time certificates of deposits
138,536
1,240
3.56 %
136,320
1,159
3.42 %
Brokered deposits
23,859
313
5.21 %
61,326
818
5.37 %
Borrowings
33
--
5.76 %
4,060
58
5.74 %
Total interest-bearing liabilities
889,952
5,547
2.48 %
914,860
5,555
2.44 %
Noninterest-bearing deposits
581,545
539,791
Other noninterest-bearing liabilities
16,579
17,570
Total liabilities
1,488,076
1,472,221
EQUITY
251,848
242,359
Total liabilities and equity
$ 1,739,924
$ 1,714,580
Net interest income /margin
$ 20,517
4.92 %
$ 20,222
4.98 %
Cost of funds
1.50 %
1.54 %
For the Nine Months Ended
September 30, 2024
September 30, 2023
(Dollars in thousands)
AverageBalance
InterestIncome/Expense
AvgYield/Cost
AverageBalance
InterestIncome/Expense
AvgYield/Cost
ASSETS
Interest-earning due from banks
$ 33,250
$ 1,090
4.38 %
$ 38,358
$ 1,042
3.63 %
Investments*
231,836
2,915
1.68 %
299,184
3,284
1.47 %
Loans
1,391,683
73,493
7.05 %
1,317,840
64,952
6.59 %
Total interest-earning assets*
1,656,769
77,498
6.25 %
1,655,382
69,278
5.60 %
Noninterest-earning assets
78,556
81,991
Total assets
$ 1,735,325
$ 1,737,373
